Discover the different VAT rates in the Czech Republic within this Pexpat’s Guide to VAT, including when and how to apply.
VAT Rates in the Czech Republic and When to Apply
Value-added tax (VAT) in the Czech Republic is a consumption tax applied to the purchase price of goods and services. The rates of Czech VAT vary depending on products and services, as well as the taxable person registered for VAT. These selected persons must submit a so-called VAT Control Statement to the responsible financial authorities. The VAT Control Statement is based on particular tax documents to record tax evidence according to the VAT Act. VAT Reporting includes declaring issued and received tax documents, along with simplified tax invoices. Only taxable entities who register for VAT in the Czech Republic have the obligation to submit a VAT statement. These persons have a “CZ VAT ID number” (DIČ), and are obligated to declare certain transactions. Now, if you become a VAT payer, you need to know which VAT rates apply to your products and services. Applying the correct rate is crucial for both calculating taxes and for the process of pricing your products and services.
But what are the different VAT rates in the Czech Republic? Who needs to apply to be a VAT payer? Read on to learn about VAT in the Czech Republic, VAT rates, and when as well as how to apply.
What are the different VAT rates in the Czech Republic in 2023?
In the Czech Republic, we have three different rates of VAT in 2023. These are:
The basic rate of VAT - 21%,
The first reduced VAT rate - 15%,
The second reduced VAT rate - 10%.
Note: Any services and products VAT Law (in the reduced VAT section) does not mention will fall under the basic VAT rate.
Which products and services fall under first reduced VAT?
The first reduced VAT rate (15%) includes the following categories of products:
Food products (including drinks and food for pets, and ingredients for production; with the exclusion of alcoholic beverages and tobacco);
Living plants including seeds (as well as seedlings, crowns, spores, tubers and bulbs of edible vegetables and fruit);
Printed media (such as brochures, flyers, etc);
Medical equipment (including protective equipment, and relevant medical devices);
Children’s car seats, and;
Energy products and supplies (firewood and kindling, but not matches).
Then, the following services also fall under the first reduced rate:
Water supply treatment (including sewage treatment);
Waste management ( collection, transportation and disposal of communal waste);
Air passenger transport;
Funeral services (except funeral services for animals);
Energy saving materials and equipment (heating supply, air conditioning, etc);
Catering services (excluding additional services such as service, seating, toilets, etc).
Note: Catering services for educational facilities, as well as medical & social assistance establishments are exempt from VAT.
What falls under the second reduced VAT rate?
The Czech Republic introduced the second reduced VAT (10%) on the 1st of May in 2020. This measure aims to help businesses which were negatively affected by the Covid-19 pandemic. It also brought a number of changes to the previously reduced VAT system.
Under the second reduced VAT, the rate includes the following products:
Radiopharmaceuticals (or medicinal radiocompounds, including: vaccines, medicines);
Print material (books, newspapers and journals in which adverts are no more than 50% of the content);
Colouring books and maps;
Drinking water (including hot water);
Milling industry products (including mill products for gluten-free diets, malt, starches, wheat, gluten and mixtures of these products).
Also, the following service categories fall under the second reduced VAT:
Standard public transport (of passengers and luggage);
Public transportation by water (of passengers and luggage);
Barber and hairdressing services;
Repair services (bicycle repair, and Shoe, leather, clothing & textile repair);
Childcare and caretaking;
Water treatment and supply via networks, and Sewage treatment processes);
Catering services (now also including beer if consumed at a restaurant).
Recent service additions to the second reduced VAT
More recently, the Czech government also approved the so-called “Anti-crisis Tax Package”. It states that the second reduced VAT now also applies to the following services:
Periodic changes to VAT rates in the Czech Republic
If ever unsure of the VAT rate for products or services, one way to confirm is via contacting the Institute of Binding Assessment. For a fee, you’ll get assurance that the rate you have chosen for your product or service is 100% accurate.
Who needs to register as a VAT payer?
As a taxpayer in the Czech Republic, it’s necessary to pay VAT if your annual income exceeds 2 million CZK. In some cases, however, it might be a profitable venture to register for Czech VAT voluntarily.
Other cases include inheritance of a company from an entity that is a VAT payer, or gaining assets via privatization, merger, or the sale of a company.
In such cases, it’s possible to request cancellation of the VAT registration. However, to do this, 1 year must have passed since VAT registration, and income cannot surpass 2 million CZK.
What is Light VAT in the Czech Republic?
Light VAT registration is officially called “identikovana osoba k DPH” in Czech. It is useful for businesses and entrepreneurs who must register for VAT because they invoice (regularly) to EU clients. To register for VAT-Light in the Czech Republic, the business must also have an under CZK 2 million annual turnover.
In short, this is for those who invoice a European-registered business from the Czech Republic. Officially, this is called the European-Reverse charge. It means that you will not charge European registered business clients VAT.
It does NOT mean that you will have to pay any additional VAT. Your VAT will always be zero with Light-VAT invoices. However, to invoice in this way, it’s necessary to apply for Light VAT on a monthly basis through the relevant Financial Office. This is to inform tax offices that business is occurring between a Czech business and a registered business within the European Union.
When is it necessary to register for Light VAT?
It is only possible to register for Light VAT after you have a trade / business license in the Czech Republic. Then, after you create the first invoice for an EU-registered business-client, you must register for Light VAT.
This involves first registering as a Light VAT payer. Then, on a monthly basis, it will be necessary to receive approval from Czech tax offices to invoice EU clients. This means creating a formal request along with the invoice, which you will submit to financial authorities.
Where to get assistance and more information
At Pexpats, our expertise is in everything freelancers and taxpayers need to get and stay legal in the Czech Republic. To date, our professional advisors have helped thousands of entrepreneurs not only relocate but also set up shop. For assistance on anything, from VAT registration, to complete business license or relocation services, simply check out our service packages.