Survival Kit IV. Tax System in the Czech Republic Value-added Tax

Value-added Tax

Tax Rates

The standard VAT rate is 21 % and applies to most goods and services. The first reduced rate of 15 % applies only to certain services and essential goods (i.e. basic food) and a second reduced rate of 10 % applies to catering and accommodation services, medicines, potable water, medications, books and baby food.

Taxpayers may ask the Ministry of Finance for a binding ruling in respect of the correct application of the tax rate.

Tax Period

The tax period for value-added tax is one calendar month. Depending on the amount of turnover reached in the previous calendar year, a tax payer may, generally after two years from registration, decide to apply a calendar quarter as the tax period.

Registration and Tax Returns

VAT registration is mandatory for a Czech entity if its turnover of supplies with the place of supply in the Czech Republic exceeds CZK 1,000,000 (approx. EUR 39,000) within any twelve consecutive calendar months. If a Czech entity acquires goods from another EU member state exceeding CZK 326,000 (approx. EUR 12,650) or purchases services from a non-established entity with a place of supply in the Czech Republic, it becomes identified for Czech VAT purposes.

Besides an entity with a local establishment, a foreign entity or entity from another EU member state can be obliged to register for VAT in the Czech Republic as well.

VAT returns must be completed and submitted electronically together with payment of the related VAT within 25 days of the end of the tax period. Identified persons and VAT payers not established in the Czech Republic are only obliged to submit the VAT Return for tax periods where taxable transactions were effected. If an excess VAT deduction occurs, the Financial Office should refund this overpayment within 30 days of the VAT return being filed. If the VAT return is filed electronically, this period can be extended if the Financial Office initiates a tax audit. In practice, the Financial Office mostly conducts tax audits of newly established companies, companies seated outside the Czech Republic or in cases of unusually large VAT overpayment occurred or reporting of non-standard transactions.

EC sales lists for goods sold or transferred to another EU member state, triangulation supplies in case of intermediate suppliers, or services provided to other EU countries must be submitted electronically for each calendar month (or in case of services provided by a quarterly VAT payer, for each calendar quarter) within 25 days of the end of the given month.

The Czech Republic also allows some recovery of VAT, which was included in the price of the goods, incurred prior to VAT registration. Careful structuring of an inward investment venture will ensure that VAT paid by the business is recovered to the greatest extent possible and as rapidly as possible.

Group VAT Registration

A group of related companies can register as a single VAT entity. Group registration enables the reduction of the administrative burden for some companies and may improve cash flow.

Recovery of Czech VAT

There are procedures to allow recovery of Czech VAT incurred by foreign entities or entities from other EU member states for business purposes. There is naturally some restriction in recovery, but it generally follows the same principles applied to any other entity operating in the country. The Czech Republic will provide VAT refunds to entities established and VAT-registered in other EU member states The VAT can be refunded to the entities established outside EU based on the reciprocal principle (i.e. the tax will be refunded if the state where the person is established does not levy a tax, or if the domestic entity is entitled to a tax refund in that state). Correct administration has to be followed in order to receive the VAT refund: application for a refund for the calendar year in which the supply was effected can be made by an entity established in another EU member state no later than by 30 September of the following year through the electronic portal of that EU member state. Entities established in a third country have to file a written application in Czech at the Czech Tax Office, by 30 June of the following year.

VAT on Goods and Services from Abroad

VAT on goods imported from countries outside the EU is accounted for by the importer using the import VAT deferral system, the same VAT rate, as the one that would apply to a domestic supply of those goods is valid. Goods purchased from another EU member state are subject to acquisition VAT accounting. In both cases it means that the person importing/acquiring the goods is obliged to self-charge the output VAT through its own VAT return and, at the same time, is entitled to claim the input VAT through the same VAT return subject to general deduction rules.

Under certain conditions, the sale or transfer of goods to the Czech Republic triggers an obligation on the part of a foreign company to register for VAT purposes in the Czech Republic.

Services provided to a person eligible to pay tax are generally considered effected where the recipient of the service has his seat, establishment or place of business and are subject to the reverse charge mechanism in the hand of the recipient. Beginning on 1 January 2010, the place of supply of specific services is determined in compliance with the provisions of Council Directive 2008/8/EC.

VAT Control Statement

Selected entities (VAT payers) are obliged to provide data related to realised or input taxable supplies with a local place of supply (including advance payments) and data related to taxable supplies under special a scheme for investment gold. These data are reported in the VAT Control Statement which is additional evidence to the VAT return.

The VAT Control Statement has to be submitted electronically in the prescribed form within 25 days of the end of the given month (only natural persons follow their deadline for submitting VAT return). Failure to comply with the VAT Control Statement obligations leads to significant sanctions.

Registration of Sales

Starting from December 2016 registration of sales has come into effect. The new system should increase efficiency in controlling and preventing fraudulent actions relating to sales where cash and similar payment methods are used. Selected VAT payers (i.e. entities that pay or are obliged to pay income tax in the Czech Republic) are obliged to electronically submit their sales records to the Tax Administration and issue receipts to their customers.

The system of sales registration is being introduced gradually:

Since 1 December 2016 – persons providing catering and accommodation services;
Since 1 March 2017 – persons performing retail and wholesale business;
Since 1 January 2021 at earliest – other business activities with exception of those included in the next phase;
Since 1 January 2021 at earliest – selected crafts and business activities (e.g. husbandry, transport, freelancers).

On 28 May 2020, the President of the Czech Republic signed the suspension of Registration of Sales until the end of 2020. Entities that have already implemented the system are not obligated to send data on registered sales during this period. Entities that were originally obligated to register on 1 May 2020 (i.e. craftsmen, hairdressers and others), should start recording their sales on 1 January 2021.

VAT on supplies between related parties

The VAT base for supplies of goods or services to related parties (under specific conditions) is a common-market price.

Local Reverse Charge

A local reverse charge mechanism applies to supplies of investment gold, immovable properties in particular cases specified in Act on VAT, scrap, construction and assembly work classified under codes 41 to 43 of CZ-CPA and provision of workers for these purposes and to delivery of goods provided as security in the execution of such a security.

The VAT liability for such supplies is transferred to the recipient of the supply, who may at the same time claim this input VAT at the same VAT return subject to general input VAT deduction rules.

The local reverse charge has temporarily been extended to supplies of selected goods since 2017.

The temporary reverse charge procedure applies to the following goods:

emissions permits,
delivery of gas and electricity to a trader specified in Section 7a Subsection 2 of the Act on VAT,
electricity certificates,
provision of telecommunication services.

The temporary reverse charge procedure applies to the following goods with limitation (i.e. where the tax base of the delivered goods exceeds the amount of CZK 100,000*):

precious metals,
mobile phones,
integrated circuits,
portable automatic data processing machines,
game consoles,
cereals and technical crops.

* The temporary local reverse charge can be applied even if the value of the delivered goods does not exceed the stated limit (based on a written agreement between the supplier and the purchaser).

Mini One Stop Shop

All telecommunication, broadcasting and electronically supplied services will be taxable at the place where the customer is established, has his permanent address or usually resides (this rule is now also valid for providers from the EU). To avoid unnecessary administration, a provider with its seat or establishment in the Czech Republic can, subject to other conditions, register with the so-called Mini One Stop Shop scheme in the Czech Republic. This scheme would then allow them to submit a special single quarterly VAT return and pay tax from all selected services provided within the EU at one place. This regime will not apply in case that the supplier of such services is person established only in one EU member state and the total amount of these services provided within EU will not exceed the amount of EUR 10,000 in this and previous year.

Unreliable Payer, Unreliable Person

A taxpayer who seriously violates their obligations relating to tax administration may become an “unreliable payer” at the discretion of the tax administrator. Starting from 1 July 2017, apart from the concept of an unreliable payer, a concept in the form of an “unreliable person” has been introduced. If a person that is not a payer seriously violates their obligations relating to tax administration, the tax administrator shall decide that such a payer is an unreliable person. If an unreliable person becomes a payer, they shall also become an unreliable payer at the same time. If an unreliable person or unreliable payer becomes a group member, such a group shall also become an unreliable payer at the same time. If the registration of an unreliable payer that is a group is cancelled, the members of such a group shall become unreliable payers on the day following the day when such group ceased to be a payer.

Liability for Unpaid VAT

VAT can be exacted from the recipient of the supply, if the price does not comply with the arm’s length principle or if the supplier is identified as an unreliable payer in a public registry run by the Financial Office. Liability for unpaid VAT also applies if the price for the supply is paid to a foreign bank account or, for supplies exceeding CZK 540,000 to a Czech bank account not stated in a public registry run by the Financial Office. The joint liability also applies if a supplier of fuel is not stated as a fuel distributor in a special registry. Liability for unpaid VAT can also arise from the provision of payment for taxable supply in virtual currency.

Contact persons:
Tomáš Urbášek, PricewaterhouseCoopers Česká republika, s.r.o., náměstí Svobody 20, 602 00 Brno, tel.: +(420) 724 369 349, e-mail: tomas.urbasek@pwc.com
Petr Mašek, PricewaterhouseCoopers Česká republika, s.r.o., náměstí Svobody 20, 602 00 Brno, tel.: +(420) 724 369 356, e-mail: petr.masek@pwc.com

Breakdown of Double-Taxation Treaties

The Czech Republic has concluded the following double-taxation treaties with respect to taxes on income and property:

Tab. 15: Breakdown of double taxation treaties

Country	Comes into force	Effective date	Collection of Laws
Albania	10 September 1996	1 January 1997	270/1996 Coll.
Armenia	15 July 2009	1 January 2010	86/2009 Coll. (int.tr.)
Australia	27 November 1995	CR: 1 January 1996 A: 1 July 1996, WHT 1 January 1996	5/1996 Coll.
Austria	22 March 2007	1 January 2008	31/2007 Coll., correction 39/2007 Coll. Protocol 100/2012 Coll. (int.tr.)
Azerbaijan	16 June.2006	1 January 2007	74/2006 Coll.
Kingdom of Bahrain	10 April 2012	1 January 2013	59/2012 Coll. (int.tr.)
Barbados	6 June 2012	1 January 2013	69/2012 Coll. (int.tr.)
Belarus	15 January 1998	1 January 1999	31/1998 Coll. Protocol 99/2011 Coll. (int.tr.)
Belgium	24 July 2000	1 January 2001	95/2000 Coll. (int.tr.) Protocol ratif. 17 March 2014
Bosnia and Herzegovina	12 May 2010	1 January 2011	58/2010 Coll. (int.tr.)
Brazil	14 November 1990	1 January 1991	200/1991 Coll.
Bulgaria	2 July 1999	1 January 2000	203/1999 Coll.
Canada	28 May 2002	1 January 2003	83/2002 Coll.
Chile	21 December 2016	1 January 2017	5/2017 Coll. (int.tr.)
China	4 May 2011	1 January 2012	65/2011 Coll. (int.tr.) Does not apply to Taiwan
Colombia	6 May 2015	1 January 2016	39/2015 Coll. (int.tr.)
Croatia	28 December 1999	1 January 2000	42/2000 Coll. (int.tr.) Protocol 82/2012 Coll. (int.tr.)
Cyprus	26 November 2009	1 January 2010	120/2009 Coll.
Denmark	17 December 2012	1 January 2013	14/2013 Coll. (int.tr.)
Egypt	4 October 1995	1 January 1996	283/1995 Coll.
Estonia	26 May 1995	1 January 1996	184/1995 Coll.
Ethiopia	30 May 2008	1 January 2009	54/2008 Coll.
Finland	12 December 1995	1 January 1996	43/1996 Coll.
France	1 July 2005	1 January 2006	79/2005 Coll.
Georgia	4 May 2007	1 January 2008	40/2007 Coll.
Germany	17 November 1983	1 January 1984	18/1984 Coll.
Greece	23 May 1989	1 January 1990	98/1989 Coll.
Hong Kong	24 January 2012	CR: 1 January 2013 HK: 1 April 2013	49/2012 Coll. (int.tr.)
Hungary	27 December 1994	1 January 1995	22/1995 Coll.
Iceland	28 December 2000	1 January 2001	11/2001 Coll. (int.tr.).
India	27 September 1999	CR: 1 January 2000 I: 1 April 2000	301/1999 Coll.
Indonesia	26 January 1996	1 January 1997	67/1996 Coll.
Iran	4 August 2016	1 January 2017	47/2016 Coll. (int.tr.)
Ireland	21 April 1996	CR: 1 January 1997 I: 6 April 1997 / 1 January 1997	163/1996 Coll.
Israel	23 December 1994	1 January 1995	21/1995 Coll.
Italy	26 June 1984	1 January 1985	17/1985 Coll.
Japan	25 November 1978	1 January 1979	46/1979 Coll.
Jordan	7 November 2007	1 January 2008	88/2007 Coll.
Kazakhstan	29 October 1999	1 January 2000	3/2000 Coll. (int.tr.)
Korea	3 March 1995	1 January 1995, WHT 3 March 1995	124/1995 Coll.
The Korean People's Democratic Republic	7 December 2005	1 January 2006	3/2006 Coll. (int.tr.)
Kuwait	3 March 2004	1 January 2005	48/2004 Coll. (int.tr.)
Latvia	22 May 1995	1 January 1996	170/1995 Coll.
Lebanon	24 January 2000	1 January 2001	30/2000 Coll. (int.tr.)
Lichtenstein	22 December 2015	1 January 2016	8/2016 Coll. (int.tr.)
Lithuania	8 August 1995	1 January 1996	230/1995 Coll.
Luxembourg	31 July 2014	1 January 2015	51/2014 Coll. (int.tr.)
Macedonia	17 June 2002	1 January 2003	88/2002 Coll. (int.tr.)
Malaysia	9 March 1998	CR: 1 January 1999 M: 1 January 2000	71/1998 Coll.
Malta	6 June 1997	1 January 1998	164/1997 Coll.
Mexico	27 December 2002	1 January 2003	7/2003 Coll. (int.tr.)
Moldova	26 April 2000	1 January 2001	88/2000 Coll. (int.tr.) Protocol 97/2005 Coll. (int.tr.)
Mongolia	22 June 1998	1 January 1999	18/1999 Coll.
Morocco	18 July 2006	1 January 2007	83/2006 Coll.
Netherlands	5 November 1974	1 January 1972	138/1974 Coll. (int.tr.) Protocol 112/1997 Coll. (int.tr.) Protocol 58/2013 Coll. (int.tr.)
New Zealand	29 August 2008	1 January 2009	75/2008 Coll. (int.tr.)
Nigeria	2 December 1990	1 January 1991	339/1991 Coll., correction 371/1999 Coll. (int.tr.)
Norway	9 September 2005	1 January 2006	121/2005 Coll.
Pakistan	30 October 2015	CZ: 1 January 2016 PAK: 1 July 2016	58/2015 Coll. (int.tr.)
Panama	25 February 2013	1 January 2014	91/2013 Coll. (int.tr.)
Philippines	23 September 2003	1 January 2004	132/2003 Coll. (int.tr.)
Poland	11 June 2012	1 January 2013	102/2012 Coll. (int.tr.)
Portugal	1 October 1997	1 January 1998	275/1997 Coll.
Romania	11 August 1994	1 January 1995	180/1994 Coll.
Russia	18 July 1997	1 January 1998	278/1997 Coll., Protocol 56/2009 Coll. (int.tr.)
Saudi Arabia	1 May 2013	1 January 2013	42/2013 Coll. (int.tr.)
Serbia and Montenegro	27 June 2005	1 January 2006	88/2005 Coll. (int.tr.) Protocol 26/2011 Coll. (int.tr)
Singapore	21 August 1998	CR: 1 January 1999 S: 1 January 2000	224/1998 Coll., Protocol ratif. 24 June 2014
Slovakia	14 July 2003	1 January 2004	100/2003 Coll. (int.tr.)
Slovenia	28 April 1998	1 January 1999	214/1998 Coll.
South Africa	3 December 1997	1 March 1998	7/1998 Coll.
Spain	5 June 1981	1 January 1982	23/1982 Coll.
Sri Lanka	19 June 1979	1 January 1979	132/1979 Coll.
Sweden	8 October 1980	1 January 1981 Capital : 1 January 1982	9/1981 Coll.
Switzerland	23 October 1996	1 January 1996, WHT: 1 December 1996	281/1996 Coll., Protocol 99/2013 Coll. (int.tr.)
Syria	12 November 2009	1 January 2010	115/2009 Coll.
Tajikistan	19 October 2007	1 January 2008	89/2007 Coll.
Thailand	14 August 1995	1 January 1996	229/1995 Coll.
Tunisia	25 October 1991	1 January 1992	419/1992 Coll.
Turkey	16 December 2003	1 January 2004	19/2004 Coll. (int.tr.)
Turkmenistan	18 March 2016	Additional legislative process needed leading to the entry into force of the Treaty
Ukraine	20 April 1999	1 January 2000	103/1999 Coll., Protocol ratif. 24 June 2014
United Arab Emirates	9 August 1997	1 January 1998	276/1997 Coll. Information 122/2004 Coll. (int.tr.)
United Kingdom	20 December 1991	CR : 1 January 1992 UK : 6 April 1992	89/1992 Coll.
United States	23 December 1993	1 January 1993, WHT : 1 February 1994	32/1994 Coll., correction 370/1999 Coll. (int.tr.)
Uzbekistan	15 January 2001	1 January 2002	28/2001 Coll. (int.tr.) Protocol 92/2012 Coll. (int.tr.)
Venezuela	12 November 1997	1 January 1998	6/1998 Coll.
Vietnam	3 February 1998	1 January 1999	108/1998 Coll.
Yugoslavia (Bosnia and Herzegovina)	17 April 1983	1 January 1984	99/1983 Coll. (int.tr.)

The Double Taxation Act with respect to Taiwan will enter into force on 1 January 2021.

The Czech Republic also negotiated agreements on the exchanging of tax information with Andorra, Aruba, the Bahamas, Belize, Bermuda, the British Virgin Islands, the Cayman Islands, the Cook Islands, Guernsey, Isle of Man, Jersey, Monaco and San Marino. Treaties with Ghana, Cameroon, Kosovo, Oman, Senegal and St. Maarten are currently in the ratification process. Negotiations with Botswana, Gabon, Iraq, Kyrgyzstan, Mauritius, Seychelles and Taiwan are ongoing.

Taxation of Individuals – Personal Income Tax

Tomáš Urbášek
PricewaterhouseCoopers
Česká republika, s.r.o.
nám. Svobody 20, 602 00 Brno
+ 420 542 520 255
tomas.urbasek@pwc.com
Petr Mašek
PricewaterhouseCoopers
Česká republika, s.r.o.
nám. Svobody 20, 602 00 Brno
+ 420 542 520 254
petr.masek@pwc.com

Tomáš Ráček
PricewaterhouseCoopers
Česká republika, s.r.o.
nám. Svobody 20, 602 00 Brno
+420 542 520 257
tomas.racek@cz.pwc.com
Dana Hlaváčová
PricewaterhouseCoopers
Česká republika, s.r.o.
nám. Svobody 20, 602 00 Brno
+420 542 520 261
lucie.hlavacova@cz.pwc.com