In 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: Czech VAT 15% and 21%, but 2015 brings a 3rd percentage: 10%In Czech Republic there will be in 2015 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 there could be new changes.
VAT Registration obligatory if turnover in 12 months is more than 1.000.000 CZK
The basic rule of thumb is that if your turnover 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 obligated 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 entiltede 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.
VAT Registration voluntarily if turnover in 12 months is less than 1.000.000 CZK
It is also possible to 'voluntarily' register for VAT if your turnover is less than 1.000.000 CZK.
There are arguments for registering voluntarily 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 are obligated 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 obligated 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.
New from 1.1.2013 is that if 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.
New from 1.1.2013 is that 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)
New from 1.1.2013 is that 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)
New from 1.1.2013 is that VAT registration will obligated if you import from an EU country cars, tabacco, alcohol, fuel (with excise duties) or goods exceeding a value of 326.000 CZK.
New from 1.1.2013 is that VAT registration (or "VAT-Light" registration) will obligated if you use or offer services to companies / persons abroad.
Important: Obligated monthly EU Sales List (ESL) from 01.01.2010
Starting 01.01.2010, any VAT-registered s.r.o. or trade license sending invoices to VAT-registered clients based in another EU country are obligated to report electronically on monthly or quarterly basis to the tax office. These reports are no VAT reports, but must be filed in addition to VAT reports. See also
Which VAT can be claimed? Can foreign VAT be claimed?
Czech VAT on expenses made in Czech Republic can be claimed with a regular monthly / quartely VAT Return.
EU VAT can also be claimed to a certain extent (depending on the country), but not in the regular VAT Return. This VAT Return will have to be sent in an electronic format to the foreign tax office, not the czech tax office.
It is a fairly complicated business, and actually it only makes sense for larger clients, such as logistics companies, processing invoices / receipts without foreign VAT (example: fuel, MAUT, truck repairs).
When ordering something from abroad, provide your VAT number to the seller, so that he is able to issue an invoice without VAT (actually: reversed charges). In that case you do not need to claim the foreign VAT back, because you have not paid it in the first place!
VAT on sales outside Czech Republic - only 0% if both seller and buyer are VAT registered.
If your company / trade license is VAT registered, on sales of good and services outside Czech Republic to a client in another European country no VAT is charged, provided that the buyer is also VAT registered.
On sales to private individuals and non-VAT registered businesses in Czech Republic and the European Union VAT is charged, so in that case you have to add the Czech VAT of 21% to your invoice.
Note that for sales to VAT-registered clients, it is obligated to report those sales on monthly / quarterly basis using a special electronic file called an EU Sales List.
There are many exceptions to the above rules, depending on the destination country (especially for consultants: to which country the invoice goes, even though you may actually work in another country) and type of good.
Important: "VAT-Light Registration"
In addition to obligatory and voluntary VAT registration there is a third kind of registration, called 'identikovana osoba k dph' in Czech. It is more or less a "VAT-Light Registration". One gets a VAT number, which makes it possible to send and receive invoices from EU.
Benefit is that, unlike regular VAT Registrants, no actual VAT Returns need to be filed, but only ESLs, and only in the months that invoicing took place.
Downside is that this VAT number can not be used to re-claim VAT on czech expenses and 21% czech VAT will be charged on foreign expenses, also without possibility to claim it back.
With a turnover of 1 M CZK, most Tax Offices will want you to be regular VAT Registrant, and secondly, registration costs and monthly accounting cost are comparable to a normal, full VAT registration.
Therefore, unless you only occasionally send invoices for services abroad, you're probably better off with a regular VAT Registration.
Checking online a VAT number - for Czech and EU VAT numbers
Charging and paying VAT depends on who is VAT registered and where.
Czech clients can be checked in the ARES system, see
VAT of foreign clients based in the EU can be checked here: VIES VAT number validation