As a taxpayer in the Czech Republic, you need to pay the VAT (value-added tax) once your yearly turnover surpasses 2 million CZK. In some cases, however, it may be profitable to register for the Czech VAT voluntarily.
Other cases in which you need to pay a full Czech VAT are when you inherit a company from someone who was a VAT payer or when you gain assets by privatization, fuse, or the sale of a company. In these cases, you can ask for the cancellation of the VAT registration, but only after 1 year from the registration and if your turnover does not surpass 2 million CZK. You don't qualify if your source of income is from a business that is registered out of the Czech Republic.
What are the obligations of a VAT payer?
Not only do the VAT payers claim and pay the VAT, but they also have to keep records and submit tax reports and control reports.
You need to include the words “Faktura - daňový doklad” on the invoices and include the information you are a VAT payer.
You need to archive all your VAT evidence and records for 10 years.
How does VAT work?
There are three values of the VAT:
- The standard rate of VAT - 21%
- The reduced rate of VAT - 12%
Buying a product with the VAT included costs 1.210 CZK. Since the standard VAT is 21%, here it is 210 CZK. After paying this 210 CZK, the payer needs to keep a record of it, and then at the end of the tax period, they can claim this amount back.
Selling a product with the VAT included costs 1.900 CZK, the customer will pay the whole amount to the seller and the seller needs to pay the VAT amount (329,75 CZK) to the state.
If the company buys the product for 1.210 CZK and sells it for 1.900 CZK, the gross profit would be 690 CZK. After deducting 329,75 CZK but claiming back 210 CZK, the final tax the seller has to pay is 119,75 CZK. Therefore, the actual profit is 570,25 CZK.
The tax period is one month, however, after 1 year of paying the VAT, you can ask to change that period to a quarter-year period, if you meet the requirements.
When is it profitable to register for the VAT even if I do not have to?
If you buy goods or services from the VAT payers more than sell them.
If your customers are predominantly VAT payers, they can claim their VAT back and subsequently see your products or services as cheaper.
If you buy goods in the Czech Republic and sell them to entrepreneurs from other EU states.
If you sell services to entrepreneurs with a registered establishment in the other EU states.
If you buy products with the standard VAT of 21% but sell them at the reduced VAT of 15% or 10%.
If you plan to purchase valuable assets, as you can claim the VAT back.
How can I register for the VAT?
All you need to do is fill out a form and send it to the Financial Office. Ideally, you should submit it with proof of your economical activity and the turnover for the last 12 months. If everything goes smoothly, you should receive a confirmation for the VAT registration within 15 days.
Czech financial Tax offices might ask for contracts and invoices for VAT registration.
It is so important to control your income and invoices. If you exceed the 2 million CZK limit in the last 12 consecutive months and forget to register for VAT, then you should pay VAT from income from your income after you become a VAT payer.
For example, You reached the 2 million CZK limit in October in the last 12 consecutive months but realized it in December and registered for VAT. So, you should pay VAT from the invoices which you get paid between October and December even if you invoiced without VAT. Because you became a VAT payer in October.
from 1.1.2023 VAT registration limit is increased from 1 million CZK to 2 million CZK in the last 12 consecutive months. Businesses that registered to VAT but had turnover under 2 million in the last 12 months are able to cancel the Czech national VAT registrations.
Not Sure about VAT rate calculation? Try our VAT payment calculator