Amendment to the VAT Act effective from 2019
The Ministry of Finance has prepared an extensive amendment to the VAT Act that should come into effect (with certain exceptions) in 2019. The Government presented the draft to the Lower House (Chamber of Deputies) in June 2018. As the Chamber of Deputies has only begun to discuss the draft amendment, it might go through significant changes. However, we would like to point out some envisaged changes.
In January 2019, Council Directive (EU) 2016/1065 shall become effective on the basis of which EU Member States are obliged to unify the rules for issuing and using vouchers. Basically, single-purpose and multi-purpose vouchers will be distinguished. Single-purpose vouchers are vouchers for supplies for which there is sufficient advance information (i.e. the tax rate and the place of delivery or performance). The other vouchers are multi-purpose vouchers. The transfer of a single-purpose voucher shall be considered to be a supply of goods or provision of services which is no longer subject to tax at the time the voucher is used. With multi-purpose vouchers, the opposite procedure shall apply.
Ban on the application of VAT to the lease of residential houses
Currently, VAT payers may decide whether or not they will tax the rent for real estate leased to another VAT payer. In future, the taxation of rents will not be possible in the case of buildings intended to serve as a principal residence. As a result, the landlord shall not have the right to claim related VAT deductions. If the right to deduct VAT was already exercised in the past, this will have to be adjusted by repaying its proportional share. However, this change should take effect as late as 2021.
Deduction adjustments in connection with repair of real estate
Adjustments to VAT deductions should be made not only for technical improvements but also in the case of real estate repairs. Taxpayers who carry out real estate repairs to a value exceeding CZK 200,000 excluding VAT shall be obliged to monitor whether the real estate is sold applying tax exemption within a period of 10 years after the repair was carried out. If so, the taxpayer shall repay a part of the originally claimed VAT deduction.
Obligation to make the necessary effort to deliver tax documents
The amendment shall impose a new obligation on the issuers of tax documents. The taxpayer shall be obliged to make the necessary effort to deliver a tax document within the set time limit. In the case of doubt as to whether the taxpayer has fulfilled this obligation, the tax administration shall be allowed to impose on the taxpayer a special recording obligation.
Delivering credit notes
The above obligation might have positive effects for the issuers of credit notes. According to the draft, credit notes may be included in VAT returns in the period in which the taxpayer sends it to the customer if they make the necessary effort to deliver the credit notes. Currently, taxpayers may reduce output VAT only after the customers have received the credit notes.
New requirement for corrective tax documents (credit and debit notes)
In future, both credit and debit notes shall include the date of taxable supply, which should be the date when the correction was performed. Currently, there are frequent discrepancies between how customers and suppliers show credit and debit notes in control statements.
Claiming tax deduction before registration for VAT
According to the current legislation, persons and entities that have registered for VAT may claim VAT deductions for costs incurred within 12 months prior to registration in their first tax return. According to the amendment, tax deductions may be claimed for long-term investments for a period of 5 years before the registration for VAT was made.
Taxation on the supply of goods with assembly by a Czech tax non-resident
The amendment shall apply to situations where both the supplier and the customer are VAT payers, the supplier being a Czech tax non-resident. Under the current rules, this supply of goods with assembly is subject to self-assessment by the customer. According to the draft amendment, the supplier shall be obliged to issue the invoice for such supply with Czech VAT.
Taxation of small-scale cross-border electronic services
The amendment should simplify the taxation of cross-border electronic services with an annual value not exceeding EUR 10,000. Such transactions should be taxed in the Member State in which the supplier is resident. Currently, these electronic services are taxed in the recipient’s Member State.
Issuing tax documents (invoices) for services in MOSS
This positive change will concern the providers of electronic services who use the Mini-One-Stop-Shop (MOSS). In issuing tax documents, these providers shall be governed only by the rules of the state in which they are registered for the MOSS scheme. Accordingly, they will not have to follow the legislation of each member state where electronic services are received.