The limit for VAT registration will increase to two million Czech crowns
On 2 June 2022, the Government submitted to the Chamber of Deputies a proposal to amend the VAT Act and other related laws. This amendment from the Ministry of Finance was approved by the Chamber of Deputies on 7 July 2022. The amendment will become effective on 1 January 2023. One of the most important innovations is the increase of the limit for compulsory registration for value added tax (VAT) for business natural persons and legal entities to CZK 2,000,000.
This limit is calculated as the total turnover of the entrepreneur for 12 consecutive calendar months, and the (VAT) Act defines what is meant by turnover for the purposes of this Act. It is “the aggregate of the consideration, exclusive of tax, due to the taxable person for performance made, with the place of supply in the domestic territory, if the consideration is…” for taxable or exempt performances.
In the context of the Czech Republic and its economic situation, this is a necessary step, as the original limit for VAT registration, which (until now) amounted to CZK 1,000,000 (approx. EUR 35,000), has been in force since the Czech Republic joined the European Union, i.e. since 2004, despite the fact that the price levels changed significantly over these 18 years. The increase to EUR 85,000 is also supported by the EU itself, which will allow member states to implement the increase from 2025. However, the Czech Republic was allowed to increase the limit at its request before the directive came into force.
The government’s proposal further reflects the situation of persons who will stand on the borderline of these two “limits”, i.e. persons whose turnover reached CZK 1,000,000 in 12 consecutive calendar months (not per calendar year) so they were VAT payers until now, but at the same time did not exceed CZK 2,000,000. These persons will be able to cancel their VAT registration before the amendment comes into force (before the end of this year), and will automatically cease to be a taxpayer on 1 January 2023. Taxpayers with a turnover of less than CZK 2,000,000 who do not request cancellation of their registration will remain VAT payers. It should also be noted that cancellation of VAT registration is possible at the earliest after one year from VAT registration.
The amendment also addresses the situation when an entrepreneur exceeds a turnover of CZK 1,000,000 (but not CZK 2,000,000) in November 2022 (or in December 2022). According to the amendment, the bussines person no longer has to file a registration by 15 December 2022 (or 15 January 2023) and no longer has to register as a VAT payer.
This legislative change will thus reduce and simplify the tax and administrative obligations of the entrepreneurs.
As well as the limit for VAT registration, the limit for the possibility to use the flat-rate tax will also increase to CZK 2 million, about which we will inform you in more detail in the following post.
Do not hesitate to contact us for more information.
Monika Rutland, partner
rutland & partners, law firm
Tel: +420 226 226 026
Email: monika.rutland@rutlands.cz
