Changes in VAT rates
The consolidation package of measures brought changes also in the Czech VAT. In particular, the VAT rates have changed. Instead of the existing 2 reduced rates: 15% and 10% from 1 January 2024 will be reintroduced only one — 12%. The basic rate will remain unchanged.
Transfer between different VAT rates
In addition to the change in rates, there is a transfer of goods and services between different VAT rates.
Switching from the standard rate of 21% to a reduced rate for services
Irregular land passenger transport by buses, which are currently taxed at the standard rate of 21% and will now be taxed at a reduced rate of 12%, will be transferred from the standard rate to the reduced rate. This includes irregular carriages of 10 persons or more precisely 9 passengers+1 driver. Taxis will still be subject to the 21% VAT rate.
Transition from the reduced to the basic rate of 21% for services
Previously, as support for entrepreneurs during the Covid period, some services were moved to a reduced rate of VAT, from 2024 they revert to the basic rate.
List of services:
38.1 Collection and transport of household waste,
38.2 Preparation for disposal and recycling of municipal waste,
38.3 Treatment of household waste for recycling; secondary raw materials,
51 Scheduled air transport of passengers and their baggage — this change applies only to scheduled domestic transport, international air transport remains compulsorily excluded under Directive 2006/112/EC,
90 Services of authors and performers, unless they are the granting of the right to use a work or artistic performance, and excluding services of freelance journalists, freelance models and mannequins. According to the Explanatory Note, these services are not social or medical services for the consumer, therefore it is proposed to exclude them from the favourable tax rate,
81.21.10 Household cleaning services,
81.22.11 Home window cleaning services,
95.23 Repair of footwear and leather goods,
95.29.11 Repair and alteration of clothing and textiles,
95.29.12 Bicycle repair,
96.02 Hairdressing and Barbershop services.
Switching from a reduced to a base rate of 21%
The main changes took place in the restaurant business. The government has tried to simplify the already complicated VAT system in the catering industry, but according to experts, there are still many controversial issues when determining the VAT rate. The most questions arise when determining the VAT rate for mixed products, such as water with lemon or added syrup.
List of Products:
- alcoholic and non-alcoholic beverages are now subject to the basic tax rate. It should be recalled that previously even draught beer consumed in public catering was taxed at a reduced rate
- cut flowers and decorative foliage
- certain medical devices
- firewood
The reduced rate of VAT remains:
- drinking (tap) water. Drinking water means so-called tap water without flavourings, addition of sweetener. It is funny that decorating a glass with a slice of fruit or a mint leaf is allowed, it will remain in the reduced rate, but if you add lemon to water, it is already a non-alcoholic drink, which is subject to the basic rate of 21%.
- favourite drinks:
- milk (cow’s milk, goat’s milk, etc.)
- liquid dairy products defined by tariff nomenclature code in chapter 4
- all plant-based alternatives to milk
The reduced tax rate also applies, for example, to whipped warm milk. Milk with added flavourings, milk with Matcha green tea, etc.
- Supplies of newspapers and magazines will be taxed at a reduced rate of 12%. However, the restriction remains that the share of advertising must not exceed 50% of the content.
VAT exemption
The supply of books hitherto categorised under the second reduced VAT rate will now be exempt from VAT with the right to deduct tax. This means that the sale of books, including electronic books, will not be subject to VAT, i.e. will be sold with zero tax. Such sales will be recognised in line 26 of the tax return.
For VAT purposes, books are books falling under tariff classification codes 4901, 4903-4905, 4911 or 8523. These are illustrated books, colouring books, brochures, music books and cartographic products, including sound recordings of their contents (audiobooks).
Transition period
When the rates are changed, problems arise with the application of VAT when advance payments were made at the VAT rate under the law from 2023, but the taxable supply (invoice) is already at the new rate of 2024. In these cases, the procedure under section 37(a) of the VAT Act applies. In such a case, the advances remain in the old rate and only the surcharge/refund of overpayment is at the new rate.
Examples:
Example 1 — Deposit and additional payment when buying a flat
The advance payment for the purchase of a flat in 2023 in the amount of CZK 2,500,000 will be taxed at the current rate of 15% (CZK 326,087 CZK VAT), the additional payment in 2024 in the amount of CZK 2,500,000 (CZK 267,857 CZK VAT). VAT on the advance payment is not recalculated.
Example 2 — Advance 2023 and overpayment
Advance payment of CZK 5,000,000 in 2023 at the rate of 15 per cent — VAT 652,174 CZK, price without VAT 4,347,826 CZK.
The taxable delivery in 2024 at the current rate of 12% is CZK 4,347,826 + VAT 12% = CZK 4,869,565, resulting in an overpayment of CZK 130,435. When refunding the overpayment, the rate of 15% will be used, as the full payment was made at the rate of 15%.
Example 3 — Advance 2023+2024 and overpayment
Advance payment for the construction of the house in the amount of CZK 2,000,000 in October 2023 (15% VAT — CZK 260,870), second advance payment in December 2023 in the amount of CZK 2,500,000 (15% VAT — CZK 326,087), advance payment in January 2024 in the amount of CZK 500,000 (12% VAT — CZK 53,571). The total price including the discount is 4.400.000 EEK. The overpayment is 600.000 EEK. Calculation of VAT on the overpayment: 500.000 at the rate of 12% + 100.000 at the rate of 15%. I.e. the prepayment of 2024 is used first and only the balance from the previous year.
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