VATVAT

VAT ISSUES IN THE CZECH VAT ISSUES IN THE CZECH REPUBLICREPUBLIC

Requirements for liability VATRequirements for liability VAT:: - Entrepreneur- Entrepreneur - Sustainable- Sustainable - Economic environment- Economic environment

VATVAT

• A resident entity must register for VAT if its taxable turnover exceedsCZK 1,000,000 within any 12 consecutive calendar months. Theapplication must be made to the local Financial Office within 15 daysof the following month. Registration takes effect from the first day of thethird following month. Registration may also be imposed due toIntra-Community Trade.

• A resident entity must register for VAT if its taxable turnover exceedsCZK 1,000,000 within any 12 consecutive calendar months. Theapplication must be made to the local Financial Office within 15 daysof the following month. Registration takes effect from the first day of thethird following month. Registration may also be imposed due toIntra-Community Trade.

VATVAT

VATVAT• A non-established entity must register and account for VAT on its firsttaxable supply in the Czech Republic. A non-resident entity makingdistance sales into the Czech Republic must register when the valueexceeds EUR 35,000 in a calendar year. The application is made to theFinancial Office for Prague 1. Use of a tax representative is optional.• Group companies cannot register as a single VAT entity, but it is possiblefor two or more companies to conclude an “association agreement” underwhich certain supplies between them are not subject to VAT.

VATVATDE-REGISTRATION• An entity registered for VAT can be de-registered immediately if itpermanently ceases to carry out its business activity. Otherwise, an entitycan ask to be de-registered only after one year of registration and on thecondition that its taxable turnover in the last 12 consecutive calendarmonths did not reach CZK 1,000,000.• A non-established entity can be de-registered by the Financial Officeif it did not carry out any taxable supplies in the previous 12 consecutivemonths.

VATVATRATES• Supplies of goods and services are generally subject to 21% VAT, butcertain supplies are subject to 15% VAT, including the following:- foodstuffs (with some exceptions)- pharmaceuticals- children's diapers- printed materials in which advertisements do not exceed 50%- medical goods- aids for the disabled- buildings for residential living- work on medical goods- supplies of water- regular land mass transport- medical care, social care, care for children, elderly, sick and disabledpersons- cultural activities- funeral services

VATVATEXEMPT SUPPLIES• Generally, an entity cannot reclaim VAT incurred in connection with theprovision of most VAT-exempt supplies. This applies to the following:- export- financial services- postal services- insurance services- radio and television broadcasting- lotteries and other games of chance- health care services- social welfare and educational services- the leasing of land and/or buildings, unless the supplier elects to charge

VATVAT• A lesser can choose to charge VAT at the rate of 20% on a leaseof a building to another VAT-registered entity.• The following supplies are also exempt from VAT but the supplier canreclaim VAT on the related costs:- exports of goods- intra-community supplies of goods to another EU country- international and intra-Community passenger transport- services connected to import and export of goods- a range of services provided intra-Community or to third countries(although technically not exempt, treated in a similar manner)

VATVAT

VAT RECOVERY• Generally, VAT incurred by a VAT-registered entity for the purpose of itsown economic activities can be recovered. VAT incurred in relation toexempt-without-credit supplies cannot be recovered.• A VAT-registered entity must allocate its purchases to one of the followingthree groups of taxable supplies:

VATVATGroup 1 - full reclaim of VAT is possible for:- purchases used for economic activities subject to VAT- purchases related to specific supplies outside the scope of VAT- purchases related to certain exempt-with-credit suppliesGroup 2 - no reclaim of VAT is possible for:- purchases used to provide the majority of VAT-exempt supplies

VATVATGroup 3 - a partial reclaim of VAT is possible for:- purchases used for both Group 1 and Group 2 supplies- purchases where usage is unclearThe taxpayer is obliged to reduce its reclaim of VAT by a coefficientdetermined by reconciling the amount of taxable supplies (Group 1)against the total amount of all supplies (less some VAT-exempt supplies).• This process is done in each VAT return using the coefficient from theDecember return of the previous year. Any final adjustments based on theyear's results are made in the December return of that year.

VATVAT • Subsidies are excluded from the calculation of the coefficient.The coefficient is rounded up to two decimal places, which means that anylevel of taxable activity should entitle an otherwise fully exempt taxableentity to recover 1% of its VAT in Group 3.• An entity must adjust its VAT recovery on certain goods where the purposeof the use changes from “with credit” to “partial credit” or “without credit”; orfrom “partial credit” to “without credit”. An adjustment must be made for:- tangible assets costing more than CZK 40,000(approximately EUR 1,200), and- intangible assets costing more than CZK 60,000(approximately EUR 1,800).In both cases complex rules apply to the adjustment process overa five-year period.

VATVAT

Non-recoverable VAT• VAT incurred on the following is always non-recoverable and is thereforealways an actual cost to a business:- passenger cars other than those purchased for resale (including carsunder a finance lease)- technical improvements to passenger cars- items used for hospitality or entertainment purposes- fuel used for private purposes when using a company car

VATVATBranches of foreign companies• Services provided by a Czech branch for the benefit of headquartersof another branch of the same entity are not subject to VAT.33Services subject to reverse charge• Transfer or assignment of copyrights, patents, licenses, trademarks, andsimilar rights.• Advertising services.• Services of advisors, engineers, consultants, lawyers, accountants, dataprocessing and supply of information.• Banking, financial and insurance services.

VATVAT• Supply of staff.• Lease of movable tangible property, except all means of transport.• Telecommunications services.• Operation of radio and television broadcasting.• Electronic services.• Obligation to refrain from pursuing or exercising, in whole or in part,a business activity or a right referred to in this list.• Supply of services by disclosed agents for services referred to in thisparagraph.Under certain conditions also:• Supply of goods with installation.• Transport of goods.• Work on movable property

VATVATVAT COMPLIANCE• VAT is administered by the Financial Office, however, import VAT isgenerally collected by the Customs Office from non-registered entities.A VAT-registered entity can opt to declare import VAT in its VAT return.• A valid VAT document must be issued for every taxable supply rendered toa VAT-registered entity.• The VAT document must, generally, be issued within 15 days of effectingthe supply.• Complete and accurate VAT records and documents must be kept for tenyears.

VATVAT• An entity with a Czech establishment must file VAT returns on a monthlybasis if annual turnover exceeds CZK 10 million or on a calendar quarterlybasis if annual turnover is less than CZK 2 million; if turnover is betweenthese two amounts, the entity can choose between filing quarterly ormonthly VAT returns.• A non-established entity must file VAT returns on a calendar quarterlybasis, irrespective of turnover.• VAT returns must be filed and any VAT liability must be paid within 25 daysof the end of the taxable period.

VATVAT• An entity with a Czech establishment must file VAT returns on a monthlybasis if annual turnover exceeds CZK 10 million or on a calendar quarterlybasis if annual turnover is less than CZK 2 million; if turnover is betweenthese two amounts, the entity can choose between filing quarterly ormonthly VAT returns.• A non-established entity must file VAT returns on a calendar quarterlybasis, irrespective of turnover.• VAT returns must be filed and any VAT liability must be paid within 25 daysof the end of the taxable period.

VATVAT• Excess VAT deductions are refunded automatically by the Financial Officewithin 30 days of being assessed.• Within 25 days of the end of the relevant calendar quarter, an entitymust file an EC Sales List with the Financial Office giving details of salesof goods to VAT payers in other EU countries.• An entity must also file a monthly Intrastat return giving details of goodssold/relocated to and from other EU countries. The threshold for filing isCZK 2 million for arrivals and CZK 4 million for dispatches. Large tradersmust file a more detailed return. The Intrastat returns must be filed withinthe Customs Office on a monthly basis within 12 working days of the endof the month.

VATVATVAT REFUNDS• EU businesses can be refunded Czech VAT under the same conditions asCzech VAT payers.• Non-EU businesses can, in certain circumstances, obtain a refund ofCzech VAT incurred on goods and services except for:- goods and services provided for personal use- travel services, accommodation and catering provided to a foreign person- goods and services related to representation of a foreign person- telecommunication services- purchase, lease and repair of motor vehicles dedicated to transportof less than nine persons

VATVAT

- hydrocarbon fuels and lubricants except diesel and bio-diesel taxis• The application for a refund must be filed by 30 July of the following year.• In certain circumstances, non-EU tourists can obtain a refund of Czech VATincurred on goods. The goods must cost more than CZK 2,500 and mustbe taken out of the country within 60 days of purchase. Recovery of VATon fuel, tobacco, alcohol and food products is not allowed.