VAT Act amendment coming into effect: overview of main changes

Changes to the right to deduct VAT

After 1 January 2025, it will be possible to claim the right to deduct VAT on received supplies until the end of the second calendar year immediately following the calendar year in which the right to deduct arose. This in principle means that the period in which claims can be made may last up to 35 months (e.g., for supplies received in January 2025, the last period in which a claim can be made will be December 2027). This time limit does not apply to supplies under the reverse charge regime where an exception is already regulated by the current wording of the VAT Act.

Furthermore, the time limit for correcting the tax base on the supplier's side and the related corrections of the VAT deduction on the customer's side has changed. For taxable supplies performed, it will be necessary to keep track of the reasons for making these corrections (e.g. granting a discount or returning a taxable supply) for a period of seven years. The main reason for extending the time limit is mainly the provision of warranties. However, in the case of advances, the three-year time limit for correcting the tax base will remain.

The time limit for correcting the input VAT deduction due to correction of the tax base on the supplier’s side differs depending on the direction of the correction: if the VAT deduction is to be reduced, the time limit shall be seven years as mentioned above (or three years for advances); if the VAT deduction is to be increased, the time limit shall be the same as the time limit for claiming the VAT deduction (i.e. the correction shall be made no later than the end of the second year following the year in which the obligation to correct the deduction arose).

Changes in overdue receivables

From 1 January 2025, the conditions for correcting the tax base for irrecoverable debts shall be relaxed. It will no longer be necessary for the customer (debtor) to be the VAT payer. Furthermore, the time elapsed from the issue of the first enforcement order will be reduced to one year. In the case of insolvency, the condition that the debtor must be subject to insolvency proceedings to make the correction shall be eliminated, and it will no longer be necessary to have the outstanding receivable registered in the insolvency proceedings within the deadline set by the court. Creditors will thus be able to recover the VAT unpaid by the customer by correcting the tax base back more often.

The most significant change, especially for companies carrying out B2C transactions, is the new grounds for making the correction, i.e. the correction for small receivables. For tax base correction purposes, small receivables are defined as receivables up to CZK 10 thousand and overdue for more than 6 months. One condition for making these corrections will be to call on the debtor twice to pay the receivable. In addition, the annual total of receivables for which the creditor will make a tax base correction against one debtor cannot exceed CZK 20,000.

Once the amendment to the VAT Act takes effect, the supply recipient will have to keep close track of overdue receivables. The new wording of the law obliges the recipient to correct the right to deduct and reduce the VAT deduction if the receivable is not paid within 6 months after its due date, up to the amount of the unpaid receivable. If the receivable was partially satisfied, only the unpaid part of the receivable shall be corrected. If the receivable is subsequently paid in full or in part, the VAT payer is entitled to again increase their right to deduct.

Liability for unpaid VAT

In general, a supply recipient with a place of supply in the Czech Republic is liable for any underpayment of VAT on that supply or consideration if at the time when the obligation to declare tax arose the supply recipient knew or should have known and could have known that the VAT on that supply would not intentionally be paid.

The amendment to the VAT Act will shift the burden of proof consisting of the knowledge test (knew, should have known and could have known) from the tax administrator to the taxpayer. This means that, for the purposes of the liability for unpaid VAT, supply recipients will have to prove that they acted in good faith, i.e., that they were unaware of the supplier's intention not to pay the tax. A more widespread use of the concept of liability for unpaid VAT can therefore be expected.

Immovable assets

Given the delayed effective date (1 July 2025) of the changes to immovable assets, we only briefly summarise the planned changes:

• To classify buildings as buildings designated for housing and social housing purposes, the new VAT Act will not refer to the Construction Act but directly to the information entered in the real estate register.
• The amendment to the VAT Act will divide the relevant provisions on the supply of immovable assets into separate sections: the supply of land, and the supply of selected immovable assets.
• The new VAT Act will explicitly consider land that is designated for development according to the municipality's zoning plan as building land.
• As regards the supply of selected immovable assets, only the first supply defined as the supply before the end of the second year after the completion of the building or its substantial alteration will be exempt from VAT.
• A substantial change to the selected real property will be defined directly in the act, with a single criterion: a 30% increase in price compared to the value before the alteration.
• The concept of internally produced fixed assets will be abolished: the taxpayer will reduce their right to deduct using the coefficients applicable at the time of their acquisition and adjust the claimed deductions using the current year coefficient in the year the relevant assets were put into use.