Proposed changes to VAT

The proposed amendment to VAT, which should become effective from 2019, contains a number of changes related to the amendment of the EU VAT Directive or to the conclusions of European case law. Other changes relate to the amendment of the Electronic Record-keeping of Cash Sales Act and to a change to the tax rates of selected supplies.

VAT on vouchers

The law will govern the rules for applying VAT to the provision and acceptance of vouchers (with respect to new European rules), and single-purpose and multi-purpose vouchers will be differentiated. Up to now, applying VAT to vouchers was governed by the official interpretation of the Financial Administration.

VAT on cross-border electronic services provided to non-taxable entities

Currently, the place of supply is the country of the receiver of the services, which means that providers of such services must pay VAT in the given countries. The providers must register for VAT in the given countries or they can pay VAT via the special mini one-stop-shop (MoSS). This method can be an excessive burden for small, middle-size, or new firms. The proposal suggests that the VAT duty will arise in the recipient's country after a certain limit of provided services is reached (EUR 10,000). Some simplification is suggested for the rules of issuing bills.

Changes to the corrections of the tax base, the tax amount, and issuing and delivering bills

The subsequent corrections of the tax base will be governed by new rules treating the moment the given correction should or could be made and the deadline for issuing a corrective tax document.

A new aspect is that the VAT payer will be obliged to make all necessary efforts to deliver the tax document in the term of its issuance; an obligation to record this could be imposed.

Extension of the possibility to reduce VAT on irrecoverable receivables

The amendment proposes entirely new treatment for the corrections of VAT on irrecoverable receivables. The set of taxable events where the corrections can be made will be extended. The current treatment recognises corrections of tax on unpaid taxable supply only with respect to receivables from debtors in insolvency in proceedings. Now the change should concern also receivables that are, for example, subject to liquidation or inheritance proceedings.

Changes to VAT on the repair of real estate and the lease of residential real estate

An adjustment to the deduction of VAT carried out due to a change in the use of real estate should now apply also to VAT claimed with respect to the repair of real estate amounting to more than CZK 200,000 (received taxable supplies without VAT).

Renting residential premises will always be VAT exempt (effective from 2020), i.e. without the possibility of applying VAT if the premises are rented to a VAT payer who uses the premises for an economic activity. The VAT claim from received supplies will not be applied to renting residential premises. This change will concern especially renting apartments, family houses, residential premises or buildings where at least 60 per cent of floor area is residential premise.

Changes to claiming VAT deductions at registration

Newly registered payers will be able to claim VAT at registration on long-term assets acquired in a period of 60 months before the registration.

Extension of applying the reduced 10% VAT rate (very likely effective from July 2019)

The reduced 10% tax rate should apply, for example, to catering services and beverage services, including draft beer, water treatment, waste treatment, public water supply, sale of cut flowers, minor repair of shoes, clothes and bicycles.