As we have already covered in an earlier article, in June 2018 the Government of the Czech Republic adopted a set of tax amendments for 2019. The tax package includes significant amendments to the Czech Income Tax Act, the Czech VAT Act and the Tax Code, of which we will now discuss the most important changes to the Czech VAT Act.
The country’s Ministry of Finance prepared an extensive amendment to the Czech VAT Act, which was presented to the Lower House (Chamber of Deputies) in June 2018. As the Lower House of the Czech Parliament has only begun to discuss the draft amendment, it might go through significant changes. However, we would like to point out some of the most important envisaged changes to the Czech VAT Act, that should come into effect (with certain exceptions) in 2019.
Vouchers
One of the most significant changes to the Czech VAT Act will be the implementation of the EU directive governing vouchers. In January 2019, Council Directive (EU) 2016/1065 shall become effective on the basis of which EU Member States are obliged to unify the rules for issuing and using vouchers. Basically, single-purpose and multi-purpose vouchers will be distinguished. Single-purpose vouchers are vouchers for supplies for which there is sufficient advance information (i.e. the tax rate and the place of delivery or performance). The other vouchers are multi-purpose vouchers. The transfer of a single-purpose voucher shall be considered to be a supply of goods or provision of services which is no longer subject to tax at the time the voucher is used. With multi-purpose vouchers, the opposite procedure shall apply.
Ban on the application of VAT to the lease of residential houses
Currently, VAT payers may decide whether or not they will tax the rent for real estate leased to another VAT payer. In future, the taxation of rents will not be possible in the case of buildings intended to serve as a principal residence. As a result, the landlord shall not have the right to claim related VAT deductions. If the right to deduct VAT was already exercised in the past, this will have to be adjusted by repaying its proportional share. However, this change should take effect as late as 2021.
Deduction adjustments in connection with repair of real estate
Adjustments to VAT deductions should be made not only for technical improvements but also in the case of real estate repairs. Taxpayers who carry out real estate repairs to a value exceeding CZK 200,000 (roughly EUR 7,700) excluding VAT shall be obliged to monitor whether the real estate is sold applying tax exemption within a period of 10 years after the repair was carried out. If so, the taxpayer shall repay a part of the originally claimed VAT deduction.
Obligation to make the necessary effort to deliver tax documents
The amendment to the Czech VAT Act shall impose a new obligation on the issuers of tax documents. The taxpayer shall be obliged to make the necessary effort to deliver a tax document within the set time limit. In the case of doubt as to whether the taxpayer has fulfilled this obligation, the tax administration shall be allowed to impose on the taxpayer a special recording obligation.
The above obligation might have positive effects for the issuers of credit notes. According to the draft, credit notes may be included in VAT returns in the period in which the taxpayer sends it to the customer if they make the necessary effort to deliver the credit notes. Currently, taxpayers may reduce output VAT only after the customers have received the credit notes.
Other changes expected to the Czech VAT Act
From 2019 new requirement will be in effect for corrective tax documents (credit and debit notes). It means that both credit and debit notes shall include the date of taxable supply, which should be the date when the correction was performed. Currently, there are frequent discrepancies between how customers and suppliers show credit and debit notes in control statements.
According to the current legislation, persons and entities that have registered for VAT may claim VAT deductions for costs incurred within 12 months prior to registration in their first tax return. According to the amendment, tax deductions may be claimed for long-term investments for a period of 5 years before the registration for VAT was made.
The amendment related to taxation on the supply of goods with assembly by a Czech tax non-resident shall apply to situations where both the supplier and the customer are VAT payers, the supplier being a Czech tax non-resident. Under the current rules, this supply of goods with assembly is subject to self-assessment by the customer. According to the draft amendment, the supplier shall be obliged to issue the invoice for such supply with Czech VAT.
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