The amendment to the Value Added Tax Act, scheduled to take effect in January 2025, will, for example, shorten the time limit for claiming a tax deduction, allow the refund of the tax paid on receivables not exceeding CZK 10,000 and abolish the specific treatment of self-created property.
A major amendment to the Value Added Tax Act, which has a total of 445 points under number 726, is going through the approval process quietly for the time being. In her article, my colleague Denisa Krocová writes about the change related to registration.She and her colleague Petr Linx will discuss the amendment in detail on 10 October at the seminar "Extensive amendment to the VAT Act in detail" in Prague, which is still open for registration HERE. In this article I will therefore focus only on some of the changes introduced by the amendment.
In relation to the place of supply, there is a clear determination of the country of taxation for virtual participation in an event (e.g. online webinars). The place of supply will be the state of establishment of the customer. Conversely, for certain services, for non-taxable persons from third countries, the place of supply will remain domestic if the actual use or consumption of the service takes place there. An example would be a legal service for a Swiss citizen who asks a Czech lawyer to represent him in a traffic offence committed in the Czech Republic.
The amendment abolishes the fiction of delivery of goods after importation, which allowed those who imported goods into the Czech Republic to obtain a deduction and without the possibility to charge tax on the transfer of goods without a change of ownership would not be entitled to a deduction on importation. Furthermore, it also abolishes the specific taxation of self-created property, which allowed taxpayers with a reduced entitlement to deduction to claim the full deduction during the construction period and only after the completion of the construction to claim the deduction according to the shortening coefficient after the fiction of delivery. The convenience of this scheme ended with the application of the Court's case law which included the value of the land and inputs from non-taxpayers in the tax base at the time of the delivery fiction, whereby the subsequent reduction would be based on a higher tax than was claimed on the inputs during construction, so that the ultimate effect on the taxpayer would be negative.
The range of entities to which the tax base at the normal price will apply will be extended to include employees and their close persons. However, so far only in cases of supply of immovable property.
From January, the three-year period for correcting the tax base will be abolished. This will be replaced by an extension of the correction period, which will expire after the end of the seventh calendar year immediately following the calendar year in which the obligation to declare tax on the original taxable supply arose.
The amendment will bring joy to investors in the construction of residential buildings. According to the current regulation, only the construction of apartment houses for social housing, which are houses in which no living space (apartment) may exceed 120 m, is subject to a reduced tax rate.2 . According to the amended wording, from 1 January 2025, any residential house in which the living space = spaces up to 120 m2 , will account for more than half of its floor area, will be a social housing house and thus a house whose construction will be subject to the reduced tax rate. Thus a house with a floor area of 1 000 m2 could easily have 2 living spaces of 180 m each2 and still be a social housing house subject to a reduced rate of tax when built.
The current wording of the VAT Act allows to correct the tax base, to recover VAT on an unpaid receivable, only if the receivable is part of some proceedings - enforcement, insolvency or estate proceedings. The amendment will allow the correction of the tax base even without proceedings, but only for a receivable not exceeding CZK 10,000 including tax that is more than 6 months overdue. Another limitation will be a maximum amount of CZK 20,000 on claims against one debtor.
VAT payers who are thinking of buying a car with a tax base amount of more than CZK 2 million will be pleased to see the abolition of the deduction limitation introduced as part of the consolidation package. Following consultation with the EU VAT Committee, the amendment will end the deduction limitation for M1 passenger cars on 31 December 2026.
petr.vondras@bdo.cz
A major amendment to the Value Added Tax Act, which has a total of 445 points under number 726, is going through the approval process quietly for the time being. In her article, my colleague Denisa Krocová writes about the change related to registration.She and her colleague Petr Linx will discuss the amendment in detail on 10 October at the seminar "Extensive amendment to the VAT Act in detail" in Prague, which is still open for registration HERE. In this article I will therefore focus only on some of the changes introduced by the amendment.
In relation to the place of supply, there is a clear determination of the country of taxation for virtual participation in an event (e.g. online webinars). The place of supply will be the state of establishment of the customer. Conversely, for certain services, for non-taxable persons from third countries, the place of supply will remain domestic if the actual use or consumption of the service takes place there. An example would be a legal service for a Swiss citizen who asks a Czech lawyer to represent him in a traffic offence committed in the Czech Republic.
The amendment abolishes the fiction of delivery of goods after importation, which allowed those who imported goods into the Czech Republic to obtain a deduction and without the possibility to charge tax on the transfer of goods without a change of ownership would not be entitled to a deduction on importation. Furthermore, it also abolishes the specific taxation of self-created property, which allowed taxpayers with a reduced entitlement to deduction to claim the full deduction during the construction period and only after the completion of the construction to claim the deduction according to the shortening coefficient after the fiction of delivery. The convenience of this scheme ended with the application of the Court's case law which included the value of the land and inputs from non-taxpayers in the tax base at the time of the delivery fiction, whereby the subsequent reduction would be based on a higher tax than was claimed on the inputs during construction, so that the ultimate effect on the taxpayer would be negative.
The range of entities to which the tax base at the normal price will apply will be extended to include employees and their close persons. However, so far only in cases of supply of immovable property.
From January, the three-year period for correcting the tax base will be abolished. This will be replaced by an extension of the correction period, which will expire after the end of the seventh calendar year immediately following the calendar year in which the obligation to declare tax on the original taxable supply arose.
The amendment will bring joy to investors in the construction of residential buildings. According to the current regulation, only the construction of apartment houses for social housing, which are houses in which no living space (apartment) may exceed 120 m, is subject to a reduced tax rate.2 . According to the amended wording, from 1 January 2025, any residential house in which the living space = spaces up to 120 m2 , will account for more than half of its floor area, will be a social housing house and thus a house whose construction will be subject to the reduced tax rate. Thus a house with a floor area of 1 000 m2 could easily have 2 living spaces of 180 m each2 and still be a social housing house subject to a reduced rate of tax when built.
The current wording of the VAT Act allows to correct the tax base, to recover VAT on an unpaid receivable, only if the receivable is part of some proceedings - enforcement, insolvency or estate proceedings. The amendment will allow the correction of the tax base even without proceedings, but only for a receivable not exceeding CZK 10,000 including tax that is more than 6 months overdue. Another limitation will be a maximum amount of CZK 20,000 on claims against one debtor.
VAT payers who are thinking of buying a car with a tax base amount of more than CZK 2 million will be pleased to see the abolition of the deduction limitation introduced as part of the consolidation package. Following consultation with the EU VAT Committee, the amendment will end the deduction limitation for M1 passenger cars on 31 December 2026.
petr.vondras@bdo.cz