VAT in Czech Republic - basic information, when to register
Czech VAT is 14% and 20% since 01.01.2012
Starting 01.01.2012 VAT percentages have been changed. In Czech Republic there are two VAT rates:- 14% VAT (mostly foodstuffs etc.)
- 20% VAT (on goods and services)
There has been a proposal to change to a 'unified' 17% and lowering the registration limit to 700.000 CZK, but at the moment do not have any reason to believe this proposal will pass any time soon. Maybe in 2013 / 2014.
Important: Obligated monthly EU Sales List (ESL) from 01.01.2010
Starting 01.01.2010, any VAT-registered s.r.o. or trade license sending invoices to VAT-registered clients based in another EU country are obligated to report electronically on monthly (goods) / quarterly (services) basis to the tax office. These reports are no VAT reports, but must be filed in addition to VAT reports. See alsoVAT Registration obligatory if (expected) turnover in 12 months is more than 1.000.000 CZK
The basic rules that if your turnover is higher than 1.000.000 CZK in 12 consecutive months, you are obligated to register as VAT payer. We recommend that if you at this moment estimate your turnover will be in the magnitude of 700.000 CZK or more, you voluntarily register.Warning on the 12 months: the 12 months are NOT calculated from the beginning of the year, but really in a timespan of 12 months (so June 2010 - May 2011, July 2010 - June 2011, August 2010 - July 2011 etc).
It is very well possible that although you made 'only' 700.000 CZK in 2012 you are still obligated to register for VAT if in the last months of 2011 you made more than 300.000 CZK. Many people are surprised that they cross / have crossed the 1 M CZK border because they forget to add the previous year's revenue.
Therefore it is a good idea to (have an accountant) check every quarter if you are getting close to the 1 M CZK, because the tax office will issue penalties for late VAT registrations, and will check your accounting if you are late. This all can be avoided by registering for VAT in time.
Which VAT can be claimed? Can foreign VAT be claimed?
Czech VAT on expenses made in Czech Republic can be claimed with a regular monthly / quartely VAT Return.EU VAT can also be claimed to a certain extent (depending on the country), but not in the regular VAT Return. This VAT Return will have to be sent in an electronic format to the foreign tax office, not the czech tax office. It is a faily complicated business, and actually it only makes sense for larger clients. Alexio does this for example for logistics companies in case it is not possible to get invoices / receipts without foreign VAT (example: fuel, MAUT, repairs).
When ordering something from abroad, provide your VAT number to the seller, so that he is able to issue an invoice without VAT. In that case you also do not need to claim the foreign VAT back.
Registering for VAT with a turnover less than 1.000.000 CZK
It is possible to register voluntarily for VAT even if your turnover is (much) less than 1.000.000 CZK.If you do not make that turnover, the taxoffice will send you a letter (after a year or so) asking if you still want to remain VAT registered. You can then decided to continue or not. There are no penalties for de-registering, but the status can be changed only once per year.
There are arguments for registering voluntarily for VAT, such as:
- You are trading internationally, and many suppliers / clients require you to have a VAT registreation number, even though on goods and services sold within EU there is not VAT,
- You are sending (consultancy) invoices to a VAT-registered business client in the EU (no VAT charged) but make expenses in CZ (so you pay VAT). In that case you will never have to pay VAT to the tax office, but only will receive back.
- You are going to make big expenses, such as buying a car. Without VAT registration you cannot claim this VAT. With VAT registration you can.
Being VAT-registered and selling outside Czech Republic but inside the EU also means in most cases having the obligation to report EU Sales Lists (see below).
Filing a VAT Return quartely or monthly
Being VAT registered means that you will have to file a VAT report quarterly or even monthly.90% of the businesses file quarterly, because file monthly VAT reports is obligated over 10.0000.000 CZK.
VAT on sales outside Czech Republic - only 0% if both seller and buyer are VAT registered.
If your company / trade license is VAT registered, on sales of good and services outside Czech Republic to a client in another European country no VAT is charged, provided that the buyer is also VAT registered.On sales to private individuals and non-VAT registered businesses in Czech Republic and the European Union VAT is charged, so in that case you have to add the Czech VAT of 20% to your invoice.
Note that for sales to VAT-registered clients, it is obligated to report those sales on monthly / quarterly basis using a special electronic file called an EU Sales List. There are many exceptions to the above rules, depending on the destination country (especially for consultants: to which country the invoice goes, even though you may actually work in another country) and type of good.
30 day Period for VAT payments
If you have to pay VAT for a period, you need to pay within 30 days of the VAT filing data, which is always the 25th of the month following the period (for quarterly filing 25.04.2012, 25.07.2012, 25.10.2012 and 25.01.2013).Likewise, the tax office has the obligation to return the VAT on your bank account within 30 days after filing date. However, usually for the first period after registration, and/or in case the tax office wants to investigate your VAT return further, this 30-day period may not be met.
VAT check and penalties by the Financial Office
One thing in particular raises the suspicion of the tax office and inspires them to check your accounting, and that is claiming huge sums of VAT on expenses without having any sales or sales abroad without VAT on them.In an extreme case, the taxoffice may decide to withhold the VAT refund until satisfied with the accounting.
Also late VAT registrations (when the 1 M CZK has been crossed already) almost always cause an investigation of your accounting and penalties. A penalty could be up to 10% of the VAT that should have been charged on the sum over 1 M CZK.
Claiming VAT from purchases before company formation / VAT registration
An every-returning question is what to do with purchases made before the s.r.o. was formed / trade license was registered and whether the VAT can be claimed. There is no easy answer to that. The basic rules are:- Expenses necessary for the company startup can be claimed, if they are a company asset. This is generally understood as goods used in the office or for stock. Phonebills, custom-made software and services from 3rd parties are a risk, as well as items that could be for personal / non-company use.
- VAT can be claimed of purchases made before VAT registration if they can be considered a company asset.
- VAT on payments, downpayments and deposits on leased goods (car, equipment) can only be claimed if invoiced after VAT-registration. If invoiced / paid before, this VAT can not be claimed.
- The tax office has the power to decide on individual basis what is acceptable or not.
Our advice is to first register your business and / or register for VAT and then start to make big purchases. Doing so avoids the whole discussion of what can be claimed or not.
Costs of VAT Registration and VAT Reporting
Alexio charges 1500 CZK for VAT registration of an sro or trade licence and 1500 CZK per VAT report, in addition to the regular accounting fees of 600 CZK / hr.For more information on our accounting services see Accounting Services for Czech Republic