VAT in Czech Republic Explained: Rates, Thresholds, and Compliance

VAT in Czech Republic - Three Types of Rates

There are three types of VAT rates in Czech Republic:

1. Standard VAT rate,

2. Reduced VAT rate,

3. Zero VAT rate.

How Much is VAT in Czech Republic’s Regions?

Having a special VAT rate defined for specific regions is not a common practice, but an exemption. Therefore, there is no special VAT rate in Czech Republic, and general rules and VAT rates apply across the country.

VAT Registration Threshold

VAT Czech Republic law and related regulations provide insight into the VAT registration threshold. According to those rules, the registration VAT threshold in Czech Republic for domestic taxable persons is CZK 2 million (around EUR 82,500) in 12 consecutive months. In addition, a second VAT registration threshold exists, set at CZK 2,536,500 (around EUR 104,500), which requires immediate registration. 

In practice, if taxable persons exceed the CZK 2 million threshold, they become VAT taxable persons starting January 1 of the following year, unless they opt to register earlier by notifying the Tax Authorities immediately upon exceeding this amount. However, if turnover exceeds CZK 2,536,500 in the same year, taxable persons become VAT taxable persons from the day after the higher limit is exceeded. In this case, a new registration application must be submitted within 10 working days, even if an earlier application was filed after exceeding CZK 2 million.

On the contrary, since no VAT registration threshold is defined for foreign taxable persons, they cannot benefit from the VAT registration exemption if they engage in taxable activities in the Czech Republic.

As an EU country, the Czech Republic incorporated an EU-wide EUR 10,000 VAT registration threshold for intra-EU distance sales of goods and B2C supplies of services. Regarding electronically supplied services, EU rules state that non-EU suppliers are not required to register.

The Czech Republic implemented EU VAT SME rules and regulations, allowing domestic and EU small businesses to apply the VAT exemption. To benefit from the EU VAT SME scheme, the taxable persons' turnover must not exceed the EU-wide threshold of EUR 100,000 in the current or previous calendar year and must remain below the national VAT registration threshold, in this case, CZK 2 million.

Types of Taxable Activities in Czech Republic

Several economic or business activities are considered taxable under VAT. Under VAT Czech Republic law, any legal entity or individual engaged in such activity is treated as a VAT-liable or taxable person.

The supply of goods and provision of services in the Czech Republic for a fee, the reception of reverse-charge services by a taxable person in Czechia, and the export and import of goods are all activities that are subject to VAT.

VAT Registration Process

Registering for VAT is an important process for resident taxable persons whose annual turnover is above the VAT threshold in Czech Republic and for foreign taxable persons supplying goods or services on the Czech market.

Czech Republic VAT Registration for Domestic Businesses

Domestic taxable persons, e.g., domestic businesses, should submit electronically VAT registration applications to the Czech Tax Authority through the General Financial Directorate’s Electronic Tax Portal. The registration obligation arises once the CZK 2 million limit has been exceeded. Businesses have 15 days to apply once the threshold is exceeded. The VAT registration process is usually completed within 30 days of submitting the correct application. In addition to mandatory registration, domestic businesses can register for VAT voluntarily.

Czech Republic VAT Registration for Foreign Businesses 

As mentioned, there is no set registration threshold for taxable persons not residing in the Czech Republic and conducting activities subject to VAT in Czech Republic. These taxable persons, such as foreign businesses, should submit a VAT registration form within 15 days from the end of the calendar month in which they became considered taxpayers. Non-EU businesses may need to appoint a tax representative to complete the VAT registration process, whereas companies established in another EU country do not.

Under the amended Czech VAT Law, non-EU taxable persons registering for VAT must appoint a tax representative or authorized agent and provide an email for communication with the Financial Administration. The only exception applies to VAT-registered entities that already have a data mailbox in the country, who do not need an agent. Authorized representatives can be individuals or legal entities with an accessible data mailbox.

VAT Returns in Czech Republic

Depending on their turnover, VAT-registered taxable persons should submit monthly or quarterly VAT returns. Regardless of which VAT return is filed, the deadline is the 25th day after the end of the reporting period. The VAT return can be filed in three ways: via the Mojedane.cz online portal, via the Electronic Submissions for the Financial Administration (EPO) application, or via the data mailbox.

Penalties for Failure to File Tax Return

The Tax Administration will impose penalties on taxpayers who miss a filing deadline or fail to submit a VAT return, thereby imposing additional financial burdens.

Penalties range from CZK 300,000 for late filing to CZK 500,000 for missing the registration date, failing to meet reporting obligations, or non-compliance with record-keeping rules.

VAT Rules for Electronically Supplied Services 

Services provided automatically online, using the Internet or similar digital networks, that require minimal or no human intervention are digital services, digital products, and electronic services. These definitions are also synonymous with Electronically Supplied Services (ESS), regulated under the EU VAT Directive 2006/112/EC. In essence, ESS relies heavily on technology and automation, and its provision would not be possible without it.

The Czech Republic adopted this definition of the EU, which is widely applicable at the EU level and provides a harmonized regulatory framework. Moreover, the EU VAT Directive brought harmonized taxability rules for ESS:

Taxability Rules for ESS:

The importance of EU taxability rules for ESS lies in establishing a clear, more level playing field for all participants in the EU e-commerce market. Furthermore, it reduces administrative burdens and enables e-commerce businesses to conduct their activities and achieve VAT compliance more easily.

The most notable ESS rules under the EU VAT Directive stipulate a general place of supply rule for B2B ESS supply and the application of the VAT rate set in the country where the consumer is located for B2C ESS supply.

The EU-wide threshold set at EUR 10,000 affects distance sales of goods and ESS supply rules. This threshold is part of the 2021 E-commerce package and states that if the supplier's annual turnover is above the limit, the VAT rate of the consumer's EU country of residency applies, for example, the VAT rate Czech Republic.

However, when supplies are below the threshold, suppliers may decide whether to apply the VAT rate of their country of establishment or register for OSS schemes.

How much is VAT in Czech Republic on ESS?

The Czech Republic VAT rate for ESS is 21%.

E-Commerce Rules

The 2021 E-commerce reformatory package is one of the most well-known VAT packages that redefined the EU VAT landscape and influenced global changes. The primary purpose of the reforms was to ease VAT compliance requirements, particularly for businesses involved in cross-border transactions. On the other hand, with this package, EU governing bodies wanted to ensure that EU consumers do not face unknown and unnecessary financial burdens.

The E-commerce package introduced a EUR 150 threshold for goods in consignments imported from non-EU countries, known as cross-border sales of low-value goods.

Intra-EU distance sales rules also evolved, with a unified EU-level threshold introduced, abolishing national thresholds. Before implementing a single threshold, businesses had to pay attention to different thresholds depending on the countries in which they operated. 

The deemed supplier rule, under which digital platform operators became VAT-liable for VAT on supplies they facilitate, influenced the platform economy.

Finally, the reform brought a new scheme and new rules to the 2015 Mini One Stop Shop (MOSS), creating a more extensive One Stop Shop (OSS) system containing three schemes:

• Union Scheme,

• Non-Union Scheme,

• Import Scheme.

VAT EU Reporting

Two reports on EU supplies need to be submitted. The first is a tax return called the recapitulative statement, known as the EC Sales list, and the second is a statistical report called Intrastat.

EC Sales List

When a Czech VAT-registered taxable person makes a sale transaction for goods or services to another VAT-registered person in another EU country, a recapitulative statement should be submitted. The recapitulative statement or  EC Sales List (ESL) should be submitted no later than 25 days after the reporting period ends. 

Intrastat 

Once the Intrastat threshold is exceeded, a statistical report on supplies made in the EU territory is required. The threshold is set at CZK 15 million for both imported (arrivals) and exported (dispatches) goods.  The Czech Republic also has a threshold for Intrastat simplified reporting of CZK 30 million. Taxable persons whose arrivals or dispatches exceed this threshold can submit Intrastat without specifying individual data for goods.

Digital Reporting

There are no mandatory e-invoicing or SAF-T reporting requirements in the Czech Republic. However, one specific VAT statement is considered an appendix to the VAT return. E-invoicing is allowed, and a system for sending and receiving e-invoices is in place, but it is not mandatory.

Local Businesses

The VAT Control Statement is currently the only report needed in the Czech Republic, apart from the VAT return. This report should be filled out electronically and summarize the most important lines from the VAT returns. The obligation to file a VAT Control Statement applies to all VAT-registered taxable persons in Czechia, such as local businesses.

Non-Resident Businesses

The same rules regarding the VAT Control Statement apply to local businesses to any nonresident taxable person, e.g., businesses registered for VAT in  Czech Republic.