As the Czech Republic has been a member state of the European Union from 1st May 2004, the Czech VAT law is based on the principles of the common system of VAT given by the VAT Directive. VAT is generally due on a supply of goods or services with the place of supply in the Czech Republic carried on by a taxable person in the course of economic activities. The taxable supply usually means goods or services provided for a consideration. However, certain transactions carried out for no consideration represent also a taxable supply, e.g. private use of business assets and provision of gifts.
VAT registration is obligatory for a person who has a registered seat, place of business, or establishment in the Czech Republic (hereinafter Czech entities), if their turnover exceeds CZK 1 million in twelve consecutive calendar months. Even if the threshold is not exceeded, Czech entities can choose a voluntary registration. Entities that have no seat, place of business, or a fixed establishment in the Czech Republic are obliged to register for Czech VAT once they make a taxable supply in the Czech Republic on which they have to account for a VAT. There is no registration threshold and these entities cannot register voluntarily.
The taxable period of Czech entities can be a calendar quarter or a month. If the annual turnover of a Czech entity is higher than CZK 10,000,000, VAT returns have to be submitted on a monthly basis. Should the annual turnover be lower than CZK 2,000,000, VAT returns must be submitted quarterly. If the annual turnover is higher than CZK 2,000,000 but lower than CZK 10,000,000, the tax payer can choose a monthly taxable period. Otherwise, the taxable period is a calendar quarter. Entities with no seat, place of business, or a fixed establishment in the Czech Republic submit VAT returns quarterly.
VAT in the Czech Republic is charged at two rates:
• The standard rate of 20 % on the sale of goods and services
• The reduced rate of 10 % on the transfer of certain residential houses, on the sale of certain goods such as food products, pharmaceuticals used for health care, nappies, printed books and periodicals etc. and certain services such as waterway, accommodation, air transport of passengers, certain cultural activities etc. According to the current governmental plan the reduced rate shall be increased to 14.5 % as from 1st January 2012 and as from 1st January 2013 to 17.5 %. The standard rate should be decreased as from 1st January 2013; therefore, there should be only one VAT rate in the future.
VAT can be recovered by businesses on all goods and services. However there are certain exceptions, when VAT is not deductible (restaurant expenses etc.). Also specific conditions must be met (e.g. a deadline date to send application by 30th June of the following year and the minimum amount claimed should exceed CZK 1,000 for the calendar year). An institute of VAT tax representatives (tax agents) does not exist from 2005 in the Czech Republic. Representation before Financial Authorities is permitted generally by the Administration of Taxes Act (tax advisers, jurists, representatives acting on behalf of power of attorney).