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As we have informed you in our previous articles (here or here), an important VAT amendment has been passing through the legislative process. This amendment should bring a number of changes effective from 1 January 2025 (but some of those changes will only come into effect from 1 July 2025). The amendment was approved in the third reading in the Chamber of Deputies and is to be discussed by the Senate. Please find below an overview of the amendment’s major items; the changes will become effective on 1 January 2025, unless otherwise expressly provided.

Turnover, Origination of Obligation to Pay VAT, and Registration Application

• Turnover calculation: On the calendar-year basis (calculated from 1 January of the concerned calendar year).
• Turnover threshold: The value of CZK 2,000,000 continues to apply, and the second threshold is being introduced at CZK 2,536,500 (as an equivalent to EUR 100,000).
• Origination of the obligation to pay VAT: Once the turnover exceeds CZK 2,000,000, a taxable person becomes a VAT payer from 1 January of the following calendar year (unless an earlier date is provided in the application); an exception: where the second threshold at CZK 2,536,500 is reached, the taxable person becomes a VAT payer immediately from the following day.
• VAT registration application: A VAT registration application will have to be filed no later than within ten business days from the key moment.

Cross-border Mode for Small Enterprises

Where statutory conditions are met, supplies of taxable persons will be exempt from VAT (excluding VAT registration) across the EU, and this rule will apply to smaller businesses with an EU turnover of or below EUR 100,000.

Place of Supply in Education Services, Sports and Culture

As the case has been up to now, the place of supply in events from the areas of culture, arts, sports, science and education will be the place of the concerned event taking place. However, the amendment introduces special rules for virtual events: in such case, the place of supply will depend on whether the receiver is a taxable person (the place of supply is the receiver’s registered office) or a non-taxable person (registered office (legal person), residence (natural person).

Modifications in the Area of the Tax Base

• Barter transactions: Explicit regulation applicable to barter transactions with a monetary additional payment (the tax base will involve cash, if the value thereof is higher than the arm’s length price; in other cases, the arm’s length price will be the tax base).
• Tax base at the arm’s length price: Expanded application of the arm’s length price to supplies of an immovable item to employees and their close persons.
• Correction of the tax base pursuant to Section 42: The deadline for the tax base’s correction is being extended to seven years (from the current three years) and it will be calculated from the end of the calendar month, in which the original supply was provided. However, this deadline will not be interrupted over the period of an ongoing legal proceeding. The amendment also explicitly regulates rights and duties of the taxable person who ceased to be a VAT payer.
• Correction of the tax base in case of a bad debt: The amendment expands the possibility to correct the tax base in case of bad debts, specifically for “small” receivables below CZK 10 thousand, in which compliance with the condition of an insolvency or seizure procedure will not be required. The amendment also explicitly regulates rights and duties of a creditor who ceased to be a VAT payer.

VAT Deduction

The amendment reduces the deadline for the application of a VAT deduction. Under the amendment, it will be possible to apply VAT deduction until the end of the second calendar year following the year, in which the VAT deduction entitlement arose. This deadline will continue to be irrelevant in supplies falling into the reverse-charge mode.

In addition to this, the amendment explicitly regulates rights and duties of a taxable person who ceased to be a VAT payer.

Much discussed innovations also include a debtor’s obligation to return a deduction of VAT on outstanding payables, specifically after the expiry of six months from the due date. The new regulation will apply to supplies, in which the entitlement could be applied from 1 January 2025.

Immovable Assets

• Assets developed internally: The amendment abolishes specific rules for assets developed internally. Newly, payers will reduce the VAT deduction as soon as at the moment of application (if the assets are intended for mixed purposes), and the applied coefficient will be evened up at the moment of completion with reference to the actual one in the year of approval.
• Reduced VAT rate (effect moved to 1 July 2025): The amendment modifies the definition of structures for housing and social housing purposes; the reduced VAT rate will newly depend on the entry in the basic territorial identification register, which will draw information from the Real Estate Register.
• Building plot (effect moved to 1 July 2025): Building plot will newly be linked to a municipality’s regional planning documentation for VAT purposes.
• Time test for exemption of a selected immovable asset (effect moved to 1 July 2025): The amendment abolishes the five-year deadline for exemption of a selected immovable asset’s delivery from VAT. Newly, only the first delivery conducted until the 23rd calendar month following the month, in which the immovable asset is considered completed (or after a performed substantial change), will be a taxable supply; other deliveries will be exempt from VAT.
• Substantial change: A substantial change in an immovable asset, which triggers a new exemption time test, will explicitly be defined in law. In addition to this, the value of the costs spent is reduced (from 50% to 30%) and the method of comparing those costs spent is changed (the costs spent will newly be compared to gross profit upon sale).

The above-provided information is a prime summary of the changes ahead. However, the amendment also contains a number of additional modifications that can affect you. Please feel free to contact us, if you need more information about this topic. We are ready to help you.

Michaela Kozminská
kozminska@clarksonhyde.cz