The Ministry of Finance has introduced a significant amendment to the VAT Act, which was sent to the Government for discussion. Most of the changes are expected to come into force on 1 January 2025.
VAT Registration
The current rules for mandatory VAT registration are becoming slightly more complicated. In addition to the existing turnover threshold of CZK 2,000,000, a second threshold of CZK 2,536,500 will be imposed. These thresholds will affect the moment from which the subject becomes a VAT payer.
The period for which the turnover thresholds will be tracked is to be changed to a calendar year.
Exemption for the Supply of Listed Immovable Property
The tax will be imposed only on the first supply of the relevant immovable property (e.g. building, unit) during the reduced two-year period beginning from the date of the completion of the property. The current period is 5 years, regardless of whether it is the first supply or not. There is also a suggested modification in the definition of “substantial change of immovable property”, which affects the period for tax exemption of the supply of immovable property. The 50% threshold of the value of the building improvements will be lowered to 30% and newly measured against the selling price of the immovable property.
The suggested changes in real estate should be effective after 1 July 2025.
Reduction of the Period for VAT Deduction
The period for VAT deduction should be reduced from the current three years to two years. The new two-year period is on a calendar year basis, compared to the current one. This would mean that supplies received at the beginning of the year will have a longer period for VAT deduction than supplies received at the end of the year.
Bad Debt Receivables
The possibilities for a creditor to adjust the tax base and thus reclaim VAT on bad debts will be extended. This possibility will also apply, for example, to unpaid bad debt receivables not registered in insolvency proceedings or not pursued in ongoing forfeiture proceedings against a debtor. A brand-new category will also cover unpaid receivables of low value (up to CZK 10,000).
Outstanding Liabilities
The draft amendment introduces an obligation for debtors to refund the VAT deduction claimed on liabilities they have not fully paid before the end of the sixth month after the due date. If a debtor subsequently pays the liability, the deduction can be reclaimed.
Further, there are changes in the definition of residential housing and building plots.