VAT VAT ISSUES IN THE CZECH REPUBLIC

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

VAT A resident entity must register for VAT if its taxable turnover exceeds CZK 1,000,000 within any 12 consecutive calendar months. The application must be made to the local Financial Office within 15 days of the following month. Registration takes effect from the first day of the third following month. Registration may also be imposed due to Intra-Community Trade.

A resident entity must register for VAT if its taxable turnover exceeds CZK 1,000,000 within any 12 consecutive calendar months. The application must be made to the local Financial Office within 15 days of the following month. Registration takes effect from the first day of the third following month. Registration may also be imposed due to Intra-Community Trade. VAT

VAT A non-established entity must register and account for VAT on its first taxable supply in the Czech Republic. A non-resident entity making distance sales into the Czech Republic must register when the value exceeds EUR 35,000 in a calendar year. The application is made to the Financial Office for Prague 1. Use of a tax representative is optional. Group companies cannot register as a single VAT entity, but it is possible for two or more companies to conclude an “association agreement” under which certain supplies between them are not subject to VAT.

VAT DE-REGISTRATION An entity registered for VAT can be de- registered immediately if it permanently ceases to carry out its business activity. Otherwise, an entity can ask to be de-registered only after one year of registration and on the condition that its taxable turnover in the last 12 consecutive calendar months did not reach CZK 1,000,000. A non-established entity can be de- registered by the Financial Office if it did not carry out any taxable supplies in the previous 12 consecutive months.

VAT RATES Supplies of goods and services are generally subject to 21% VAT, but certain 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 disabled persons - cultural activities - funeral services

VAT EXEMPT SUPPLIES Generally, an entity cannot reclaim VAT incurred in connection with the provision 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

VAT A lesser can choose to charge VAT at the rate of 21% on a lease of a building to another VAT-registered entity. The following supplies are also exempt from VAT but the supplier can reclaim 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)

VAT VAT RECOVERY Generally, VAT incurred by a VAT- registered entity for the purpose of its A VAT-registered entity must allocate its purchases to one of the following three groups of taxable supplies:

VAT Group 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 Group 2 - no reclaim of VAT is possible for: - purchases used to provide the majority of VAT-exempt supplies

VAT Group 3 - a partial reclaim of VAT is possible for: - purchases used for both Group 1 and Group 2 supplies - purchases where usage is unclear The taxpayer is obliged to reduce its reclaim of VAT by a coefficient determined 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 the December return of the previous year. Any final adjustments based on the year's results are made in the December return of that year.

VAT Non-recoverable VAT VAT incurred on the following is always non-recoverable and is therefore always an actual cost to a business: - passenger cars other than those purchased for resale (including cars under 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

VAT VAT COMPLIANCE VAT is administered by the Financial Office, however, import VAT is generally 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 to a VAT-registered entity. The VAT document must, generally, be issued within 15 days of effecting the supply. Complete and accurate VAT records and documents must be kept for ten years.

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

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

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

VAT VAT REFUNDS EU businesses can be refunded Czech VAT under the same conditions as Czech VAT payers. Non-EU businesses can, in certain circumstances, obtain a refund of Czech 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 transport of less than nine persons

VAT - 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 VAT incurred on goods. The goods must cost more than CZK 2,500 and must be taken out of the country within 60 days of purchase. Recovery of VAT on fuel, tobacco, alcohol and food products is not allowed.