The Ministry of Finance has submitted to the Government of the Czech Republic an amendment to the Value Added Tax Act, which should come into force on 1 January 2025. The draft amendment introduces extensive changes reflecting European directives and CJEU rulings.  

Below, we have selected the most significant changes under the forthcoming amendment to the VAT Act for 2025: 

Deadline for claiming tax deductions and correcting the tax base 

The period for claiming tax deductions will be reduced from three to two years. In the case of claiming a tax deduction on the basis of a bill of exchange, the time limit will be reduced to 12 months. For transactions where the recipient is liable to pay tax, the three-year period for claiming the deduction will still apply. 

In contrast, the period for correcting the taxable amount is significantly extended from 3 to 7 years from the date of the original supply. However, this period should no longer be interrupted during the court proceedings. 

Obligation to reimburse tax deductions for unpaid claims 

If the debtor fails to pay the claim within 6 months of the due date, he will be obliged to make a correction and thus reduce his tax deduction, either in part or in full, depending on the payment. In the event of a subsequent partial or full repayment of the debt, the taxpayer is entitled to increase the deduction again.  

Changes to VAT on immovable property 

In accordance with the Directive, the test period for claiming exemption on the supply of immovable property should be reduced. According to the new wording of the law, the supply of completed selected immovable property will be exempt except for the first supply of that immovable property. In relation to the lease of immovable property, the lessee will be able to choose to apply VAT also to a person registered for tax in another Member State. 

For the purposes of applying the reduced VAT rate, the current wording of the Act uses the term 'buildings for housing' or 'buildings for social housing', which means, in particular, the construction of an apartment building and the construction of a family house. The definition of the terms is based on the facts set out in the cadastral regulations. According to the proposed legislation, the key use of the building as recorded in the register of territorial identification, addresses and immovable property will now be decisive for the determination of a building for social housing.  

Benefits provided to employees at a discount 

Until now, VAT has been deducted from the price paid to the taxpayer by the employee for discounted benefits provided to employees. The amendment is likely to make VAT on the normal price compulsory. 

Change in the VAT registration limit 

The turnover will no longer be calculated for each of the 12 immediately preceding months, but will be calculated from the first day of the calendar year. Thus, if the turnover for January to December exceeds the limit of CZK 2,000,000, the taxpayer becomes a VAT payer from 1 January of the following year. However, when the turnover exceeds CZK 2 536 500, the taxpayer becomes a taxpayer from the second day after exceeding this higher limit.  

Introduction of a limit for small enterprises 

A new special scheme will be introduced to exempt small businesses established in the territory of another Member State from the application of the tax. Thanks to this change, these entities will not be burdened with obligations related to the domestic VAT system and it is explicitly provided by law that the supply made by a small enterprise is exempt from VAT without the right to deduct tax. Small businesses will be entities whose turnover does not exceed CZK 2 000 000 in the 12 immediately preceding consecutive calendar months. This exemption will cease to be effective when the limit is exceeded. 

Other selected changes are: 

- Limitation of the right to deduct tax on cars over CZK 2 million. For the year 2025 it is planned to abolish the limitation for racing cars and from 2027 to abolish the limitation completely. 
- The reverse charge will now also apply to certain cleaning work. 
- Abolition of the concept of self-created assets. 

 Our tax team will continue to monitor the legislative process for the approval of the VAT amendment and keep you informed of any changes. 

Author: Barbora Plšková - Junior Tax Consultant

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