General Information on VAT in Czech RepublicIn the never-ending VAT Saga in Czech Republic, each year, for the last 5 years in a row, 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.
Important: 2016 changes: Kontrolni Hlaseni (KH) - to be filed with the 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 here: Kontrolni Hlaseni
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 2016 or 2017 there could be new changes....
VAT Registration obligatory if turnover in 12 months is more than 1.000.000 CZKThe basic rule of thumb is that if your turnover in Czech Republic 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 2015 you are still obligatory to register for VAT if in the last months of 2014 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. In case you already crossed the 1.000.000 CZK you are obligated to register for VAT as soon as possible.
From 1.1.2013 extra unpleasant is that the 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.
Other Reasons to register for VAT:It is also possible / necessary to register for VAT even if your turnover is less than 1.000.000 CZK.
There are arguments for registering for VAT, such as:
- You are trading in the EU, and many suppliers / clients require you to have a VAT registration number, even though on goods and services sold within EU there is 0% 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.
The decision to register for VAT is something you need to consider carefully, because if you register, you have to add VAT to any invoice you send to a customer inside Czech Republic and to any non-VAT registered customer outside Czech Republic. This raises your fee / price by 21%, so for a customer who is not VAT registered, it can become less attractive to buy from you.
Being VAT registered means that you will have to file a VAT report monthly (the latter also automatically means monthly accounting, even for small businesses such as trade licenses!).
Most of the businesses registered before 1.1.2013 file quarterly, because filing monthly VAT reports used to be only obligatory for a turnover more than 10.0000.000 CZK per 12 months. Unfortunately, the monthly filing also applies for any business that registers for VAT after 1.1.2013.
In addition, 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).
If you do not reach the 1.000.000 CZK turnover, it is possible to de-register for VAT. There are no penalties for de-registering, but the VAT status can be changed only once per year.
Important: New 2013 rules for Registration of VAT
The process of VAT Registration has become a lot more complicated than before, because the taxoffices use a 2-page form with requirements (sales invoices, expenses, which clients, suppliers, reason for registration etc etc), resulting in a stack of papers before your request will be considered.
I f the business is registered for VAT after 1.1.2013, they will have to file monthly VAT Returns, not quarterly, and only after 2 years after the initial date of registration you can file a request to change this to filing quarterly. The tax office does not have to grant this request (!)
Businesses that have registered volutarily for VAT before 1.1.2013 will remain quarterly payers.
VAT registration will be from the first day of the next month of reaching the 1 M CZK (in July you crossed the 1M CZK, VAT Registration must be filed before 15.7.2013, and you will be registered for VAT on 1.8.2013)
VAT registration will be backward from the first day of the month after you crossed the 1M CZK mark (in case you went over the 1M mark already in January, but did not register for VAT, and now it is July, you will be VAT registered from 1.2.2013)
VAT registration is obligatory if you import from an EU country cars, tabacco, alcohol, fuel (with excise duties) or goods exceeding a value of 326.000 CZK.
VAT registration is obligatory if you use or offer services to companies / persons in another EU memberstate.
Checking online a VAT number - for Czech and EU VAT numbersCharging and paying VAT depends on who is VAT registered and where.
Czech clients can be checked in the ARES system, see
How to find ICO and other sro company / trade license (živnostenský list) data
VAT of foreign clients 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.
Important: A Bank Account in CZK at a Czech Bank is requiredOne of the requirements of the Tax Office for VAT registration is a Bank Account in CZK at a Czech Bank. In case your have a foreign-registered business (so not a Czech SRO or Trade License) most (90%) of the banks will not want to open an account for this foreign business.
And, in case they do accept your foreign company documents at first at the branch, at a later stage their legal department may not approve the opening of the account - even if is a regular account without debit / loan / credit card possibilities. Therefore, before contacting us for VAT registration, first consult with the loal banks if they are willing to open an account for a foreign business entity.
If yes, due to Czech legal restrictions, the director / owner of the foreign-owned company must come to the branch for signing the contract / signature sample. After this step, we can represent the company with a POA.
All major banks are on or near the Wenceslav square in the Prague 1 city center (external link)
We have had some success with Raiffeissen Bank, Unicredit Bank and EXPO Bank