2019 amendment to the VAT Act: What changes may the amending proposals bring?

An amendment to the VAT Act, with planned effectiveness during the course of 2019, has recently passed through the second reading in the Chamber of Deputies. Below we present a number of submitted amending proposals.

Statutory representatives of limited liability companies subject to VAT?
This widely-discussed issue involves the proposed new concept of limited liability company statutory representatives as persons subject to VAT, especially the question whether and on what terms limited liability company statutory representatives (i.e. some of them depending on whether criteria such as the elements of subordination have been met) become persons subject to VAT and, potentially, VAT payers after exceeding the limit of CZK 1 million. The proposed definition of persons subject to VAT remains unchanged, i.e. persons whose income is taxed as income from employment will not be explicitly excluded from persons liable to VAT.

Using the amending proposal, the budget committee de facto requires to keep the definition of activities that are not regarded as independent economic activities unchanged, i.e. employee activities and activities of persons that are taxed as income from employment are not to be considered independent economic activities, which means that no significant changes to the current state will occur.

Leasing not earlier than from 2020
An interesting topic (not only) for lease companies is the response of our lawmakers to the Court of Justice of the EU’s recent case law. CJEU Decision No. C-164/16 in the Mercedes-Benz case significantly affects how finance leases are perceived. Under certain circumstances, it used to be possible to treat a finance lease as the provision of services, allowing for the gradual payment of VAT in the individual lease instalments. The amendment responds to the newly defined principles and concept of finance lease arrangements, i.e. clarifying the definition of a finance lease in a way to better reflect the transaction’s economic nature.

According to the amendment, a supply of goods will also be defined as the handing over of goods for use pursuant to a contract if the handing over has been agreed and if it is clear at the contracting date that the transfer of the ownership title to the hired goods after the end of the lease term is the only economically reasonable option. Decisive will not only be the text of a lease contract but also the setting of parameters for the future repurchase of the goods. This provision should not become effective earlier than from 1 January 2020 to give the entities concerned sufficient time to prepare for this change.  

Doing away with the new price subsidy definition?
The amendment’s proposed definition of a price subsidy may entirely be cancelled, as it has given rise to heated discussions and concerns among subsidy recipients. This was discussed in the last issue of the Tax and Legal Update.

Lower VAT rates
Some other motions to amend the VAT Act include the reduction of VAT rates or, in other words, their restoration to levels applicable in 2010. If this motion is passed, the basic VAT rate would decrease to 20% (or 19%) and the only reduced VAT rate would amount to 10%.

Effectiveness of amendment?
As the amendment is not likely to be passed in sufficient time to become effective from 1 January 2019, the budget committee proposes to postpone its effectiveness to the month following the month the amendment is promulgated in the Collection of Laws. Please remember that for certain areas, its effectiveness will differ. 

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