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Changes in VAT from 2024

On 1 January 2024, the consolidation package came into effect. It also includes an amendment to the VAT Act, introducing two major changes to VAT: the consolidation of two reduced rates of 15% and 10% into one 12% rate (reclassification of some items between tax rates) and the limitation of the right to deduct VAT on the purchase of luxury vehicles. Supplies of books and related services are now exempt from VAT with a right to deduct VAT.

The most discussed items regarding their VAT rates have been beverages and medical devices. Non-alcoholic beverages are now subject to a 21% rate, with the exception of selected beverages and tap water subject to a reduced 12% rate. The selected beverages are milk, liquid milk products, and plant-based alternatives to these products (or flavoured versions of these beverages if they retain the essential character of milk/plant-based alternatives to milk).

The category of medical devices to which the reduced 12% rate applies was expanded to include medical devices (according to the relevant EU regulations) intended for single use and falling under the defined codes of the customs nomenclature.

Items that were reclassified from one of the original reduced rates to the basic rate include bicycle repair services, household cleaning services, draft beer, hairdressing services, textile and shoe repair services, firewood, cut flowers, municipal waste collection and transportation and related services, services of authors and performers, and scheduled air mass transportation.

In case of doubt, it is possible to file a request for a binding assessment with the financial administration regarding both the tax rate determination and the correct application of the VAT exemption for the supply of books and related services.

The new amendment to the VAT Act limits the VAT deduction for the acquisition of M1 category passenger cars to CZK 420,000 per a selected car carried as a fixed asset in a taxpayer's books (corresponding to a purchase price of CZK 2 million). This maximum amount must also be reduced proportionally where the selected vehicle is acquired for purposes that give rise to a proportional right to VAT deduction. The limitation should not apply to lease companies acquiring vehicles for the purpose of their subsequent delivery via finance lease arrangements.

The above limit shall also apply to any technical improvements to vehicles. Consequently, the maximum VAT deduction amount shall be examined for both the purchase and any technical improvement to the vehicle. This means that if a taxpayer carries out a technical improvement to a vehicle with an input tax of CZK 150,000 while a VAT deduction of CZK 300,000 was claimed upon the acquisition (purchase) of the vehicle, only another CZK 120,000 (up to the limit of CZK 420,000) can be claimed for the technical improvement.

Under the transitional provisions, the limitation of the right to deduct will not apply to vehicles for which an advance payment in the amount equivalent to common practice was made and taxed by the end of 2023. This also applies to technical improvements carried out on these vehicles.

Finally, we remind payment service providers of their new obligations arising from 1 January 2024. This involves reporting data to the Central Electronic System for Payment Information (CESOP) on a quarterly basis. The reporting obligation is triggered once a payment service provider arranges more than 25 foreign payments for the same payee in a calendar quarter.

In conclusion, please note that on 31 December 2023, an amendment to the Energy Act was published in the Collection of Laws, introducing a change in the determination of the date of taxable supply for the delivery of selected energy commodities from 1 January 2024. For supplies of electricity, gas, heat or cold or the provision of related services, the date of taxable supply shall now be the date on which a billing document is issued and shall occur at the latest on the date of expiry of the time limit for the provision of such billing under the Energy Act or on the date the actual consumption is established (where the Energy Act does not stipulate the obligation to provide such billing). The date of taxable supply for water supplies shall be the date on which actual consumption is established. For electronic communication services, it shall be the date on which the extent of the provided services is established.