The Czech Ministry of Finance has prepared the 2019 tax package which also includes an extensive VAT Act amendment. The final version of the tax package was approved at the end of March 2019 and came into effect as of 1 April 2019. In the text below we would like to draw your attention to major changes of VAT Act.
Changes Effective from 1 April 2019
Services Related to Rent
The amendment brings the change of the due date for re-invoiced services (i.e. service charges such as cleaning, security, lift services etc.). Based on the amendment the new due date corresponds to the moment when the landlord ascertains the actual “re-invoiced” amount.
Correction of the Originally Claimed VAT Clawback for Significant Repairs of a Real Estate Property
The amendment extends the obligation / right for the clawback of originally claimed VAT on fixed assets to significant repairs of a real estate property in the event of its future VAT-exempt sale.
The clawback will apply for all significant repairs over a period of 10 years prior to the VAT-exempt sale of the real estate property. For the purposes of the VAT Act, a stand-alone repair exceeding CZK 200,000 without VAT is considered a significant repair.
Under the transitional provision, a taxpayer can decide whether this mechanism will apply also for repairs commenced before 1 April 2019 and completed after 1 April 2019.
Changes Effective from 1 January 2020
Finance Lease
Currently the VAT Act classifies leasing into two categories: (i) leasing with the obligation to purchase the lease subject and (ii) leasing with no obligation to purchase the lease subject.
If there is an obligation to purchase, it is considered as a supply of goods. This supply of goods is subject to VAT at the moment the lease subject is handed over.
If there is no obligation to purchase, it is considered as a supply of services. This supply is taxed in regular leasing payments.
According to the amendment, the option to purchase the subject of the lease will also be considered as a supply of goods with the same VAT consequences as the obligation. However, it will concern only situations when purchase is the only economically reasonable option.
Under the transitional provision, the change will only affect lease agreements concluded after
1 January 2020, with the lease subject hand-over after that date.
Changes Effective from 1 January 2021
Mandatory VAT Exemption for the Lease of Residential Houses
The current choice of rent taxation of residential houses provided to another tax payer will be limited from 1 January 2021. Newly, the rent of these real estates will be tax-exempt, without a right to claim input VAT. Neither the rental premises purpose of use nor the recipient tax status will be considered.
This amendment could lead to retroactive negative impacts if the landlord currently applies VAT on rent and claims VAT from related inputs. If input VAT is also claimed from the purchase of the real estate or its technical improvement, from 1 January 2021 the scope of the use of these real estates will change (from taxed rent to VAT-exempt rent). This means that if the 10-year time test is not met, the originally claimed VAT must be corrected.
This article was written by tax advisor Romana Pelcová from TPA Czech Republic.
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