Increase in VAT registration limit: main tax implications for entrepreneurs
The government has prepared tax changes aimed at simplifying tax obligations for entrepreneurs next year while also proposing to extend the extraordinary tax depreciation regime to 2022 and 2023.
The Ministry of Finance has prepared an amendment to the VAT Act and the Income Tax Act and other related laws. The most important changes are an increase in the annual limit for obligatory VAT registration from CZK 1 million to CZK 2 million and an increase in the annual income limit for the application of the lump-sum tax regime.
Increase in limit for VAT registration to CZK 2 million
The draft amendment to the VAT Act increases the annual turnover limit for registration as a VAT payer to CZK 2 million. This fits in with the increased limit in the amended VAT Directive of EUR 85,000 from 2025. The Czech Republic's request to increase the limit as early as 2023, i.e., before the amendment to the EU Directive comes into force, has already been approved at the EU level.
The draft amendment introduces the possibility to deregister from VAT with an annual turnover of less than CZK 2 million. According to the transitional provisions, VAT payers will be able to apply for the cancellation of their VAT registration on the grounds of the increase of the turnover limit in the law even before 1 January 2023, i.e., before the law comes into force. Thus, they will not be considered VAT payers as of the beginning of 2023 and will be able to apply the lump-sum tax regime on that date if the decision to cancel their registration is delivered to them before 16 January 2023.
Increase in limit for applying lump-sum tax regime
In connection with the increase in the upper limit for obligatory VAT registration, the ministry proposes to also increase the income limit for applying the lump-sum tax regime to CZK 2 million a year. However, unlike now, the lump-sum tax amount including social security and health insurance contributions should not be the same for all taxpayers, as the amendment introduces several taxation levels. The proposed wording is likely to be subject to changes during the comment procedure, as the public authorities have reservations about the technical feasibility and practical application of the proposed changes.
Extraordinary, accelerated depreciation charges for 2022 and 2023
The Ministry of Finance proposes to extend the regime of extraordinary, accelerated depreciation for assets classified in the first and second depreciation group, acquired in 2022-2023, for which the taxpayer is the first depreciator. This regime was already in place for assets acquired in 2020-2021 to mitigate the impact of the COVID pandemic on businesses. In 2022 and 2023, it will also be possible to depreciate assets classified in the first depreciation group without interruption over 12 months instead of the standard three years, and assets classified in the second depreciation group without interruption over 24 months instead of the standard five years. In the first 12 months, the taxpayer will be able to claim depreciation of up to 60% of the input cost.
The bill also contains some other points, such as the modification of penalties for the failure to file a VAT ledger statement.