2019 amendment to VAT Act: first four biggest changes
The amendment to the VAT Act has passed through its comment procedure and is about to be submitted to the Chamber of Deputies. Below we present the first four most significant changes.
Reinvoicing of lease-related services
The proposed amendment actually re-introduces the old fiction of determining the date of supply for the reinvoicing of services directly related with leases. Such services are not part of a lease contract and represent separate and mutually separable supplies, i.e. janitorial, security or gatekeeper’s services, etc.
The fact that the date of supply will only be determined once the lessor ascertains the actual reinvoiced amount is a significant relief for the majority of lessors now having problems to adhere to existing legislation that sets the date of supply generally as the date the service is provided (unless an invoice is issued earlier), i.e. at a moment lessors usually do not yet know the reinvoiced amount.
Adjusted deduction of VAT on repairs of real estate costing more than CZK 200 000
Another change relates to VAT deductions claimed by the taxpayer on repairs of real property. According to the proposed amendment, taxpayers who have carried out repairs of their real property costing more than CZK 200 000 (please note: this amount excludes VAT!) would have to monitor whether the real property is sold within a period of ten years of the date the repair is carried out. The decisive factor is the amount of all received taxable supplies relating to the repair.
In the case of a VAT-exempt sale of the real property in the ten-year period, the VAT deduction originally claimed would have to be corrected. If this provision is implemented, taxpayers will have to keep accurate records of any performed repairs to help them assess the correct VAT regime upon the sale of real estate.
Changes in assessing subsidies
Entities receiving subsidies from various sources, including subsidies towards the results of operations, should take note. The amendment proposes to exclude the current definition of a price subsidy, according to which subsidies towards the results of operations are not included in the tax base. This may be in effect from the beginning of 2019.
It would generally be necessary to assess whether received subsidies directly relate to provided supplies and whether these subsidies have a direct effect on the price charged to customers. If so, such a subsidy would represent a payment for the relevant supply from which VAT must be paid (if this involves a taxable supply). According to the explanatory report, the above criteria will also apply when subsidies towards the results of operations are received.
Duty to make the necessary effort to deliver a tax document
Under the new amendment, taxpayers should prepare for another duty when issuing tax documents, as the amendment explicitly requires that taxpayers make all efforts necessary to deliver tax documents within the deadline for issuing tax documents. According to the explanatory report, taxpayers must ensure that a tax document is sent to the recipient’s contact address no later than on the last day of the time period. This will not be deemed fulfilled if taxpayers send tax documents within the deadline but at the same time know or could know that the recipient is not staying at the given address, is unknown or uncontactable.
Further changes brought by the amendment will be discussed in the next issue of Tax and Legal Update.