General Information on VAT in Czech RepublicIn the never-ending VAT Saga in Czech Republic, each year has brought changes, either in percentages or regulations. Therefore no rights can be derived from the below text, which has only an informal purpose - for up-to-date information, or how VAT regulations apply in your case, please book a consultation.
Czech Republic has 3 VAT rates: 10%, 15% and 21%In Czech Republic there are currently three VAT rates:
- 10% VAT (baby food, some medicine, some printed books)
- 15% VAT (mostly foodstuffs etc.)
- 21% VAT (on goods and services)
In the past there has been a proposal to change to a 'unified' 17% and lowering the registration limit to 750.000 CZK, but at the moment there is no reason to believe this proposal will pass any time soon. But in future there could be new changes....
Full VAT Registration obligatory if turnover in 12 months is more than 1.000.000 CZK
The basic rule of thumb is that if your turnover from Czech sources is higher than 1.000.000 CZK in 12 consecutive months, you are obligated to register for VAT.
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' 800.000 CZK in one calendar year you still have the obligation to register for VAT if in the last months of the year before you made more than 200.000 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. In case you already crossed the 1.000.000 CZK you should register for Full VAT as soon as possible.
From 1.1.2013 extra unpleasant is that both the Full VAT registration will be from the day that you crossed the 1M CZK mark, so if that was months ago you will have to pay a penalty and VAT to the taxoffice for all invoices issued from that crossing-date (unless, you are entitled to use reversed-charges on your invoices). This can become an expensive joke - imagine having to pay 21% of your revenue of the last couple of months.
Therefore it is a good idea to (have an accountant) check 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.
Important: Kontrolni Hlaseni (KH) - to be filed with the Full VAT ReturnStarting February 2016, all businesses that have a Full VAT registration (so *not* the ones with a VAT-Light registration) will have to file in addition to the VAT Tax Return an additional document, called the Kontrolni Hlaseni (KH) in case there have been VAT transactions within Czech Republic. Simply put, the KH is a long list of *each* VAT transaction in Czech Republic in that month. So any invoice you issued and any expenses you paid for needs to be in the list, with VAT numbers of buyer and seller, the base amount and the VAT amount.
Read more about the KH Kontrolni Hlaseni here.
Read about different VAT Registration Types here
Another Reason to register for VAT. VAT-Light for invoicing business customers in the EU:Typical example: You are doing consultancy / trading in the EU, so you will need to have a VAT number and file VAT reports and European Sales Lists (ESLs) for the months you did business in the EU, in order to have on goods and services 0% VAT (reverse-charges).
It is also necessary to register for VAT-Light even if your turnover is less than 1.000.000 CZK from EU sources, in fact from the first invoice to an EU-business.
After Brexit (2021), invoicing to the UK no longer requires a VAT registration, as the UK is no longer part of the EU VAT system.
Read more about the ESL European Sales List here.
Read about different VAT Registration Types here.
Checking online a VAT number - for Czech and EU VAT numbersCharging and paying VAT depends on who is VAT registered and where.
Czech businesses can be checked in the ARES system, see
How to find ICO and other sro company / trade license (živnostenský list) data
VAT of foreign businesses based in the EU can be checked here: VIES VAT number validation
30 day Period for VAT paymentsIf 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 25.04.2013, 25.07.2013, 25.10.2013 and 25.01.2014).
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 OfficeOne thing in particular raises the suspicion of the tax office and inspires them to check your accounting, 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 registrationAn every-returning question is what to do with purchases made before the SRO 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 could be 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 may not be claimable.
- 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.