Value added tax in Czech Republic 2024-2025

Value Added Tax (VAT) in the Czech Republic is an important component of the indirect tax system. It is not collected directly from taxpayers, but through the mechanism of including the tax in the price of goods and services, which means that end consumers actually pay the tax when they buy.

VAT rates from 1 January 2024

The following VAT rates apply in the Czech Republic:

• Base rate: 21%. This rate applies to most goods and services.
• Reduced rate: 12%. Applies to certain categories of goods and services, such as some food products, books, medicines and medical supplies.
• Zero rate: 0%. Applies to exported goods, some international services, and in certain cases books.

VAT is calculated as the difference between the cost of goods or services sold (output) and the cost of goods or services purchased (input). For example, a furniture manufacturer buys materials for CZK 5,000 and sells a finished table for CZK 6,050, including VAT at a rate of 21%. The difference of CZK 1,050 is VAT, which the manufacturer is obliged to transfer to the state budget.

The basic principles and rules for collecting VAT are laid down in Law 235/2004 Coll. This law establishes the obligations of VAT payers, the procedure and deadlines for declaring the tax, as well as the conditions and procedures for exemption from the tax or the application of reduced rates.

VAT plays a key role in the fiscal system of the Czech Republic, providing a significant portion of tax revenues. At the same time, the VAT system requires entrepreneurs-taxpayers to be careful in accounting and prompt in transferring collected amounts to the budget, which emphasizes its importance both for the country's economy and for each entrepreneur.

What are the VAT rates in the Czech Republic?

In the Czech Republic, three main VAT rates apply from 2024:

1. Base rate – 21%: This rate applies to a wide range of goods and services, including soft drinks, draught beer in restaurants, cut flowers, and household waste collection and recycling services. Also included are hairdressing, entertaining, house cleaning, and shoe, clothing and bicycle repairs.
2. First reduced rate – 12%: Applies to certain categories of goods and services, which include food, certain medical devices, public transportation, construction work, medicines, animal feed, funeral services, live trees, plants, seeds, radiopharmaceuticals, child car seats, drinking water, malt, starches, wheat gluten and mixtures of these products.
3. Zero rate - 0%: Applies to books and colouring books, and formerly to postal, financial and insurance services, health care, social assistance, radio and television broadcasting, education.

Categories of services and goods exempt from VAT include radio and television broadcasting, social assistance, education and training, real estate rental, and insurance activities.

Important aspects for VAT payers:

If you are or plan to become a VAT payer, you need to determine exactly what rate the goods or services you offer fall under. To do this, you can refer to the appendix to the VAT Law, which provides a detailed list of goods and services with the corresponding VAT rates.

This information will help you to correctly calculate the tax and avoid mistakes when paying and declaring it.

How to calculate VAT in the Czech Republic?

To calculate VAT in the Czech Republic, you can use the formula you specify. This allows you to easily determine the amount of value added tax included in the final price of a product or service. Here's how to do it in practice:

Example of VAT calculation:

Let's say you bought a product and you know the final price with VAT. To calculate the basic price of the product without VAT and the VAT itself, use the following method:

1. Determine the VAT rate, which applies to your product or service. For example, 21% or 12%.
2. Use the coefficientxxx, which corresponds to your VAT rate: For a rate of 21%, xxx will be 1.21. For a rate of 12%, xxx will be 1.12.
3. Calculate the price without VAT. If the final price of the product with VAT, for example, is 1210 CZK, then the price without VAT for the 21% rate will be:

Price without VAT=Price with VATx=12101.21≈1000 CZK\text{Price without VAT} = \frac{\text{Price with VAT}}{x} = \frac{1210}{1.21} \approx 1000 \text{ CZK}Price without VAT=xPrice with VAT=1.211210≈1000 CZK

1. Calculate the VAT amount, subtracting the price without VAT from the price with VAT:

VAT=Price with VAT?Price without VAT=1210?1000=210 CZK\text{VAT} = \text{Price with VAT} - \text{Price without VAT} = 1210 - 1000 = 210 \text{ CZK}VAT=Price with VAT?Price without VAT=1210?1000=210 CZK

So, if you know the final price of an item with VAT, you can use this formula to calculate both the VAT amount and the price of the item without VAT. This is useful for accounting, preparing tax returns, or simply to understand what percentage of the purchase is tax.

Who is a VAT payer in the Czech Republic?

In the Czech Republic, VAT payers are companies and entrepreneurs who carry out economic activity and sell goods or services. Although the end consumer actually pays VAT in the purchase price, the responsibility for its calculation, declaration and transfer to the budget lies with the seller, i.e. the VAT payer.

Who is required to register as a VAT payer?

Here are the main criteria for registering as a VAT payer in the Czech Republic:

1. Turnover over 2 million crowns in 12 months: If your annual turnover exceeds this threshold, you are required to register for VAT.
2. Acquisition of real estate through privatization or merger: If, as a result of these transactions, you become the owner of a business that continues to operate, you also need to register for VAT.
3. Business Inheritance: If you inherit an existing business from someone who has died and who was registered for VAT, you will also need to register for VAT.

Benefits of voluntary registration as a VAT payer

In some cases it may be beneficial to voluntarily register for VAT even if your turnover does not exceed the statutory threshold:

• VAT recovery: Registration allows you to deduct VAT paid on incoming invoices (e.g. on raw materials, goods, services), which can significantly reduce the tax burden.
• Attractiveness for other businesses: If your customers are VAT registered, they can deduct the VAT paid on your invoices. This makes doing business with you more attractive as it reduces their own acquisition costs.

Thus, your VAT status affects not only your tax liability, but also your business strategy and relationships with other entrepreneurs and companies.

Obligations of a VAT payer in the Czech Republic

The status of a VAT payer in the Czech Republic entails the following obligations that must be fulfilled in order to comply with the law:

1. Issuance of tax documents

• VAT payers are required to issue tax documents (invoices) that must comply with established requirements, including the indication of VAT and all relevant sales data.

2. VAT accounting

• You need to keep accurate records of all transactions that are subject to VAT, as well as those that allow you to claim a VAT deduction. This includes all incoming and outgoing invoices, as well as any adjustments.

3. Archiving of accounting and tax documents

• All VAT-related documents must be kept in an archive for 10 years. This requirement ensures that tax audits and inspections can be carried out at any time during this period.

4. Submitting a VAT return

• The VAT return must be submitted to the tax office regularly (usually monthly or quarterly, depending on the turnover of your business). The return reflects the amounts of accrued and deducted VAT.

5. Submission of the control report

• A control report is a document that details all transactions subject to VAT and is submitted to the tax office in addition to the VAT return. It helps the tax authorities check the accuracy of VAT calculations.

Complying with these obligations will help you avoid tax penalties and interest, and will ensure that your business is transparent and legal. It is also important to maintain trust between you and your customers, and to strengthen your relationship with tax authorities.

How to register as a VAT payer in the Czech Republic?

To register as a VAT payer in the Czech Republic, you can follow these steps:

Steps to register as a VAT payer online:

1. Go to the official financial management portal. Go to the website and select the section "Electronic reporting on financial management".
2. Access to electronic forms. In the "Electronic Forms" section, find the "Registration" subheading.
3. Filling out the registration form. Find and select the link "Application for registration for value added tax". This form is used for registration from January 1, 2015. Please fill out the form carefully, including all required information about your business activities and financial indicators.
4. Attach the required documents. If you register voluntarily, it is recommended to attach documents confirming your economic activity and turnover for the last 12 months. These may be invoices, contracts, business plans and other relevant documents.
5. Submitting an application. After filling out the form and attaching all the necessary documents, submit the application to the financial department through the system.

Important aspects:

• Registration deadlines: Registration is usually completed within 15 days of application if all required documents are provided.
• Registration effect: If you are required to register for VAT, you become so from the first day of the month following the month in which you submit your application.
• Obligations after registration: Regardless of your registration status, from the date you become a VAT payer, you are required to comply with all relevant obligations, including filing VAT returns and audit reports.

These steps will help you to correctly register for VAT in the Czech Republic and ensure that you comply with all tax requirements.

Who pays VAT in the Czech Republic?

In the Czech Republic, as in many other countries, value added tax (VAT) is an indirect tax that is ultimately paid by consumers of goods and services. The administration and payment of VAT is the responsibility of sellers and service providers.

Who pays VAT?

1. End consumers:

• Although VAT is formally paid by sellers and service providers, economically this tax is included in the price of goods and services, which makes end consumers the actual VAT payers. Each purchase includes VAT, the amount of which is indicated on the receipt.

2. VAT payers (businesses and entrepreneurs):

• These are persons or organisations that are engaged in economic activity and whose sales have exceeded the statutory threshold of 2 million crowns over the past 12 months.
• VAT payers are required to register all their sales and purchases, calculate VAT, collect it from customers and transfer the corresponding amounts to the state budget.
• They must also file tax returns and audit reports on their transactions.

Obligations of the VAT payer

VAT payers are responsible for the correct calculation, accounting and transfer of tax. This includes:

• Issuance of tax invoices indicating VAT.
• Maintaining accounting records for all VAT related transactions.
• Regular submission of VAT tax returns.
• Archiving of all VAT related documents for 10 years for possible audits.

So, in the Czech Republic, every buyer of goods or services actually pays VAT, but the legal obligation to record and remit it lies with the sellers and suppliers. These VAT payers play a key role in the administration and collection of taxes for the state.

Register of VAT payers in the Czech Republic

Checking the VAT payer status in the Czech Republic can be done through several available online resources. The Central Register of VAT Payers is a reliable tool for establishing whether a company or sole proprietor is a registered VAT payer.

How to check the VAT payer status:

1. Central register of VAT payers

• This register is maintained by the Czech Ministry of Finance and is the official source for checking the VAT status of any organization or entrepreneur in the country.
• Access to the registry is usually provided through a web portal or through specialized online services.

2. ARES Online Application

• ARES (Administrative Registers Economic Subjects) is a system that provides access to economic information about Czech companies, including their VAT status.
• In the ARES app, you can search by organisation identification number (I?O) or by company name and get detailed information, including their VAT status.

Verification process:

• Go to the registry website or ARES: Find the section to search for company data.
• Enter the required data: This may be the company identification number (I?O) or its name.
• View results: The results will show whether the company is registered for VAT and provide other relevant information about the company.

These tools are useful not only for checking VAT status, but also for obtaining a wide range of information about a business, which can be important when conducting financial analysis, planning transactions or conducting business negotiations.

How to deduct VAT in the Czech Republic?

In the Czech Republic, VAT paid before the company was registered as a VAT payer can indeed be deducted for 12 months if these goods or services are still listed as business assets at the time of registration. This rule allows businesses to recover VAT paid on purchased goods and services that are directly related to their economic activity.

How does the VAT deduction process work:

1. Definition of qualifying goods and services: You can include in your VAT deduction goods and services purchased in the last 12 months before the date of registration as a VAT payer. The goods must be used as business assets, i.e. used to carry out your economic activity.
2. Documentary evidence: Make sure you have all relevant invoices and documents confirming payment of VAT and purchase of goods or services. It is important that invoices comply with legal requirements and contain all necessary information, including VAT.
3. Registration as a VAT payer: If you are not registered for VAT at the time of making your purchases, you will need to register to take advantage of the VAT deduction.
4. Filling out a tax return: Include VAT deduction information in your first VAT return after registration. Please indicate the VAT amounts you wish to deduct and provide all necessary supporting documents.
5. Saving records: Keep all documents and invoices related to VAT deductions for the period required by law (usually 10 years) for possible tax audits.

Important considerations:

• Timeliness of deduction: VAT deduction must be made within 12 months from the date of purchase of goods or services. The time period starts from the date of purchase until the date of registration as a VAT payer.
• Checks: Tax authorities may check the legitimacy of VAT deductions, so it is important that all documentation is accurate and complete.

These steps will help you correctly deduct VAT and minimize your tax liabilities associated with starting or continuing a business in the Czech Republic.

Benefits of Obtaining a VAT Number in the Czech Republic

Registering for VAT in the Czech Republic can offer several significant benefits to your business, especially if you are just starting out or planning to expand. Here are some of the key benefits of obtaining a VAT number:

1. Possibility of VAT deduction

As a VAT payer, you can deduct the VAT paid on incoming goods and services from the VAT you collect from your customers. This reduces your overall tax burden and can improve your company’s cash flow.

2. Improving business reputation

Registered VAT payers are often perceived as more reliable and stable partners in the business community. This can increase the trust of potential customers and suppliers, which is especially important for new companies.

3. Access to business with other companies

Many corporations and government agencies prefer to work with VAT registered companies as it simplifies their own tax accounting.

4. International trade

For companies engaged in the export of goods, VAT registration facilitates the process of VAT management in cross-border transactions, including the possibility of recovering VAT paid in other EU countries.

5. Regulation of tax accounting

Registered VAT payers can manage their tax accounting and planning more effectively. They have accurate records of their tax liabilities, which facilitates better financial planning and tax compliance.

6. Forced motivation for accounting

As a VAT registered company, companies are required to keep accurate and regular records of all their transactions, which can help to detect and prevent financial errors.

7. Different taxation intervals

Based on your turnover, you can submit VAT returns monthly or quarterly, allowing you to better manage your tax liabilities depending on the size and needs of your business.

VAT registration in the Czech Republic offers significant advantages and can stimulate the growth and development of your business. It not only simplifies tax administration, but also strengthens your business reputation at the national and international level.

When is it more profitable to remain a non-VAT payer in the Czech Republic?

In the Czech Republic, the decision to become a VAT payer or remain a non-payer depends on several factors and can significantly affect the business strategy of an enterprise. Here are some scenarios when remaining a non-VAT payer may be more profitable:

1. Clients are the end consumers

If most of your customers are individuals who cannot deduct VAT, then not registering for VAT may allow you to offer goods or services at a lower price. This can be a competitive advantage, especially if the market is very price-sensitive.

2. Small volume of operations

For small businesses whose annual turnover does not exceed the threshold of 2 million crowns, remaining a non-VAT payer can simplify accounting and reduce administrative costs.

3. Purchases are mainly made within the country

If a business purchases goods or services primarily domestically and these costs do not involve high rates of VAT that could be deducted, then the benefit of registering for VAT may not be so clear.

4. Sale of goods or services with lower VAT

If your business involves selling goods or services that fall under low or zero rates of VAT, registering may not bring significant benefits as the rate of VAT you will be required to charge customers will already be low or zero.

5. Limited VAT deduction options

If the majority of your expenses are not VAT deductible (for example, expenses on food that are not subject to VAT), then the benefit of being able to deduct input VAT may be small.

The decision to register for VAT should be based on a careful analysis of your specific situation, including your cost structure, the nature of your customer base and the volume of sales. In some cases, remaining non-VAT registrant may help reduce prices, simplify accounting and reduce administrative costs, making your business more accessible to end consumers.