A business that sells goods in a foreign country is obligated to register for VAT in the country where business transactions take place. Companies must charge the local VAT rate applicable in the state. An individual or business owner is required to register for VAT if the business involves importing goods into the country for sale, buying and selling goods locally, storing goods, or organizing an event in a foreign country. Certain supplies are taxable and may require service providers to register in the Republic.
Looking for information on VAT? this guide has all there is to know about it and how to register.
Types of Value Added Tax
There are three main types of taxes applicable in the republic. The Standard tax with a 21 percent rate applies to a few taxable goods and services, and the Reduced tax at a 15 percent rate is charged on foodstuffs, medical equipment for disabled persons, children’s car seats, public transport, etc. The 10 percent Reduced tax applies to foods that are essential for child nutrition, pharmaceutical products, books, etc. Zero percent tax applies to intra-community and international transport.
Registration
Every business must register and apply for a tax number before starting business activities. When one applies late, he or she must pay fines, which is a percent of the amount taxed. After presenting the required documents, the application is processed, and a tax number is issued. This is known as VAT number, used for tax purposes related to sales of goods.
Registration Threshold
A domestic threshold of CZK 1 million applies to registered businesses. After July 1st, 2021, a new EU 10,000 EUR threshold applies to EU businesses. There is no threshold for non-EU businesses involved in taxable services, thus they need to VAT register before starting any business activity.
Processing Time
The process takes a minimum of one month to acquire a VAT number after application.
Documents Required
To register for this, you must submit the following documents:
- Completed registration form
- Extract from the trade register
- Proof of activity within the territory
- Power of attorney for the fiscal representative
- Copy of Articles of Association, etc.
Hiring A Fiscal Representative
Companies owned by foreigners from non-EU countries must hire a fiscal representative to represent them during this process. European countries owned by EU member states nationals are not required to hire the services of fiscal agents. Fiscal agents are liable for VAT debts owed by the businesses they represent.
Filing VAT Returns
After receiving the Czech VAT registration number, a company is obligated to carry out and file monthly, quarterly, or annual vat returns. One must know the deadlines for filing to avoid late penalties and unwanted fines.
Penalties
Once you are VAT registered, you are obligated to file and report the correct VAT accurately and timely. When a company fails to meet these obligations, it attracts penalties, fines, or late filing fees for missing returns deadlines. The tax office may also fine a company for failure to register for tax before or after the first taxable transaction within the territory. Inaccurate or wrong filings may attract penalties of 20 percent of the additional tax liability. Also, late payment attracts the interest of VAT at the repurchase rate set by the Czech National Bank plus 14 percent. However, it can only be charged for five years. Note that there is a three-year statute of limitations for Czech VAT, but there are cases when it can be extended to ten years.
