Indirect tax - Czech Republic

Value Added Tax (VAT) is the main type of indirect taxation in the Czech Republic and in other European Union (EU) countries.

It is a tax on consumption which is applied during the production and distribution process to most goods and services. It is also applied to goods, and certain services, entering the country. Although VAT is ultimately borne by the consumer by being included in the price paid, the responsibility for charging, collecting and paying it to the tax authority at each stage of the process rests with the business making the supply, i.e. the sale.

A business registered for the tax will charge VAT (output tax) on its sales and incur VAT (input tax) on its purchases (including any VAT paid at importation). The difference between the output tax and the deductible input tax in each accounting period will be the amount of VAT payable by the business to the tax authority. Where the input tax exceeds the output tax, a refund can be claimed.

A transaction is within the scope of Czech VAT if the following conditions are met:

•  it is a supply of goods or services, acquisition of goods from other EU member states and import of goods,
•  in certain cases, it is a receipt of services,
• it takes place in the Czech Republic,
• it is made by a taxable person (a taxable person is a person making business independently),
• it is made in the course of any business carried on by that person or entity,
• it is provided for a consideration.

There are two rates of VAT that are applied to goods and services in the Czech Republic; the standard rate and a reduced rate. In addition, some goods and services are exempted from the tax. Especially to books, booklets and e-books where advertising does not exceed 50 % of the content special 0% rate applies.

Businesses that make exempt supplies with no right to the VAT claim are unable to claim all or a part of the input tax that they incur, so the VAT paid to suppliers will be a ‘real’ cost.

Most goods imported into the Czech Republic from outside the EU are subject to VAT. The tax will have to be paid by the importer at the time of importation. Where the importation is for business purposes and the importer is registered for VAT, it may be possible to reclaim the tax (subject to certain rules).

It is also important to note the interaction between VAT and Customs duty. Customs duty is levied across the EU at the place where goods are imported into the community. It is levied in order to bring the costs of goods produced outside the EU up to the same level as those produced within it. Once duty (and VAT) has been paid by the importer, the goods are in ‘free circulation’ and they can then be released for use in the home market. Unlike other indirect taxes, such as VAT, once duty has been paid it is not usually recoverable by the importer. It therefore represents a bottom line cost to the importing business if it cannot be passed on in higher prices. It is therefore very important to ensure that the correct rate of duty is applied. VAT is charged on the value of the importation, including any custom duty.

Another important Czech Republic indirect tax is excise duty levied on tobacco, beer, wine, spirits and mineral oil products.

A ‘person’ who either makes or intends to make taxable supplies of goods or services in the course of a business must register for VAT if the value of its taxable supplies in the Czech Republic exceeds the registration limit considered within the calendar year of CZK 2,000,000 (approximately EUR 80,000). This ‘person’ becomes a taxpayer from the beginning of the following calendar year. Nevertheless, in case of exceeding the turnover of CZK 2,536,500 a person liable to tax becomes a taxpayer practically immediately. A business can register on a voluntary basis even if the registration limit has not been exceeded.

For these purposes, a ‘person’ includes any legal entity. Therefore, once a person is registered for VAT, all of their business activities will be covered by the registration – even if the nature of some of those activities are very different 
Two or more corporate bodies can be registered together as a VAT group if:

•  each of the bodies is established, or has a fixed establishment for the VAT purposes, in the Czech Republic,
• the bodies are related through capital with the share exceeding 40% (or voting rights exceeding 40%) or are controlled by the same person.

A corporate body cannot be treated as a member of more than one VAT group at a time.

The main advantage of the VAT group registration is that supplies of goods or services by a member of the group to another member of the group are disregarded for the VAT purposes. This may prove advantageous if some of the members of the VAT group do not have full VAT claim entitlement and from the VAT cash flow point of view.

However, there are some disadvantages and any decision on whether to group register should be taken with care. For example, all VAT group members (including former members) are jointly and severally liable for the VAT debt of the group during the period of their membership.

Potential VAT that should have been paid and penalty will be assessed by the tax authority if a business fails to register at the correct time.

Use of special regime for small entrepreneurs has been extended to entities from other EU states. Small entrepreneurs under a threshold of approx. EUR 80,000 per calendar year can avoid VAT registration in the Czech Republic using the scheme. However, under the special scheme entrepreneurs have to file a report of supplies made in EU countries (separately for each country) on a quarterly basis.

Furthermore, no VAT deductions are allowed. The scheme is optional.

The VAT registration limit of CZK 2 million does not apply to businesses that are not established in the Czech Republic but for the purposes of the tax are making taxable supplies there. Those businesses will need to register for the VAT as soon as they commence trading in the Czech Republic, irrespective of the level of turnover (certain exceptions, however, do apply – please see above).

Registration for the VAT in the Czech Republic may also be required where a non-established EU business is involved with the distance selling or telecommunications, broadcasting and electronic services (hereinafter “TBE services”) provided to customers that are known as non-taxable persons and include e.g. private individuals or entities not established for making profit (B2C supplies).

Distance selling occurs when a taxable supplier in one EU country supplies and delivers goods to non-taxable persons residing/established in another EU country. Common examples of distance sales are goods supplied by mail order and via the internet.

Distance sales from another EU country to non-taxable persons in the Czech Republic will be subject to VAT at the appropriate rate in the supplier’s country. However, once the value of those distance sales to the Czech Republic exceeds the threshold of EUR 10,000:

• the Czech Republic becomes the place of supply,
• the supplier becomes liable to register for VAT in the Czech Republic (unless registered for OSS – please see below),
• any further sales to customers in the Czech Republic will be subject to the Czech VAT.

The threshold of EUR 10,000 applies simultaneously to distance sales of goods and to TBE services.

Suppliers can choose to make the Czech Republic the place where the goods are supplied by registering for VAT voluntarily before the threshold is reached.

With effect from 1 January 2015, Article 58 of the Directive 2006/112/EC was amended. The rules determining the place of supply of electronically supplied services supplied to private consumers (B2C) changed from the Member State where the supplier belongs (i.e. where established) to the Member State of the consumer. 

On 1 January 2019 an annual EUR 10,000 turnover threshold for cross-border supplies of B2C TBE services has been introduced. 

Since 1 January 2021 the mini One Stop Shop (MOSS) has been extended to One Stop Shop (OSS) covering wider range of supplies and has introduced further simplifications.

Up to EUR 10,000 turnover threshold, the place of supply of TBE services remains in the Member State where the supplier is established, has his permanent address or usually resides. 

If the threshold is exceeded, local VAT is chargeable at the applicable rate in each of the Member States in which TBE services are made (i.e. where the customer belongs). Therefore, B2C supplies of TBE services to customers in the Czech Republic are subject to Czech VAT. To ensure compliance with this regulation, suppliers have the choice to either register for VAT in each Member State where their customers reside, or to opt for registering under the EU VAT OSS simplification scheme in a single Member State (e.g. where they are established). 

Businesses with multiple establishments in the EU can choose in which Member State to operate OSS (the Member State of Identification). However, the OSS cannot be used to report local sales to customers in a Member State in which suppliers of TBE services have seat or fixed establishment. Non-EU suppliers without an establishment in a Member State are free to select a Member State of their choosing to operate OSS and become their Member State of Identification.

As from 1 July 2021, the annual turnover threshold of EUR 10,000 also covers intra-Community distance sales of goods whose transport/dispatch has started in the Member State in which the supplier is established (please see above). 

The VAT return is submitted quarterly in the non-Union and in the Union scheme and monthly in the import scheme. If a taxable person chooses to use one of the schemes, he has to declare all supplies that fall under that particular scheme via the OSS return of the respective scheme. These OSS VAT returns, along with the VAT paid, are then transmitted by the Member State of identification to the corresponding Member States of consumption via a secure communications network. The OSS VAT returns are additional and do not replace the VAT return a taxable person submits to his Member State under his domestic VAT obligations. 

The concept of a fiscal representative is not defined in the Czech Republic VAT law. However, the non-established business may arrange for a representative based on a power of attorney. As of 1st January 2025 non-established businesses  from non-EU countries have to appoint an agent and an email address for communication with the Czech tax administrator.

Most commonly, VAT returns have to be submitted on a monthly basis. Based on application and meeting certain conditions required (e.g. turnover of less than CZK 15,000,000 in the preceding calendar year) the entity may apply for a quarterly tax period. All VAT returns have to be submitted within 25 days after the end of the relevant tax period, together with any tax due.

A penalty will be imposed by the tax authority if VAT returns are not submitted on time, or the related tax is not paid by the due date.

If the VAT return is not filed in time a 0.05% tax liability or VAT deduction (maximum 5%) per day penalty is imposed from the 6th working day. Delayed payment interest is assessed in the annual rate of the Czech National Bank repo rate plus 8 % (currently approximately 12 % in total annually) and is imposed from the 4th calendar day after the due date. 

Businesses that are registered for VAT in the Czech Republic, and make supplies of goods or services to entities registered for the tax in other EU countries are required to complete and submit EC Sales Lists (ECSL). The ECSL must show details of the recipients of the goods and services.

Generally, the ECSL must be submitted each calendar month. If just services under the reverse charge regime are supplied the ECSL is submitted in the same period as the tax return.

In addition, if the value of the intra-EU trade in goods dispatched or arriving from other EU is above an annual threshold, a supplementary declaration (referred to as an Intrastat declaration) has to be submitted for either or both. The reporting threshold is set at CZK 15,000,000 for exported or imported goods. If the reporting unit meets certain conditions, it can use simplified reporting. Once the reporting unit exceeds the threshold of CZK 30,000,000, full Intrastat declarations have to be submitted on a monthly basis.

Taxable persons registered for the VAT in the Czech Republic are obliged to submit VAT Control Statement in addition to regular VAT return. In this statement, detailed data about the individual VAT related output and input transactions are reported.

Besides penalties stated above, a penalty is imposed if tax is additionally assessed by the tax authority. This penalty amounts to 20% of the tax additionally assessed or VAT claim reduced by the tax administrator. Criminal proceedings may be brought in the case of matters that are more serious. 

If VAT Control Statement is not submitted on time the following penalties will be imposed:

•  CZK 1,000, if it is submitted after the due date without a call from the tax administrator,
• CZK 10,000, if it is submitted within the deadline given by the tax administrator,
• CZK 30,000 if the corrective VAT Control Statement is not submitted although a call to submit it has been issued by the tax administrator,
• CZK 50,000 if the regular VAT Control Statement is not submitted nor is submitted after a call of the tax administrator.

A tax administrator imposes a fine up to CZK 50,000 to the entity that upon a call does not amend incorrect data submitted through the Control Statement. A fine up to CZK 500,000 will be assessed to the entity that by not filing a Control Statement complicates or foils the administration of taxes.

Yes, it is possible to reclaim CZ VAT incurred in certain circumstances.

Two schemes exist, one for businesses established in the EU and another for businesses established elsewhere.

The EU cross border refund scheme is available in all EU member States, and enables a business established in an EU country to recover VAT incurred in another member State. To be eligible to make a claim in CZ, the claimant must be a taxable person established in an EU member State, and:

• must have no fixed establishment, seat of economic activity, place of business or other residence in CZ,
• was not registered for Czech VAT,
• during the refund period the claimant must not have supplied any goods or services in CZ, apart from certain limited exceptions.

The amount refundable is determined by the VAT deduction rules that apply in CZ. The claim is submitted electronically from the member State where the entity is established to the Czech tax administration.

The refund period must not cover more than one calendar year or less than three calendar months – unless it is covering the remainder of a calendar year. The claim has to be made by 30 September of the year following that in which the VAT has been incurred.

Businesses established outside the EU can, subject to certain conditions, also reclaim the VAT incurred on imports into the Czech Republic or purchases of goods and services used in the Czech Republic. The scheme is available to any person carrying on a business established in a third country i.e. outside the EU, provided that in the period of the claim the person:

• did not have a VAT establishment in the EU,
• made no supplies of goods and services in the Czech Republic other than certain specified exceptions,
• established in a third country that provides reciprocal arrangements for refunds to be made to taxable persons established in the Czech Republic.

The number of countries eligible for this refund is very limited (Switzerland, Norway, Bosnia and Herzegovina, Great Britain and Northern Ireland).

A VAT invoice must show:

•  invoice number,
• seller’s name and address,
• seller’s VAT number,
• invoice date,
• date of supply (also known as tax point) if this is different from the invoice date,
• customer’s name and address,
• customer’s VAT number,
• description sufficient to identify the goods or services supplied to the customer,
• unit price exclusive of tax; also discount, if is not included in the unit price,
• tax base,
• tax rate,
• total amount of VAT in CZK.

The invoice shall also include the following information:

• a reference to the relevant provisions of the CZ VAT Act, provision of the EU regulation or other information indicating that a transaction is exempt if it is exempt from VAT,
• ‘Self-billing’ if the person for whom the transaction is carried out, is empowered to issue a tax invoice,
• ‘Reverse charge’ if the person liable to pay tax is the person for whom the transaction was carried out,
• a note on the use of VAT triangulation simplification if issued by a middle person,
• a note that a new means of transport is supplied if supplied to another EU state. 

VAT invoices can be issued, received and stored in an electronic format. Electronic invoices must contain the same information as paper invoices. The method used to ensure the authenticity of origin, the integrity of content and legibility of the invoices is a business choice and can be achieved by any method that creates a reliable audit trail between an invoice and a supply of goods or services.

The Control Statement is a detailed list of the individual VAT related transactions submitted electronically to the tax authority usually once a month.

Furthermore, on 11th March 2025 the EU formally adopted the ViDA package introducing E-invoicing and digital reporting obligations as of 1st July 2030.