Excessive VAT deduction: how do you get your money back?

What is an excessive VAT deduction and when does it arise

In common parlance, it is a situation where input VAT exceeds output VAT for a given tax period. The VAT Act uses a practical description: an excess deduction is the tax corresponding to the difference between the output tax and the deduction if the output tax is less than the deduction claimed. The result? A VAT refund from the tax office is due. In practice, you will encounter this especially with investments (machine, car, construction) or in the beginning of a business.

Pay attention to the time for claiming the deduction. The deduction cannot be claimed after the expiry of the second calendar year following the year in which the claim arose (the exception is the appreciation of buildings with a longer, ten-year period).

When and how the state refunds VAT – basic rules

Today’s regulation no longer deals with the refund of excessive deductions in isolation in the VAT Act, but generally through the Tax Code: the refund is treated as a refundable overpayment. In principle:

When an over-deduction turns into a “refundable overpayment” as a result of the determination (assessment) of a tax deduction, the tax authority will refund the money without a request – and within 15 days from the date of notification of the payment assessment, or within 30 days from the date deemed to be the date of delivery of the payment assessment if the result of the assessment is not notified (typically an implied assessment).

Repayment of overpayments is often automatic without a request. Excessive deduction of VAT is one of these automatic cases. However, we recommend that you check whether you have any other tax arrears registered, as the overpayment is first used to pay them and only the rest is refunded.

How does the money arrive? The tax office normally pays the tax to a registered bank account, exceptionally by postal order or cash (maximum CZK 1,000). It is therefore important to have a correctly reported account in the registration.

What can delay a refund: the elimination of doubts procedure and the tax audit

The tax authorities are allowed to investigate a claim before refunding it . There are two different tools for this: the procedure for the elimination of doubts (POP) and the tax audit. The IRP is a tool for quick, immediate verification of specific doubts about the correctness of claims in a return. A tax audit, on the other hand, is a broader and more systematic exercise.

Can the authority “withhold only a portion? Yes, the principle of the disputed part is accepted: if there is doubt about only part of the claim, the rest should be refunded (or paid as an advance, see below).

Advance payment of the excess deduction: money before the investigation is over

Since 2021, the institution of advance payment of tax deductions has been in the tax code. You are entitled to receive an advance payment for the part of the deduction that the tax authority no longer intends to examine in a POP or in an audit. However, the minimum is CZK 50,000 – the law does not provide for a smaller advance.

The advance is pre-paid to your personal tax account and is paid without a request. At the final assessment, the advance is settled – either a top-up or a credit. In practice, this is the state government’s recognition that an examination is not supposed to stop the entire claim if only part is in dispute.

It is helpful to clearly separate the undisputed and disputed portions of the deduction in the challenge statement (or in the audit communication) and explicitly request an advance payment.

When interest is due, or when VAT refunds are late

In practice, there are two different types of interest that can apply to an over-deduction. Each addresses a different problem and they do not add up for the same period.

Interest on the tax deduction

This interest compensates for the long examination(POP/control). It accrues from the day after 4 months from the last day of the deadline for filing your return until the end of the statutory period for repayment(i.e., the time of assessment and the subsequent short pay period).

Interest on the refundable overpayment

If the tax authority misses the statutory payment deadline, interest on the refundable overpayment accrues from the day after the deadline until the refund is made.

This interest is not to be confused with interest on the deduction for the same period – the latter deals with the verification before the assessment, the former with the delay in payment after the assessment.

What if the tax authority only refunds part or does not refund on time

A partial refund is logical where only a portion is in dispute. The remainder should either be paid as an advance or (if assessed) refunded. If the refund extends past the pay period, claim interest on the refundable overpayment; if the actual examination extends, claim interest on the tax deduction.

The interest should be prescribed by the authority itself, but we recommend sending a submission: indicate the tax period, the type of interest, a brief calculation of the period and a reference to the tax code. This helps to speed up the matter.

How to deal smoothly with the challenge and avoid unnecessary delays in the VAT refund

1. Respond quickly and factually. Specifically document the disputed transactions (contracts, delivery notes, shipping documents, bank statements). Ask for an advance on the undisputed part.
2. If the scope of the doubts widens or the challenges are too general, point out the case law that the POP is not a substitute for control. This will minimize delays and open the door to deduction interest on a longer examination.
3. Also, remember to keep an eye out for interest claims. After 4 months after the filing deadline, watch for interest on the deduction to begin; after the assessment, watch for 15/30 days to pay or interest on the overpayment will run.
4. Don’t underestimate the auditreport, as irregularities in the report typically trigger a POP. Therefore, consistency of information between the return and the KH is essential to avoid delaying the refund.

When it makes sense to defend yourself in court

If the POP or audit is not conducted lawfully (general notices, unreasonable length, refusal to advance the undisputed portion), it is time for administrative and judicial defence. The case law of the Supreme Administrative Court addresses exactly when the tax administrator should have switched from a POP to an audit, what a proper notice should look like, and the calculation of interest on the deduction in specific cases.

The most common mistakes that delay VAT refunds

“The authorities have to refund everything, even if they doubt something.” Not always. For the undisputed part, ask for an advance, the disputed part will be checked. But this just shortens the wait.

“You have to earn the interest.” He shouldn’t. The GFD methodologically states that it is the duty of the tax administrator to prescribe interest. In practice, it pays to give polite notice – it will speed up the resolution.

“When a refund takes time, it is always interest on the overpayment.” No. Before assessment it is interest on the deduction (long examination), after assessment it is interest on the overpayment (late payment). The rates and runs vary.

Things to remember when communicating with the IRS

First and foremost, make sure you have the correct bank account reported to the tax authorities, otherwise refunds are unnecessarily delayed. The automatic refund policy will apply automatically to over-deductions, except if you have other arrears. In this case, the overpayment will be used to pay them first.

If you make a claim, do not make it in general terms. Give clear evidence for each item.

Also remember to follow the 4-month limit for interest on the deduction and the 15/30 days after assessment for interest on the overpayment.

Summary

An over-deduction of VAT arises when the input VAT is higher than the output VAT – typically on investments or at the start of a business. Refunds today are made under the tax code as a refundable overpayment: once assessed, it is refunded without a claim – usually within 15 days of the notice of assessment. The deduction can be claimed up to the end of the second year after the claim arises.

Delays are caused by the procedure for the removal of doubts (rapid verification of specific items) or by the tax audit (broader examination). If only part is in doubt, the remainder is to be refunded or paid in advance.

Watch the interest: interest on the tax deduction runs from 4 months after the filing deadline until the assessment for a long examination, and interest on the refundable overpayment for a late payment after the assessment; they do not add up for the same period. The office is supposed to prescribe them itself, but it pays to politely ask for them and include the calculation.

Respond factually in your communications with the authorities, supply specific evidence, ask for an advance on the undisputed portion, and monitor the consistency of the return and audit report. Administrative and judicial remedies are possible if the taxpayer acts unlawfully.