Details of 2025 amendment to VAT Act - Part I
The draft amendment to the Value Added Tax Act, currently in the external comment procedure, introduces extensive changes as it transposes EU directives and responds to CJEU rulings and practical experience. Below we present the first part of these significant changes.
Supplies provided to employees
Where an employer provides supplies to their employees (or close persons) for a symbolic price, the relevant tax base will now be determined based on the supplies’ open market value. Employees will continue to be able to accept the supply at any price or at a significant discount, but employers will have a new obligation to pay output tax based on the open market value of such a supply. The new regulation derives from the VAT Directive that allows employees and their relatives to be in legal ties with the employer. This change is likely to lead to higher VAT payments.
Changes to deadlines for claiming the right to deduct VAT or correcting the VAT base
The amendment introduces changes to the time limits for claiming a VAT deduction or correcting the tax base. The deadline for claiming a VAT deduction is to be shortened from 3 to 2 years. If the taxpayer wants to exercise their right to deduct VAT based on a debit note, the deadline shall further be shortened to just 12 months. The only exception to this rule is for received supplies where the obligation to pay the tax falls on the supply recipient. Here, the deadline is already provided in the existing VAT Act.
The amendment also significantly extends the time limit for corrections of the tax base to 7 years from the original supply. The related time limit - the limit for adjusting the deduction – remains the same and is based on the limit for correcting the tax base.
Unpaid liabilities and obligation to refund the VAT deduction
In response to the CJEU's case law, the amendment provides that debtors will be obliged to make corrections and reduce the VAT deduction if receivables are not paid within 6 months after their due date, either in part or in full (depending on the actual payment). Where a receivable arising from a taxable supply is subsequently satisfied in full or in part, the taxpayer is entitled to increase their right to deduct again. This implies that taxpayers will be obliged to monitor the due dates of their liabilities for VAT purposes as well.
Other selected changes
We also recommend paying attention to other proposed changes, such as:
- introduction of a small business regime
- changes to compulsory registration
- abolition of internally produced asset concept
- changes to corrections of the tax base relating to irrecoverable receivables
- certain changes to the supply of immovable property.
As this is still only a draft amendment, it is highly likely that changes will be made during the legislative process. We will discuss the most important ones in the next issue of Tax and Legal Update.