Effective January 1, 2025, the Czech Republic will introduce significant changes to its Value Added Tax (VAT) regime to simplify processes and adjust thresholds. Key changes include a new annual turnover period for VAT calculation, expansion of the reverse charge mechanism to include cleaning services, and removing the five-year real estate exemption. Additionally, the time limits for VAT deductions and corrections will be revised, and the CZK 2,000,000 car deduction limit may be altered in 2027. Businesses must prepare for these updates to ensure compliance and optimize VAT processes.
Czech Republic: VAT changes coming in 2025
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Author: Stefan Ditrih
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Content accuracy validation date:
16.10.2024
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From January 1, 2025, the Czech Republic will implement several significant changes to its Value Added Tax (VAT) regime. These updates aim to streamline VAT processes, expand the scope of certain mechanisms, and adjust various thresholds and limits. Here’s a detailed look at the upcoming changes:
VAT Turnover Period Calculation
The VAT turnover period will now be calculated annually from January 1 to December 31. Entities with a turnover between CZK 2,000,000 and CZK 2,536,500 will become VAT payers the following year. Those exceeding a turnover of CZK 2,536,500 will be liable for VAT two days after surpassing this threshold.
Expansion of the Reverse Charge Mechanism
The reverse charge mechanism, which shifts the tax liability from the supplier to the customer, will be expanded to include certain cleaning services.
Simplification of Real Estate Rules
The five-year exemption limit for real estate will be abolished. The substantial change threshold will also be reduced from 50% to 30% of the property’s value.
VAT Deductions and Corrections
Several changes will be made to VAT deductions and corrections:
- The time limit for claiming VAT deductions will be reduced from three years to two years.
- The time limit for correcting the tax base will be extended from three years to seven years, regardless of legal proceedings.
- A new requirement will be introduced to refund tax deductions on liabilities outstanding for more than six months.
Car Deduction Limit Review
The CZK 2,000,000 car deduction limit may be revised or removed in 2027.
Overview of Czech VAT Rules
The Czech Republic’s VAT system aligns with EU regulations and consists of a standard VAT rate and two reduced rates. Here are the key points:
VAT Rates
- Standard rate: 21%, applicable to most goods and services.
- Reduced Rates: 15% and 10%. The 15% rate applies to items such as foodstuffs, certain health products, and social housing, while the 10% rate applies to books, pharmaceuticals, and infant food.
VAT Registration
Businesses must register for VAT if their taxable turnover exceeds CZK 2,000,000 (approximately €80,000) within 12 consecutive months. Voluntary registration is available for businesses with turnover below this threshold. Foreign businesses without a fixed establishment in the Czech Republic but providing taxable supplies must also register for VAT.
VAT Returns
VAT returns are typically filed monthly or quarterly, depending on the turnover. These returns must be submitted electronically by the 25th day of the month following the tax period. Intrastat declarations are required for businesses involved in intra-EU trade exceeding a specified threshold.
Chargeable Transactions
VAT on most transactions is chargeable at the point of supply, meaning when goods or services are delivered. The reverse charge mechanism applies to certain cross-border and domestic transactions, shifting the tax liability from the supplier to the customer.
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