VAT in Czech Republic

In the Czech Republic, as in other EU countries, there is an imposition of a tax known as Value Added Tax (VAT) on goods and services. Following are key points regarding VAT rates in the Czech Republic:

VAT applies to all economic transactions that involve the supply of goods and services in the Czech Republic. All companies exceeding the set threshold for VAT registration – usually CZK 1,000,000 of annual income – are obliged to register as VAT payers. Entrepreneur and company VAT payers shall submit tax returns and pay due amount of VAT in a regular manner. The VAT standard rate in the Czech Republic is 21%, and the reduced rates are 15% and 10% up to 2024 and from 2024 combined into one rate of 12%. It also depends on the taxation regarding goods and services specificity and application.

At what rate is VAT applied in the Czech Republic?

Within the Czech Republic, Value Added Tax is levied on goods and services at every stage of supply. In general terms, the consumption tax burden is always upon the final consumer. The applicable rate of VAT in the Czech Republic varies depending on the type of goods and services to which it relates. Following is a summary of the major VAT rates in the Czech Republic:

The standard VAT rate in the Czech Republic is therefore 21%, with preferential rates of 15% and 10%, which in the future will be combined into a single rate of 12%.

What are the rates of this tax in the Czech Republic?

Tax rates applicable in the Czech Republic, valid for 2024:

Standard rate: 21%: Applies to most goods and services.

Reduced rate: 12%: Combines former reduced rates of 15% and 10% from 2024. Foodstuffs, medical products, social services, cultural events, and books are included in this category of essential goods and services.

Note: The Czech Republic applies reduced VAT rates to certain categories of goods and services in compliance with the EU VAT Directive that permits a reduction in the level of tax on particular socially significant categories of goods and services.

Standard rate of VAT in the Czech Republic

In the Czech Republic, the standard VAT rate is 21% and applies to most goods and services subject to tax. This encompasses a broad category, including but not limited to, electronics, clothes, cars, construction materials, and other goods and services that fall outside of either a reduced VAT rate or are exempt from VAT altogether.

Examples of goods and services that are taxed at the standard rate of 21%:

• Electronics (e.g., televisions, computers)
• Clothing and footwear
• Household appliances
• Building materials
• Repair and maintenance services
• Transport services – except for public transport, which may have a reduced rate

In the Czech Republic, the 21% standard rate is the basic level of value-added tax in most cases.

Reduced VAT Rates in the Czech Republic

As of 1 January 2024, the reduced rates of VAT were combined into one rate in the Czech Republic: 12%. This applies to certain goods and services that can be characterized as socially significant or important. The main categories of goods and services of the reduced VAT rate are as follows:

VAT rate 12% (reduced rate):

Special rules may apply in certain cases—for example, international trade—where specific categories of goods and services may be exempt from taxation. The 12% rate combines the previous reduced rates of 15% and 10%, which simplifies the whole tax system in the Czech Republic. This reduced VAT rate covers goods and services that bear major impacts from social and economic points of view, including medical care, food, cultural events, and repair services.

Zero-rated products in the Czech Republic

There are categories of goods and services in the Czech Republic for which 0% is considered to be a VAT rate. In other words, no VAT has to be charged but such goods and services remain within the scope of the tax. A company can deduct input VAT on such a transaction. The basic examples of goods and services, to which the VAT rate of 0% is applied, include the following products, services, and activities:

Intra-Community deliveries – that is, deliveries to EU countries:

Intra-Community supplies of goods from the Czech Republic to the other European Union countries have been subject to zero rate of VAT under particular conditions.

The zero rate shall be applied only under the condition that the buyer is registered as a payer of value added tax in another Member State and the goods are actually transported outside the territory of the Czech Republic. It gives rise to free trade within the EU; businesses are able to supply goods VAT-free, thus reducing the tax cost to businesses.

Export of goods outside the EU:

There is also a zero rate of VAT on exports of goods outside the European Union.

The export is zero-rated, as long as there is documentary proof that the goods left the EU territory. This stimulates international trade and allows the exporters not to pay VAT on the exported goods within the Czech Republic.

The exporter may recover the VAT paid on goods purchased by the exporter for export purposes.

Zero-rate VAT

does not mean the same as VAT exemption. Zero-rating means the business might claim back the VAT paid on input goods and services related to these transactions.

Both types of transactions

intra-community supplies and exports – constitute significant parts of foreign economic activity, with zero VAT enabling businesses to be competitive in international markets.

Value Added Tax (VAT) in the Czech Republic

Value Added Tax is a general consumption tax assessed on the value added to goods and services during various production processes related to a product or service. It is one of the most important taxes applied in the supply of goods and services in the Czech Republic. The main points concerning VAT in the Czech Republic, effective 1 January 2024, are as follows:

The basic rates of VAT:

Therefore, for the year 2024, the standard rate of VAT in the Czech Republic would be at 21% but simultaneously have a reduced rate of 12% with a zero rate on some goods and services.

VAT Registration in the Czech Republic

In the Czech Republic, VAT registration may be obligatory for some companies and optional in other cases. Here are the basic rules of VAT registration in the Czech Republic:

Compulsory registration for residents:

• Turnover over CZK 2 million: All companies in the Czech Republic are obliged to register themselves as a VAT payer if their annual turnover in any successive period of 12 months exceeds the amount of CZK 2 million. Also, it applies to goods as well as services.
• The company supplies products which are charged with the Czech VAT in case the recipient of supply may not be obliged to account for the reverse charge.
• The Company dispatches the goods from the Czech Republic to any state-member of the EU.
• Voluntary registration: Companies can also register as VAT payers on a voluntary basis if their turnover is below 2 mil. CZK, provided they make or will be making supplies that are taxable or exempt from VAT with credit in the Czech Republic.
• Companies not registered as VAT payers, but who are liable to pay the tax on goods or services purchased, become VAT-identified persons. This occurs when a company is obliged to pay VAT on received supplies. The company pays VAT only for the received supplies but is not entitled to a refund of input VAT.
• This provision is often applied to companies that purchase goods or services outside of the Czech Republic, which are, however, obliged to pay the VAT inside the Czech Republic’s border.

Registration Procedure:

• Application for registration: The registration can be done by forwarding an application to the tax authorities of the Czech Republic. The application will contain the details of the company and the activities which are liable to attract VAT.
• If the company is registered as a VAT payer, accordingly, it is obliged to follow all requirements and to file VAT returns.

Reverse charge mechanism (reverse charge):

• Sometimes, this obligation could be shifted to the purchaser’s side-the recipient of services-which exempted the foreign supplier from the obligation of paying VAT. It is often applied in the case of services and goods supplied from abroad.

Findings:

Compulsory registration is required when the turnover threshold of 2 million kroons is exceeded for residents.

Non-residents are obliged to register with VAT when they make taxable supplies in the Czech Republic.

Companies have the right to voluntary registration as a VAT payer.

Identified persons pay VAT only on received supplies and they do not have the right for refund of input VAT.

They also contribute to the proper administration of value-added tax and compliance with tax legislation in the Czech Republic.

VAT refund and VAT payment in the Czech Republic

In the Czech Republic, there are clear rules and deadlines regarding the procedure of VAT refund and payment. Following are the highlights of the procedure:

Compliance with deadlines and rules for VAT return filing is one of the most important moments while doing business in the Czech Republic. The payers of the value-added tax must be in very great keenness to observe the legal requirements for their own good to avoid penalties and problems with the tax authorities.