VAT in Czech Republic - basic information, when to register
Czech VAT is 10% and 20% since 01.01.2010
Starting 01.01.2010 VAT percentages have been changed. In Czech Republic there are two VAT rates:- 10% VAT (mostly foodstuffs etc.)
- 20% VAT (on goods and services)
Important: Obligated monthly EU Sales List (ESL) from 01.01.2010
Starting 01.01.2010, any VAT-registered s.r.o. or trade license sending invoices to VAT-registered clients based in another EU country are obligated to report electronically on monthly (goods) / quarterly (services) basis to the tax office. These reports are no VAT reports, but must be filed in addition to VAT reports. See alsoVAT Registration obligatory if expected turnover in 12 months is more than 1.000.000 CZK
The basic rules that if your expected turnover is higher than 1.000.000 CZK in 12 consecutive months, you are obligated to register as VAT payer. We recommend that if you at this moment estimate your turnover will be in the magnitude of 700.000 CZK or more, you voluntarily register. The reason for this is that you can start claiming back VAT on expenses from the day of VAT registration. Any VAT on an earlier expense is 'lost'.
An exception is when an expense can be considered a company startup-expense (what is acceptable is bound to regulations). This applies both for s.r.o.s and živnostenský lists, and even costs before formation / registration can be put in the bookkeeping and VAT can generally be claimed on these, provided that the taxoffice will accept them.
Registering for VAT with a turnover less than 1.000.000 CZK
It is possible to register voluntarily for VAT even if your turnover is (much) less than 1.000.000 CZK.If you do not make that turnover, the taxoffice will send you a letter (after a year or so) asking if you still want to remain VAT registered. You can then decided to continue or not. There are no penalties for de-registering, but the status can be changed only once per year.
There are arguments for registering voluntarily for VAT, such as:
- You are trading internationally, and many suppliers / clients require you to have a VAT registreation number, even though on goods and services sold within EU there is not VAT,
- You are sending (consultancy) invoices to a business client in the EU (no VAT charged) but make expenses in CZ (so you pay VAT). In that case you will never have to pay VAT to the tax office, but only will receive back.
- You are going to make big expenses, such as buying a car. Without VAT registration you cannot claim this VAT. With VAT registration you can.
Being VAT-registered and selling outside Czech Republic but inside the EU also means in most cases having the obligation to report EU Sales Lists (see below).
Filing a VAT Return quartely or monthly
Being VAT registered, also means that you will have to file a VAT report quarterly or even monthly.For 90% of the businesses it is enough to file quarterly, because monthly filing will not only increase the paperwork and costs, also in most cases the VAT sums are relatively small. If turnover starts to be in the order of 7.000.000 CZK annually it could be good to consider monthly VAT reporting, over 10.0000.000 CZK it is obligatory to file monthly VAT reports.
VAT on sales outside Czech Republic
Even if your company is VAT registered, on sales of good and services outside Czech Republic to company in another European country no VAT is charged. On sales to private individuals in the European Union VAT is charged. Note that for sales to VAT-registered clients, it is obligated to report those sales on monthly / quarterly basis using a special electronic file called an EU Sales List. On any sales of good or services, whether it is to a company or private person outside the European Union, as a rule VAT is charged. However, there are many exceptions to the rule, depending on the destination country and type of good.30 day Period for VAT payments
If you have to pay VAT for a period, you need to pay within 30 days of the VAT filing data, which is always the 25 th of the month following the period (for quarterly filing 25.04.2010, 25.07.2010, 25.10.2010 and 25.01.2011).Likewise, the tax office has the obligation to return the VAT on your bank account within 30 days after filing date. However, usually for the first period after registration, and/or in case the tax office wants to investigate your VAT return further, this 30-day period may not be met.
VAT check by the Financial Office
One thing in particular raises the suspicion of the tax office and inspires them to check your taxreturn, and that is claiming huge sums of VAT on expenses without having any sales or sales abroad without VAT on them.Claiming VAT from purchases before company formation / VAT registration
An every-returning question is what to do with purchases made before the s.r.o. was formed / trade license was registered and whether the VAT can be claimed. There is no easy answer to that. The basic rules are:- Expenses necessary for the company startup can be claimed, if they are a company asset. This is generally understood as goods used in the office or for stock. Phonebills, custom-made software and services from 3rd parties are a risk, as well as items that could be for personal / non-company use.
- VAT can be claimed of purchases made before VAT registration if they can be considered a company asset.
- VAT on payments, downpayments and deposits on leased goods (car, equipment) can only be claimed if invoiced after VAT-registration. If invoiced / paid before, this VAT can not be claimed.
- The tax office has the power to decide on individual basis what is acceptable or not.
Our advice is to first register your business, immediately register for VAT and then start to make big purchases. Doing so, avoids the whole discussion of what is a startup cost and what can be claimed or not.
Costs of VAT Registration and VAT Reporting
Alexio charges 1500 CZK for VAT registration of an sro or trade licence and 1500 CZK per VAT report,in addition to the regular accounting fees.