Value added tax (in Czech „Daň z přidané hodnoty“, abbreviated „DPH“) is one of the most important revenue of the state budget of the Czech Republic. The present tax system in the Czech Republic was introduced in January 1993. Since EU accession in May 2004, the system has been subject to a continuous process of harmonisation with European legislation.
Please read our blog for more information about the Czech VAT.
There are currently three VAT rates in the Czech Republic: the standard rate of 21%, the first reduced rate of 15% (e.g. basic foods, certain pharmaceutical products, heating) and the second reduced rate of 10% (e.g. essential baby food, newspapers, accommodation services). Each taxable person must apply a particular rate of VAT to its sales, the amount of which depends on the rate at which the goods he sells are taxed. In most cases this is the standard rate of 21% (for most products and services, electricity, petrol and gas, hard alcohol and tobacco, clothing, electronics). In contrary, Slovakia has two VAT rates - for more information please see our blog.
With regards to the application of the common rules on value added tax within the EU, it is also necessary to reflect these rules by the practical application of the VAT rates on the legal regulation at EU level.
The new VAT rates are always applied to those taxable supplies which are carried out from the day on which the relevant law amendment entered into force. The cases where consideration has been provided before the date of the taxable supply and this the taxable supply is effected after the relevant law entered into force, the procedure under § 37a of the VAT Act must be applied.
Paragraph 1 of the § 37a of the VAT Act contains the rule for determining the tax base, which in these cases is the difference between the taxable amount (i.e. the consideration to be received by the taxpayer in total for the supply made, excluding tax on that supply) and the sum of the advances received. Paragraph 2 sets out the basic rules for determining the VAT rate to be applied on the difference. The application of the VAT rate varies according to whether the calculated tax base is positive or negative.
In the case of a positive tax base (i.e. where the customer repays the supplier for the outstanding amount - the customer has an underpayment), the applicable VAT rate is the one, which is applicable on the date of the taxable event. In the case of a negative tax base (i.e. where the supplier repays the customer overpayment), the applicable VAT rate is the one, which was applied when the consideration was received before the date of of the taxable supply, i.e. the VAT rate used to calculate the tax on the advance payment.
If the advances were taxed at several different VAT rates, then the settlement of the overpayment should be done with the VAT rate of the advance which is being refunded (in whole or in part). For these purposes, there is a fiction that the the last one, or the last two, etc., is refunded, in other words, that the advances are refunded 'from the end'.
In the event of uncertainty as to which VAT rate to apply in the case of a taxable supply, it is still possible to make use of the so-called binding ruling. Submitting a request for a binding ruling then is based primarily on Sections 47a and 47b of the VAT Act and on the Tax Code. The application may relate to only one item of goods or services and its submission is subject to an administrative fee in the amount of CZK 10 000. The request for the binding ruling must include the VAT number of the tax payer who wants to get the information about the correct VAT rate.
Furthermore, when using the one-stop scheme (i. e. OSS), which is mainly used to declare VAT payable in other EU Member States, it is necessary to determine the correct VAT rate. Tax rates vary across EUMember States and a database managed by the European Commission has therefore been set up which lists the tax rates in each Member State. You can find this database here:
https://ec.europa.eu/taxation_customs/tedb/vatSearchForm.html
This rule can be very useful especially for Amazon Traders that are registered for VAT in the Czech Republic.
Finally, we would like to point out that the applicable VAT rate is always used also for transactions taxed in reverse-charge (e. g. import VAT).
