Czech Republic

The Czech Republic – VAT rate consolidation Kofax has been monitoring tax rate changes in The Czech Republic, which edge closer to the final approval stages to implement an upcoming VAT rate consolidation projected for January 2024. You can read more about the proposed changes here.  In recent developments, the lower Czech house in Parliament has agreed to government proposals for the VAT rate consolidation, with the Bill now expected to proceed to the Upper House for review.  Kofax is cognizant of the impending 1 January 2024 deadline. We are closely following the VAT rate change approval in the Czech Republic and will support the VAT rate change if and once confirmed. 

Lower VAT rate for recycled products 2022 and 2023 currently is witnessing a proliferation of measures relating to limiting single-use plastic, but more generic fiscal measures can also prove effective in fostering positive environmental behaviours.  To incentivise recycling, the Czech Republic is advocating lower VAT rates for the use of recycled products, with the clear aim of promoting the purchase of recyclable products.   To this effect, the Czech Republic has issued an application to the European Commission outlining its proposals.  Notably, a specific potential reduced VAT rate has not yet been touted by the Czech government, indicating that the proposal still requires further definition.    While the EU Commission has recently afforded Member States significantly increased autonomy to determine VAT rates, the reduced rate category, which can be applied with greater liberty, does not yet extend to products incorporating recyclable content. The proposal is therefore intended to stimulate not only a discussion pertinent to the Czech Republic specifically, but also more widely to other EU Member States, who may find themselves contemplating similar concerns at a future point.  The Czech Republic’s proposal to the European Commission can be located below:  pdf (europa.eu)  The Czech Republic is a compliant territory for Kofax. We will support any new VAT rates confirmed further to this proposal as part of our e-invoicing solution. 

Austerity and consolidation package Fiscal policies have always been a high priority for countries, but especially so during periods of economic uncertainty as countries endeavor to balance fiscal strategies with soaring inflation. The Czech Republic’s most recent initiative- the austerity and consolidation package - aims to do precisely this, by providing some stability in the market and reducing inflation.    Kofax’s recent post commented on the proposal to introduce a new VAT rate in the country. The austerity and consolidation package re-affirms that the country’s intention to consolidate the reduced rates (10% and 15%) into a new single rate of 12%. The new 12% rate would apply primarily to food, medicine, magazines, construction for residential housing, and medical devices.   The rate on draft beer, hairdressing services, beverages, firewood, and certain other items would be increased to the standard VAT rate of 21%.  Books would be exempt from VAT. Currently, these changes are scheduled for 1 January 2024, but are still subject to approval.    The Czech Republic is a compliant territory for Kofax. If confirmed, Kofax will support the VAT rate and incorporate this as part of our e-invoicing solution in the country.  

VAT rate consolidation Our earlier post commented on the Czech government’s proposal to consolidate their VAT rates. The Czech government are signalling further intent that this will be implemented as part of the Czech government’s wider fiscal framework.  Currently, the following VAT rates apply in the Czech Republic: 

• 21% standard rate 
• 15% reduced rate 
• 10% reduced rate  

The Czech government is planning to consolidate the 10% and 15% rates into a new, single VAT rate of 14%, with the 21% VAT remaining unaffected. Inevitably, this will mean that goods formerly subject to the 10% VAT rate will find themselves subject to a higher VAT rate. It follows that the Czech government stands to gain considerably from an economic perspective – with predicted figures initially forecasting gains of around 1 billion per annum. Such measures serve to demonstrate the far-reaching effects of VAT rate changes on the wider economy.   The proposals will be sent to Parliament in June for review. Implementation of the consolidated rates is currently touted for 1 January 2024.   The Czech Republic is a compliant territory for Tungsten Network and we are closely following developments in relation to the VAT rate change. If confirmed, Tungsten will support the VAT rate change and incorporate this as part of our e-invoicing solution in the country. 

Proposal to consolidate reduced rates The volatile economic situation of the past few years has compelled multiple countries to review their fiscal policies. Countries have responded with significant fiscal measures, including modifying standard and reduced VAT rates. Switzerland, for example, is implementing some modifications to its VAT rates in January 2024. Similarly, the Czech Prime Minister is proposing to make some changes to the VAT rates in the country, through consolidating the two current reduced VAT rates in the country (15% and 10%). The single new reduced rate proposed would be either 13% or 14%. The standard VAT rate of 21% would remain unchanged. The current proposed timeframe put forward for the implementation of the new VAT rate, like Switzerland, is 1 January 2024. The Czech Republic is a compliant territory for Tungsten Network. Our e-invoicing solution accommodates all valid VAT rates in the country, and we are closely monitoring any confirmation of the new VAT rate in the country. If confirmed, we will arrange for integration of the new VAT rate as part of our solution.

Increase in VAT registration threshold Increasing the VAT registration threshold in a country has multiple fiscal implications- one being the simplification of the VAT process, as a reduced number of businesses will be subject to being caught within the scope of the VAT registration threshold. Small businesses especially stand to benefit.  Of course, countries also need to consider the impact these will have on their economic position.   From 1 January 2023, the Czech Republic will increase its VAT registration from CZK 1 million to CZK 2 million- the latter equating to c. 80,000 Euros. The doubling of the VAT registration threshold represents a significant reduction in the number of businesses falling under the scope of the VAT threshold.  

VAT registration threshold increase There are multiple reasons why a country may want to increase its VAT registration threshold. In June, we communicated that the Bulgarian government raised the VAT registration threshold to combat rising inflation. The Czech government is proposing a bill to double the VAT registration threshold by a sizeable margin- from CZK 1 million to CZK 2 million (c. 85,000 Euros) per annum. The European Council has provided permission for the Czech government to raise its VAT registration threshold. If successfully implemented, this would take effect from 1^st January 2023 until 31 December 2024. The threshold does not apply to non-resident businesses, who must register immediately if providing certain supplies.

Abolishment of electronic sales recording requirements Electronically recording sales is accompanied by several administrative burdens. Furthermore, the main reason for the introduction of electronically recording sales- cash payment / sales- are decreasing. In fact, non-cash payments are projected to reach 80% by 2025, further reducing the need for electronically recording sales. This phenomenon is taking hold not just within the parameters of the EU but globally too. To this effect, the proposal to abolish the electronic sales recording has been approved by the Czech government. It is expected that the Act on the Registration of Sales, which introduced the obligation for electronic sales recording, will shortly be cancelled.