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Richard Knobloch | February 29, 2024

Upcoming amendment to the VAT Act with effect from January 2025

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The Ministry of Finance has prepared and circulated for comments a draft amendment to the VAT Act, which is expected to take effect on 1 January 2025. After several years, if approved, it will probably be a major amendment that will affect virtually all areas of VAT. The text of the amendment can be expected to undergo further substantial changes, but given the importance of the proposed changes, we consider it important to draw your attention to the main ones now. The main changes proposed by the amendment include:

  • change of the moment of registration of the taxpayer (in case of exceeding a turnover of CZK 2 million from the beginning of the following calendar year, but in case of exceeding the turnover of CZK 2,536,500 practically immediately);
  • introducing a special regime for small businesses operating in other EU countries;
  • introduction of the obligation of an agent for communication with the tax administrator for entities from third countries;
  • abolition of special rules for self-constructed non-current assets;
  • extension of the domestic reverse charge regime to cleaning services;
  • changes to the time limits for claiming deductions and making corrections to the tax base;
  • changes to the rules for determining the place of performance in the case of virtual access to cultural, sporting, educational and other similar events;
  • extending the obligation to tax up to the level of the normal price also to supplies made for consideration to employees and persons close to them;
  • changes to VAT corrections for bad debts;
  • exclusion of VAT deduction on import of goods by a non-owner in a situation where its value is not included in the value of the supply;
  • exclusion of tax exemptions for certain financial services (in particular asset management services);
  • changes in the exemption and taxation of real estate (shortening of the time test for exemption, detailed definition of substantial changes to a completed building, definition of land as a building plot already in relation to zoning, linking the definition of residential and family house to registration in the Land Registry);
  • changes in the scope of exemption for educational services (e.g. internationally recognised courses at public universities are to be newly exempted);
  • new rules on VAT exemptions/refunds for travellers from third countries;
  • introduction of legal succession in the event of disposal of a business establishment (now referred to as disposal of aggregate assets);
  • introduction of rules for the refund of unjustified tax paid or indicated on a document;
  • clarification of medical devices subject to reduced VAT rates (e.g. blood pressure monitors and oximeters);
  • abolition of the limitation of deduction for passenger cars with a tax base value above CZK 2 million, starting in 2027.

As stated in the introduction, we expect the draft amendment to continue to be amended during the legislative process. We will keep you informed of legislative developments as they occur and will prepare more detailed information and related training.