What changes does the consolidation package bring from VAT perspective?

Changes in VAT rates

A major change in the application of VAT rates is the abolition of the first (15%) and second (10%) reduced VAT rate, which will be replaced by a single reduced VAT rate of 12%. There will also be several changes in the classification between the standard and reduced VAT rate. 

The shift from the reduced VAT rate to the standard VAT rate shall apply, for example, to:

• Non-alcoholic beverages, excluding tap water, milk and dairy beverages, soy beverages and similar products;
• Collection, transport, disposal and processing of municipal waste;
• Cut flowers and decorative foliage;
• Supply of firewood;
• Hairdressing and barbering services;
• Domestic cleaning services;
• Bicycle repairs; and
• Repairs of footwear and clothing. 

The shift from the standard VAT rate to the reduced VAT rate shall apply, for example, to:

• Occasional (non-regular) public passenger transport;
• Medical devices (upon meeting certain conditions).

One of the widely discussed changes is the application of the reduced VAT rate for selected non-alcoholic beverages, such as whether it is possible to apply the reduced VAT rate to tap water with a slice of lemon and orange, or whether latte macchiato is considered a diary beverage. 

Changes in VAT applied on books, newspapers and magazines

The consolidation package brings a major change for books, provided they fall under the law-defined nomenclature code, and if the content of advertising does not exceed 50%, including electronic forms such as audiobooks. Books will now, instead of a reduced VAT rate, be subject to VAT exemption with entitlement to claim input VAT. 

Newspapers, magazines and periodicals will be subject to the reduced VAT rate (i.e. 12%), including their electronic form. 

Limitation of deductible input VAT from cars

When acquiring a passenger car in category M1, there will be a limitation on the maximum amount of deductible input VAT. The deductible input VAT will be limited to a maximum amount of CZK 420,000, corresponding to the price of the car of CZK 2,000,000 excluding VAT. The limit of CZK 420,000 also includes the input VAT from any technical improvement. If the car is to be used for private purposes, the limit of CZK 420,000 must be proportionally reduced. 

Exemption in relation to the limitation of deductible input VAT from cars has not yet been approved by the European Commission (the so-called derogation exception), but it is expected to be approved by the end of 2024. 

The above does not apply to ambulances or funeral vehicles, vehicles acquired for the purpose of operating road motor transport under a concession, and passenger cars purchased for the purpose of resale (i.e., as goods).

Authors:

Jana Bursíková, Tax Senior
Radka Dubnová, Tax Manager