Amendments to the Czech Republic VAT Act that modify nearly 500 points of the law were approved as part of a tax package in December 2024, with most changes taking effect as from 1 January 2025, giving taxable persons and VAT payers little time to adapt to the new rules. In addition to the technical changes to domestic VAT law, the amendments transpose new EU rules into domestic law.
The fundamental change in the tax package is the requirement for taxable persons to track not only one but two turnover figures. Until the end of 2024, a taxable person became a VAT payer if their turnover in the Czech Republic exceeded CZK 2 million over 12 consecutive months. However, as from 1 January 2025, a taxable person must also track the amount of turnover of CZK 2,536,500 in the Czech Republic, and the relevant period is now based on a full calendar year instead of 12 consecutive months.
The rules for when a taxable person becomes a VAT payer also have changed. Previously, a person became a VAT payer on the first day of the second month following the month in which the taxable person exceeded the CZK 2 million turnover threshold. A person now becomes a VAT payer for VAT purposes on the day after it exceeds the second turnover threshold in domestic transactions (CZK 2,536,500). Under the new rules, it will no longer be possible for a VAT payer to exploit the longer interim period between the time at which it exceeds the turnover threshold and the point at which it actually becomes a VAT payer.
Although a person liable for VAT becomes a VAT payer on the day after the second turnover is exceeded, the taxable person has 10 working days to submit the VAT registration to the tax office. The tax office will learn about the change in status after a delay, which in theory could create confusion for administration purposes, and customers wishing to claim a VAT deduction will be in limbo before their supplier's VAT registration appears in the register of VAT payers.
Among the most significant changes in the tax package is the obligation to repay a VAT deduction if a liability remains unpaid six months after the month in which the due date expired. This new provision applies to liabilities arising from 1 January 2025. This provision should deter delays in payment, particularly among connected persons for cash flow reasons, but on the other hand, it may positively impact the orderly payment of debts.
A significant change that will apply as from 1 July 2025 will be an adjustment to the delivery of buildings. Currently, any supply made within five years of the first occupation (or the first occupation after a substantial alteration) is taxable. Under the new rules, new construction will only be subject to tax once within 23 months of the month of completion (or substantial alteration). Voluntary taxation of the supply of a building that would otherwise be VAT-exempt will remain available. The calculation of the substantial alteration limit will also change significantly and an expert's report will no longer be required.
The scope of financial activities that are exempt from VAT is narrowed, starting from January 2025, with further reductions to follow in 2026. According to case law, these activities do not qualify as payment services, which remain tax-exempt, but rather involve the collection of debt, even if the debt is not yet due.
Included in the tax package are new EU rules that need to be implemented into domestic law, i.e., the special scheme for small and medium-sized enterprises (SMEs), rules relating to refunds of unjustified VAT paid and new rules on virtual events.
The EU special VAT scheme for SMEs allows qualifying SMEs to avoid being subject to VAT if their annual turnover is below a defined threshold. Before 2025, the scheme applied only to domestic transactions of established persons in the Czech Republic, not cross-border transactions in other EU member states. This has now changed so that qualifying SMEs can elect to opt into the scheme and thus reduce their VAT obligations; for example, a craftsman from Slovakia will no longer have to pay VAT in the Czech Republic but may choose to register in the small businesses register of its home country, Slovakia. Provided the craftsman’s annual EU turnover does not exceed EUR 100,000, it will not be required to pay Czech VAT.
There also are new conditions for refunding unjustified tax paid to a supplier, although the effective date of this measure has been postponed to 1 January 2026. The refund may be made if the normal regime instead of the reverse charge regime is erroneously applied. The Czech tax authorities impose strict conditions for refunds, so such cases are likely to be exceptional.
Finally, the Czech Republic has implemented the new VAT place of performance rules for virtual events, such as webinars. The place of performance will now usually be the place where the participant has its registered seat or place of residence. The time limit for claiming a VAT deduction has also been shortened from three to two years, as most VAT payers claim the deduction in the first or second year anyway, giving the tax office more time to check the claim. Conversely, the deadline for correcting the tax base will be extended to seven calendar years.
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BDO in Czech Republic
Summary of the Changes
The fundamental change in the tax package is the requirement for taxable persons to track not only one but two turnover figures. Until the end of 2024, a taxable person became a VAT payer if their turnover in the Czech Republic exceeded CZK 2 million over 12 consecutive months. However, as from 1 January 2025, a taxable person must also track the amount of turnover of CZK 2,536,500 in the Czech Republic, and the relevant period is now based on a full calendar year instead of 12 consecutive months.The rules for when a taxable person becomes a VAT payer also have changed. Previously, a person became a VAT payer on the first day of the second month following the month in which the taxable person exceeded the CZK 2 million turnover threshold. A person now becomes a VAT payer for VAT purposes on the day after it exceeds the second turnover threshold in domestic transactions (CZK 2,536,500). Under the new rules, it will no longer be possible for a VAT payer to exploit the longer interim period between the time at which it exceeds the turnover threshold and the point at which it actually becomes a VAT payer.
Although a person liable for VAT becomes a VAT payer on the day after the second turnover is exceeded, the taxable person has 10 working days to submit the VAT registration to the tax office. The tax office will learn about the change in status after a delay, which in theory could create confusion for administration purposes, and customers wishing to claim a VAT deduction will be in limbo before their supplier's VAT registration appears in the register of VAT payers.
Among the most significant changes in the tax package is the obligation to repay a VAT deduction if a liability remains unpaid six months after the month in which the due date expired. This new provision applies to liabilities arising from 1 January 2025. This provision should deter delays in payment, particularly among connected persons for cash flow reasons, but on the other hand, it may positively impact the orderly payment of debts.
A significant change that will apply as from 1 July 2025 will be an adjustment to the delivery of buildings. Currently, any supply made within five years of the first occupation (or the first occupation after a substantial alteration) is taxable. Under the new rules, new construction will only be subject to tax once within 23 months of the month of completion (or substantial alteration). Voluntary taxation of the supply of a building that would otherwise be VAT-exempt will remain available. The calculation of the substantial alteration limit will also change significantly and an expert's report will no longer be required.
The scope of financial activities that are exempt from VAT is narrowed, starting from January 2025, with further reductions to follow in 2026. According to case law, these activities do not qualify as payment services, which remain tax-exempt, but rather involve the collection of debt, even if the debt is not yet due.
Transposition of EU Law into Czech Law
Included in the tax package are new EU rules that need to be implemented into domestic law, i.e., the special scheme for small and medium-sized enterprises (SMEs), rules relating to refunds of unjustified VAT paid and new rules on virtual events.The EU special VAT scheme for SMEs allows qualifying SMEs to avoid being subject to VAT if their annual turnover is below a defined threshold. Before 2025, the scheme applied only to domestic transactions of established persons in the Czech Republic, not cross-border transactions in other EU member states. This has now changed so that qualifying SMEs can elect to opt into the scheme and thus reduce their VAT obligations; for example, a craftsman from Slovakia will no longer have to pay VAT in the Czech Republic but may choose to register in the small businesses register of its home country, Slovakia. Provided the craftsman’s annual EU turnover does not exceed EUR 100,000, it will not be required to pay Czech VAT.
There also are new conditions for refunding unjustified tax paid to a supplier, although the effective date of this measure has been postponed to 1 January 2026. The refund may be made if the normal regime instead of the reverse charge regime is erroneously applied. The Czech tax authorities impose strict conditions for refunds, so such cases are likely to be exceptional.
Finally, the Czech Republic has implemented the new VAT place of performance rules for virtual events, such as webinars. The place of performance will now usually be the place where the participant has its registered seat or place of residence. The time limit for claiming a VAT deduction has also been shortened from three to two years, as most VAT payers claim the deduction in the first or second year anyway, giving the tax office more time to check the claim. Conversely, the deadline for correcting the tax base will be extended to seven calendar years.
Petr Linx
BDO in Czech Republic