MPs voted on an amendment to the Value Added Tax Act (VAT), a major amendment that will modify nearly five hundred points of the law. Most of the changes will take effect as early as January 2025, leaving taxpayers little time to adapt to the new conditions. One of the changes will be the phasing out of the VAT deduction limitation for luxury and sports cars, the so-called Lex Ferrari.
The amendment to the VAT Act is moving from the Chamber of Deputies to the Senate, where the governing coalition also has a majority, so no major obstacles to the adoption of the Act are expected here either. Subsequently, the law should be signed by the President.
While the government's consolidation package introduced a limitation on the tax deduction for premium cars, the so-called Lex Ferrari, as one of the changes, the VAT amendment will gradually abolish it. First, the restriction on the deduction for clearly defined sports cars will be abolished from January 2025, followed by the complete abolition of the restriction from 2027. So there will no longer be a limit of two million crowns for company cars and the deduction will be available for higher amounts.
The fundamental change will be the necessity to follow not one but two turns. While now a taxable person becomes a taxpayer if he or she exceeds CZK 2 million in turnover in the Czech Republic for twelve consecutive months, from 1 January 2025 it will be necessary to track the sum of turnover in the Czech Republic and other EU Member States. In this case, the limit will be EUR 100,000, slightly above CZK 2.5 million. At the same time, as part of the EU-wide unification, it will now be a full calendar year instead of twelve consecutive months.
When a taxable person becomes a VAT payer will also change. Until now, the taxpayer became a taxpayer on the first day of the second month following the month in which the taxpayer exceeded the turnover limit of CZK 2 million. However, he will now become a taxpayer, for example, on the day after he exceeds the second turnover from domestic transactions (approximately CZK 2.5 million). For example, this situation allowed a new developer to sell the first property without VAT, exceed the turnover limit, but still manage to sell more properties in the interim period before actually becoming a taxpayer. This will no longer be possible under the new conditions.
Although a person liable for VAT will become a VAT payer the day after exceeding the turnover, he or she must submit the VAT registration form to the tax office within ten working days. The tax office will therefore learn of this fact after a delay, which may theoretically cause a bit of administrative confusion. Customers wishing to claim a VAT deduction will certainly be in limbo for some time before their supplier's VAT registration appears in the register of taxable persons.
Among the most significant changes is the obligation to repay the VAT deduction in case of an unpaid liability six months after the due date. This new provision will apply to liabilities arising from 1 January 2025. Delays in payment of liabilities are very common, particularly for connected persons, for example for cash flow reasons, and this will no longer be recommended. On the other hand, it is possible that this provision will have a positive effect in terms of more orderly payment of debts.
A significant change from 1 July 2025 will be an adjustment to the delivery of buildings. Currently, any supply within 5 years of first occupation (or first occupation after substantial alteration) is taxable. Newly, new construction will only be subject to tax once, within 23 months of the month of completion (or substantial alteration). Voluntary taxation of the supply of a building that would otherwise be exempt will remain. The calculation of the substantial alteration (reconstruction) limit will also change significantly and an expert's report will no longer be required.
At the same time, the VAT amendment will narrow down the financial activities that are exempt from tax. The initial narrowing will take place immediately from January 2025, with further reductions to follow at the beginning of 2026. According to the case law, these are not payment services, which are exempt from tax, but practically the collection of debts, even though the debts are not yet due.
The so-called small business regime is to become a complete novelty, resulting from European legislation, so that it will be harmonised for the whole EU. The small business regime will be used voluntarily, for example, by a craftsman from Slovakia, who will no longer have to pay VAT in the Czech Republic as before, but will voluntarily register in the register for small businesses in his home country, Slovakia. As long as his annual pan-European turnover does not exceed €100,000, he will not have to pay VAT.
What the amendment also sets out in a completely new way are the conditions for refunding unjustified tax paid to the supplier. The refund may occur in particular in case of erroneous application of the normal regime instead of the reverse charge regime. We already know that the tax office will have strict conditions for the refund, so we expect that these will be exceptional cases. However, this amendment has been postponed until 1 January 2026.
The amendment also regulates, for example, the so-called place of performance for virtual events, such as webinars, which will now usually be the seat or place of residence of the participant. The time limit for claiming VAT deduction is also shortened from three to two years, as most taxpayers claim the deduction in the first year or in the second year anyway, giving the tax office more time to check the claim itself. On the other hand, the deadline for correcting the tax base will be extended to seven calendar months.
Autor: Petr Linx
The amendment to the VAT Act is moving from the Chamber of Deputies to the Senate, where the governing coalition also has a majority, so no major obstacles to the adoption of the Act are expected here either. Subsequently, the law should be signed by the President.
While the government's consolidation package introduced a limitation on the tax deduction for premium cars, the so-called Lex Ferrari, as one of the changes, the VAT amendment will gradually abolish it. First, the restriction on the deduction for clearly defined sports cars will be abolished from January 2025, followed by the complete abolition of the restriction from 2027. So there will no longer be a limit of two million crowns for company cars and the deduction will be available for higher amounts.
The fundamental change will be the necessity to follow not one but two turns. While now a taxable person becomes a taxpayer if he or she exceeds CZK 2 million in turnover in the Czech Republic for twelve consecutive months, from 1 January 2025 it will be necessary to track the sum of turnover in the Czech Republic and other EU Member States. In this case, the limit will be EUR 100,000, slightly above CZK 2.5 million. At the same time, as part of the EU-wide unification, it will now be a full calendar year instead of twelve consecutive months.
When a taxable person becomes a VAT payer will also change. Until now, the taxpayer became a taxpayer on the first day of the second month following the month in which the taxpayer exceeded the turnover limit of CZK 2 million. However, he will now become a taxpayer, for example, on the day after he exceeds the second turnover from domestic transactions (approximately CZK 2.5 million). For example, this situation allowed a new developer to sell the first property without VAT, exceed the turnover limit, but still manage to sell more properties in the interim period before actually becoming a taxpayer. This will no longer be possible under the new conditions.
Although a person liable for VAT will become a VAT payer the day after exceeding the turnover, he or she must submit the VAT registration form to the tax office within ten working days. The tax office will therefore learn of this fact after a delay, which may theoretically cause a bit of administrative confusion. Customers wishing to claim a VAT deduction will certainly be in limbo for some time before their supplier's VAT registration appears in the register of taxable persons.
Among the most significant changes is the obligation to repay the VAT deduction in case of an unpaid liability six months after the due date. This new provision will apply to liabilities arising from 1 January 2025. Delays in payment of liabilities are very common, particularly for connected persons, for example for cash flow reasons, and this will no longer be recommended. On the other hand, it is possible that this provision will have a positive effect in terms of more orderly payment of debts.
A significant change from 1 July 2025 will be an adjustment to the delivery of buildings. Currently, any supply within 5 years of first occupation (or first occupation after substantial alteration) is taxable. Newly, new construction will only be subject to tax once, within 23 months of the month of completion (or substantial alteration). Voluntary taxation of the supply of a building that would otherwise be exempt will remain. The calculation of the substantial alteration (reconstruction) limit will also change significantly and an expert's report will no longer be required.
At the same time, the VAT amendment will narrow down the financial activities that are exempt from tax. The initial narrowing will take place immediately from January 2025, with further reductions to follow at the beginning of 2026. According to the case law, these are not payment services, which are exempt from tax, but practically the collection of debts, even though the debts are not yet due.
A special regime to make administration easier for small businesses
The so-called small business regime is to become a complete novelty, resulting from European legislation, so that it will be harmonised for the whole EU. The small business regime will be used voluntarily, for example, by a craftsman from Slovakia, who will no longer have to pay VAT in the Czech Republic as before, but will voluntarily register in the register for small businesses in his home country, Slovakia. As long as his annual pan-European turnover does not exceed €100,000, he will not have to pay VAT.What the amendment also sets out in a completely new way are the conditions for refunding unjustified tax paid to the supplier. The refund may occur in particular in case of erroneous application of the normal regime instead of the reverse charge regime. We already know that the tax office will have strict conditions for the refund, so we expect that these will be exceptional cases. However, this amendment has been postponed until 1 January 2026.
The amendment also regulates, for example, the so-called place of performance for virtual events, such as webinars, which will now usually be the seat or place of residence of the participant. The time limit for claiming VAT deduction is also shortened from three to two years, as most taxpayers claim the deduction in the first year or in the second year anyway, giving the tax office more time to check the claim itself. On the other hand, the deadline for correcting the tax base will be extended to seven calendar months.
Autor: Petr Linx