GFD information on changes in the field of VAT from 1 January 2025

In the previous two editions of Forvis Mazars Tax View, we have informed you in detail about the amendment to the VAT Act (hereafter the ‘VAT Act’), which for the most part came into force on 1 January 2025 (hereafter the ‘Amendment’). These articles can be found here Forvis Mazars Tax View 9/2024 and Forvis Mazars Tax View 12/2024. Following this significant legislative change, the General Financial Directorate of the Czech Republic (hereafter the ‘GFD’) issued an Information in which it published a legal interpretation of selected changes to the Amendment (hereafter the ‘Information’).

Correction of the tax base

The Amendment extended the time limit for correcting the tax base to 7 calendar years. This time limit is newly starting to run after the end of the calendar year in which the obligation to declare the VAT on the original taxable supply arose. This change also has an impact on the correction of VAT deductions. The obligations or rights relating to corrections of the tax base and corrections of the VAT deduction also apply to persons who have ceased to be a taxable person or an identified person.

According to the interpretation of the GFD, the changes in corrections of tax base or partial changes concerning VAT deduction corrections apply only to situations where the original transaction was carried out from 1 January 2025.

The GFD has promised to issue separate information on corrections of tax base for bad debts. We would like to point out that, according to the information available to us, the GFD is also of the opinion that the new regulation is effective only for receivables for which the date of taxable supply occurred no earlier than 1 January 2025.

In addition to the Information itself more information on the above mentioned changes can be found in our September issue of Forvis Mazars Tax View here.

Shortening the time limit for claiming the VAT deduction

The Amendment shortened the time limit for claiming the deduction. The possibility to claim the deduction will now expire at the end of the second calendar year following the calendar year in which the VAT liability for the original supply arose.

However, the right to deduct will continue to exist after the expiry of this period if the obligation to declare the VAT has been incurred by the recipient of the supply (i.e. in the case of application of the reverse charge mechanism).

According to the interpretation of the tax administration, the shortening of the time limit for claiming the VAT deduction applies only to situations where the right to deduct the VAT arose from 1 January 2025.  

Participation in events made available virtually

In the case of on-line participation in educational, cultural, artistic, sporting and entertainment events, the place of supply is now governed by the place of establishment of the recipient of the service, regardless of whether the recipient of the service is an entrepreneur (taxable person) or a non-entrepreneur (non-taxable person).

In the Information, the GFD also commented on the cases of so-called hybrid events provided to participants who are not entrepreneurs (i.e. they are non-taxable persons).

If part of the event is carried out in person for all participants and another part virtually, the place of performance shall be determined according to the predominant method of holding the event.

In the case of a hybrid event, where part of the participants attends in person and the other part virtually, the place of performance shall be determined according to the manner of participation of the specific participant individually.

Other selected changes in brief

The Amendment has extended the VAT exemption with the right to deduct VAT to the supply of leaflets meeting the conditions of Section 71i of the VAT Act. The exemption is conditional on classification in the customs tariff nomenclature code 4901, provided that advertising does not exceed more than 50% of the content of the leaflet. The aim was, among other things, to ensure that leaflets for medicines are exempt from VAT. In practice, however, it will be possible to exempt a number of other commercial leaflets.  

The Amendment exempts the supply of immovable property sold by a debtor by court order in the event of a forced sale of the VAT payer's business assets (auction) from the inland reverse charge regime. The GFD points out in the Information that mobile phones and other goods, the supply of which would otherwise be subject to the reverse charge regime, are thus exempted from the reverse charge regime in the event of a forced sale.

The Amendment, following the case law of the Court of Justice of the EU, establishes the obligation of a middle person planning to use the simplified triangular trade procedure in the Czech Republic to indicate on issued VAT invoices the information "reverse charge". Failure to provide this information results in the loss of the possibility to use the simplified triangular trade procedure.  

The Amendment emphasises that the VAT payer is obliged to register its business assets (i.e. fixed assets and other assets used by the VAT payer for its economic activity). It is generally assumed that the name, description and the date on which the asset became business property should be recorded for each asset. In addition, the extent to which the asset is included in the business assets should be recorded (e.g. typically for immovable property it is usual that only part of the property is included in the business assets used for economic activity).

Among other areas that the GFD is focusing on, we would also like to draw attention to the definition of the tax base in the case of exchange trade with additional payment or the obligation of foreign persons to choose an agent for receiving the documents from the Tax Authorities if they do not have access to a data box.

We would like to point out that the GFD, following the Amendment, has already issued the Information on changes in the VAT registration procedure from 1 January 2025, where it discusses in detail, for example, the cross-border regime for small businesses or the new rules on VAT registration and cancellation of VAT registration.

We will be happy to assist you with setting up systems and training your staff in the areas affected by the Amendment, and we will also be happy to answer your questions about this issue.

Authors:

Petr Drahoš, Senior Manager, Tax Department

Milena Drábová, Tax Department Manager