VAT CHANGES 201030/12/09 / cata_tax-news

Information on the main changes to the VAT Act effective from 1 January 2010.

1. Changes in tax rate

In connection with approval of Act No. 362/2009 Coll., which changes some other Acts with regards to the State Budget Act for 2010, VAT rates shall increase. The reduced rate increases from 9% to 10% and the basic rate increases from 19% to 20%.

The VAT rate of 19% shall be applicable only for payments, including advance payments received prior to the date of taxable supply, received before 31 December 2009.  We apply the same interpretation for credit invoices issued in 2010, which are related to supplies in 2009 and prior taxable periods.

Regarding the transitional provisions of the above Act, the rules of claiming VAT on leasing contracts have changed. The VAT rate valid until 31 December 2008, and even after 1 January 2010, can be used for written contracts concluded until 31 December 2008 and in which the object of lease was handed over to the leaseholder by the same date.

2. The implementation of Council Directive

Further changes regulate the Act No. 489/2009 Coll., amending the Value Added Act.

This amendment changes the rules on how to determine the place of taxable supply of provision of services. It is the implementation of Council Directive 2008/8/EC of 12 February 2008, amending Council Directive 2006/112/EC.

(http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:2008:044:0011:0022:EN:PDF )

Changes in the place of taxable supply of provision of services

There are substantial changes to the basic rule. The place of taxable supply of any provision of services for a tax payer (B2B service) shall be the seat of the receiver of services and the place of taxable supply for a non-taxpayer shall be the seat of the provider. The place of taxable supply for services provided to a permanent establishment shall be deemed as the place the permanent establishment is seated.

The Act also contains exceptions from the basic rules of determining the place of taxable supply. For example, supplies relating to real estate are determined based on the location of the real estate. Accommodation services and the right to use real estate are newly included in these rules for determining the place of taxable supply.

Separate rules are used even in the case of transport of goods, where the place of taxable supply is determined by the basic rule, i.e. business-to-business or business-to-customer, respectively. Further storage services must be checked as to whether they relate to real estate or to transport of goods to determine their place of taxable supply.

Reporting services in EC Sales List

Following the new rules for determination of the place of taxable supply, the obligation to record services in reverse charge in the EC Sales List (“ESL”) has been newly implemented. Until recently the intercommunity supply was recorded only for the delivery of goods, but services in favor of taxpayers domiciled in another member state (“AMS”) where the place of taxable supply is AMS shall newly be recorded in the ESL.

The taxpayer is obliged to submit the ESL in the form of a data message with an accredited electronic signature, or sent through a data box to the Ministry of Finance. The taxpayer shall report per calendar month by the 25th of the month following the relevant period instead of quarterly. Submission on a quarterly basis is possible only in the event of provision of services with the place of supply in AMS, and in which case a tax report shall be submitted with the ESL. When the goods are delivered, submission on a quarterly basis is not permitted.

If the taxpayer discovers incorrect data in the ESL, he is obliged to submit a corrected ESL within 15 days.

Tax base for related parties

The Act newly determines rules for identifying the tax base in cases of supplies for related parties.

“Related parties” in the VAT Act means capital-associated parties and other associated parties (identical parties involved in control of the parties), closely related people (relatives in the direct line, sibling, husband or wife etc.), people with a labor-law relationship or other similar relationship to the taxable person and people doing business with the taxable person in a corporation or with regards to a similar contract.

“Capital-associated people” are those who are involved in the capital or voting rights another entity directly or indirectly. Their holding share shall be at least 25% of the capital or voting rights.

If the payment for supply is (i) lower than the usual price and the receiver diminishes the right to deduction of tax or is not a taxpayer, or if the payment for supply is (ii) higher than the usual price and provider diminishes the right to deduction of tax, the tax base for related parties is the usual price excluding tax recorded on the date of taxable supply.

Changes in the rules for tax refund

The acceptance of Council Directive 2008/9/EC (replacing the Eighth Council Directive) has changed the rules for tax refund to taxable people in AMS and to people with tax registration in AMS. (http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:2008:044:0023:0028:EN:PDF)

The Czech taxable person will apply for a tax refund through the electronic portal of the Ministry of Finance by no later than the 30th of September of the calendar year following the period of tax refund. The tax administrator shall give access to the electronic portal upon application by the tax payer. The application shall also be submitted electronically and in compliance with the instructions of the Ministry of Finance. The language to be used in the application has not been stipulated. The taxpayer shall follow the rules of AMS to which the tax refund applies.

Persons registered for VAT in AMS shall submit an application for tax refund in the Czech Republic through the electronic portal in AMS by no later than the 30th of September of the calendar year following the period of tax refund. The application must be in the Czech language and the amount of payment must be in CZK. The exchange rate in force on the first working day of January of the year relevant for the application, which is announced by the Czech National Bank, shall be used to convert the foreign currency. The amount of payment shall rounded down to the Czech crown. The period for tax refund shall take at least three calendar months, but not more than one calendar year.