Czech VAT Changes

Czech Republic: Amendments to the VAT Act effective from 1/1/2015

The following changes have been made to the VAT Act:

Tax Rates
A second reduced tax rate of 10% has been introduced. This cover essential goods such as books, pharmaceuticals and baby nutrition.

Local Reverse-Charge
The local reverse-charge mechanism has been extended to other types of goods and services (e.g. mobile phones, laptops, game consoles) if the tax base exceeds CZK 100 thousand per tax document and with no limit in case of certain cereals and industrial crops, raw or semi-processed metals, and allowances for greenhouse gas emissions etc. Local reverse charge mechanism should be applicable also in case of sale of immovable property when the VAT payer opts for taxation even if the sale could be VAT exempt.

Mini-one-stop-shop (MOSS)
This was introduced with the change of the place of supply with regards to electronically supplied services, which is now the customer’s state of consumption. As discussed in a previous blog, this MOSS eliminates the necessity to register in each VAT member state, instead enabling a company to voluntarily register in only one Member State. For this state the company will file tax returns and pay tax which will then be sent to the Member State of consumption.

Place of supply
This has been redefined, both as place of residence and a place where a natural person resides.

Cash Payment and Liability limits
The threshold limits for cash payments were decreased, effective 1 December 2014, from CZK 350,000 to CZK 270,000. This will affect the VAT payers’ liability for amounts of VAT not paid by suppliers. If a VAT payer pays for delivered goods or services to a Czech bank account of a supplier that is not included in the VAT payer register, the limit for liability for the unpaid VAT decreases from CZK 700,000 to CZK 540,000.

Turnover calculation includes tax exempt supplies without entitlement to tax deduction, for hire of property, unless it is a supplementary activity carried out occasionally. The turnover limit for
registration in the amount of CZK 1,000,000 for the previous maximum of 12 consecutive calendar months remains in force. The planned reduction to CZK 750,000 will be cancelled if the amendment is approved.

Real estate
The VAT act is being vastly changed in real estate. Taxpayers will be able to use the option of taxation not only for buildings and built-up land, but also for undeveloped lands. If the option for taxation is used, the reverse charge mechanism will apply if the land or building is transferred by another VAT payer.

Changes to the rules for applying the reduced VAT rate of 15% for social housing, in the interpretation of the law regarding the calculation of the area of a social housing apartment. The floor area underneath the walls will be factored into the area of the apartment. However the area of the apartment will not include “apartment accessories”, e.g. basements, garages, provided that it is located in the same construction.

For further reading please see our earlier posts:

New VAT and GST Rates for 2015
EU 2015 VAT changes for American Companies