Interpretation of the General Financial Directorate on Changes in VAT Rates

Passenger Transportation

Starting from 1 January 2024, the ground mass transportation of people is subject to reduced VAT rate, including both scheduled passenger transport and occasional road transport. It is now possible to apply a reduced VAT rate, for example, on the bus transport of pupils to the theater or to ”company” bus transportation of employees provided by the employer.

On the other hand, the GFD confirms in the Information that the provision of a taxi service and other similar alternative transport (e.g. Uber, Bolt) will generally not be subject to a reduced VAT rate on condition that it is provided by vehicles intended for the transport of no more than 9 people including the driver.

Beverages

Reduced VAT rate can now only be applied on supplies or on serving of so-called selected drinks and drinking tap water. In other cases, the basic VAT rate shall be applied.

Selected beverages subject to a reduced VAT rate include:

a) Milk and all liquid milk products defined under nomenclature codes of the customs tariff 04 – this includes, for instance, buttermilk, yogurt milk, kefir or acidophilic milk;

b) All plant-based alternatives to milk (with reference to the customs tariff nomenclature codes 2202 99 11 and 2202 99 15), whether based on soy, nuts (e.g. almond or coconut), cereals (e.g. rice or oat) or seeds (e.g. poppies);

c) Furthermore, all drinks according to point a) and b), if they are flavored with, for example, sugar, fruit, chocolate, etc., if they retain the essential character of milk, liquid milk product or plant-based milk alternatives even after flavoring.

The GFD does not specify the problematic term ‘essential character’ in any detail in the Information. The only condition stated in the Information is that flavorings must not be a decisive component that would change the selected drink in such a way that the average customer would no longer consider it a selected drink. The GFD provides a specific example where the flavoring of milk with coffee extract does not change the essential character of the milk, while coffee with any content of milk or milk foam is not a selected drink.

The reduced VAT rate also applies on the supply of drinking tap water without any further treatment. However, the reduced VAT rate can only be applied on the condition that it is not flavored in any way (e.g. with juice syrup, sweetener or added fruit) or modified (e.g. with soda or crushed ice). The GFD specifies that adding a decoration to the glass or on the glass that is not an actual flavoring, for example in the form of mint or fruit, does not prevent the taxpayers from applying reduced VAT rate. The boundary between decoration and flavoring remains unclear.

Beverage or Food?

All beverages, with exception of selected beverages and drinking tap water, will now be subject to basic VAT rate, while food will remain subjected to reduced VAT rate. The very definition of beverage remains unclear. In this respect, the GFD only states that beverage is a liquid intended for consumption by drinking, while the purpose of consumption itself is not assessed. As an example, it is stated that syrups, continuing infant formulas as well as vegetable products and other foods in a dry state (e.g. coffee, tea, powdered drinks, and instant mixes) will continue to be subject to a reduced VAT rate as food.

Catering Services with a Beverage

An important message from the GFD concerns the provision of catering services, including both beverages and food, i.e., serving drinks falling under the basic VAT rate together with food at a reduced VAT rate (e.g., as part of the lunch menu). In this context, the GFD did not address the issue of the principal and ancillary supply, or the indivisibility of the supply, which has a significant impact on determining the correct VAT rate. The GFD generally recommends dividing the tax base according to the individual VAT rates, and if such division is not possible, applying the basic VAT rate on the entire supply.

Regarding the provision of accommodation with half board, full board, or separately purchased breakfast, the GFD states that it is necessary to divide the tax base of individual supplies according to the VAT rates. Applying the reduced VAT rate to the entire supply is only possible in the case of accommodation with breakfast, where the GFD accepted the concept of principal and ancillary supply.

Authors:

Štěpánka Šťastná, Tax Senior

Radka Dubnová, Tax Manager