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KPMG: Changes in VAT from 1 January, 2013

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In July the Chamber of Deputies dealt with two amendments to the VAT Act.

The first amendment forms a part of the bill on changes to tax, insurance and other laws in connection with reducing the public budget deficit. The bill was passed by the Chamber of Deputies in the third reading and now goes on to be discussed in the Senate.

From the VAT perspective, this amendment increases the tax rate by 1% (to 15% and 21%) effective from 1 January, 2013. The amendment also contains other measures regarding the method of calculating the tax base and the amount of tax.

The amendment also introduces changes regarding the inclusion of goods in the reduced rate category. The reduced tax rate should no longer apply to baby nappies. The application of the reduced tax rate to healthcare products is also partly restricted; one of the restricting conditions being that the healthcare product should be generally intended for the exclusive personal need of the disabled for the treatment of a disability or for mitigating its consequences.

The second amendment discussed by the Chamber of Deputies is the technical amendment to the VAT Act. This amendment has been discussed only in the first reading, with the next debate planned for the autumn meeting of the Chamber of Deputies.

The rather extensive amendment proposes changes of a technical nature, responding to changes in European legislation. Here is a brief summary. In addition, significant changes may still be expected while discussing the proposal.

Extending the liability for tax payment

The amendment will extend the situations in which the customer is liable for payment of VAT on the supply in the event that it is not paid by the supplier. Apart from situations already covered by the present wording of the VAT Act (for instance where the payment for a taxable supply is effected by a bank transfer to an account outside the Czech Republic or where the contracted price clearly differs from the arm’s length price), the customer will now be, without further conditions, liable for payment of VAT also if making the payment for the taxable supply to a supplier’s account that has not been published by the tax administrator. The customer will also be liable for VAT payment if the supplier is a so-called “unreliable payer”.

The amendment will also introduce new regulations concerning the liability for VAT payment of a recipient that is obliged to declare and pay excise duty on receipt of goods from another member state where the goods are supplied to a third person by the person that has acquired such goods from another member state.

Exemption of real estate transfer

The time limit after which the transfer of real estate will become VAT exempt is to be extended from three to five years; taxpayers will then have the option to decide whether to use the exemption or not.

Monthly VAT taxation period

The proposed amendment introduces the monthly VAT taxation period as the primary one for all taxpayers with a registered office, place of business or establishment in the Czech Republic. Existing payers that would meet the conditions for the quarterly VAT taxation period in 2013 may decide whether to opt for the monthly period or to keep the quarterly period. New payers may opt for the quarterly period subject to meeting certain conditions stipulated by law (for instance turnover under CZK 10 Mio.), but not earlier than in the third calendar year following their VAT registration (in certain cases it would be possible to apply for the change at an earlier date).

Electronic tax documents

The amendment aims to reduce the administrative burden connected with issuing electronic tax documents, where an electronic signature will no longer be required. However, customers will also have to agree to the electronic form of the invoice.

At the same time, the terms “authenticity of origin, integrity of content and legibility” are explicitly defined as essential requirements that tax documents (whether in paper or electronic form) have to meet at the time of issue and over their entire archiving period.

Binding rulings on supplies of scrap metal and waste

From 1 January, 2013, it should be possible to apply with the tax administrator for a binding ruling as to whether a supply of goods under Section 92c (scrap metal and waste) is or is not subject to the local reverse charge.

Tax return in electronic form only

Effective from 1 January, 2014, tax returns should be filed by taxpayers exclusively in electronic form. This shall not apply to individuals with turnover not exceeding CZK 6 Mio.

Other changes

The amendment also contains other changes concerning the definitions and structure of provisions regulating VAT registration, origination of the status of a VAT payer, and VAT deregistration. The definition of a fixed establishment for VAT purposes has also been changed.

In addition, the amendment significantly modifies the definition of insurance and reinsurance activities that are VAT exempt.

  • Petr Toman, ptoman@kpmg.cz, tel.: +420 222 123 602
  • Lucie Marková, lmarkova@kpmg.cz, tel.: +420 222 123 464

Source: KPMG Czech Republic; Financial Update 8/2012

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