Value added tax (VAT) is the most important indirect tax for most businesses. Although it is collected and paid by the business, it is actually paid by the end consumer – each of us – when we buy goods or services.
Value added tax (VAT) is the most important indirect tax for most businesses. Although it is collected and paid by the business, it is actually paid by the end consumer – each of us – when we buy goods or services.
If you are self-employed or run a small company, sooner or later you will come across the question “When do I have to file a VAT return? Is voluntary VAT registration worthwhile? What is the VAT return process and what if I want to leave the scheme?” You will find all the essentials in the following text, written so that even those who are encountering tax terminology for the first time can understand it.
What is VAT? It is a tax that “adds” a certain percentage to the price of virtually every good or service. It is collected by the state in stages at each link in the supply chain: each business pays VAT to the state on what it sells and deducts VAT on what it buys for its business. In legal terms, there are three VAT subjects:
The difference between a payer and an identified person is key: a payer reports all domestic and cross-border transactions on the form, while an identified person only files a return when he or she makes a specific cross-border purchase.
We can help you navigate the law, whether it’s dealing with a specific tax situation, preparing for an audit by the tax authority or defending yourself in court.
The amendment to the VAT Act, which came into force on 1 January 2025, brought a major innovation: turnover is tracked for the entire calendar year and two limits are introduced. If the sum of taxable supplies in a year reaches CZK 2,000,000, you become a taxpayer on 1 January of the following year. However, anyone who exceeds the higher limit of CZK 2,536,500 during the year becomes a taxpayer the very next day. You must submit your application within ten working days of the day on which you exceed the limit.
Ivana, a graphic designer, concluded contracts worth CZK 2 120 000 in 2025. She exceeded the first limit, but not the higher one. She will therefore not become a taxpayer until 1 January 2026 and will send her application form no later than 10 January 2026.
It is not worth waiting for the limit to be exceeded for everyone. If you mainly trade with taxpayers or buy goods in the EU, voluntary VAT registration can be advantageous as you can claim input VAT deductions.
Include contracts, invoices and a business plan to prove that your business is not just “on paper”. The tax office may also want bank statements to verify the movement of money.
How do corporate taxes work? How much is VAT for companies and how do they file their tax returns? Find out in our article.
Once registered, include the TIN on all tax documents and include transactions made from 1 January of the year to the day before registration on your first return.
How to issue an invoice and what not to forget? This is what our article will tell you.
The basic report is the VAT return. The standard tax period is one month; those who had a turnover below 15 million in the previous year can apply for the quarterly scheme. Both the return and the control report must be submitted by the 25th day of the following month.
Anyone who files the return more than five working days after the deadline will pay a penalty of 0.05% of the tax assessed for each day of delay, up to a maximum of CZK 300,000.
The control declaration has its own penalty scale: CZK 1,000 for the first late filing in the year, CZK 10,000 for filing after a call and up to CZK 50,000 if the tax authority calls more than once. Deliberate obstruction can result in a fine of up to CZK 500,000.
The status of an identified person is mainly used by smaller entrepreneurs who purchase from entities from other Member States. The identified person pays Czech VAT on such purchases, but does not apply VAT to their domestic outputs. They only file a VAT return for the period in which they purchased the service or goods and are not entitled to a deduction.
When to register for VAT as a self-employed person? What are the advantages and disadvantages? The next article will answer this question.
Before you issue an invoice, it is worth checking whether your business partner is actually a VAT payer. The quickest way is via the public ARES system. After entering the VAT number, you will see a detailed listing where you will find a VAT box with the current registration status. The statement can be downloaded as a PDF for free, thus preserving the proof for possible checking.
Cancellation of VAT registration is possible in several ways and on several grounds:
If your turnover in the last calendar year has fallen below CZK 2,000,000 or you have stopped doing business, you can electronically submit an application for cancellation of your VAT registration. The tax authorities will check whether you have any arrears and whether you are an unreliable person. If the decision is granted, you will cease to be a taxpayer on the day after the decision is received.
Attention to the adjustment of the deduction: when deregistering, the VAT deduction for fixed assets must be adjusted if their five-year (or ten-year for real estate) period has not yet expired. The balance of the deduction will be paid in the last return.
The tax office can also cancel you itself – for example, if you have not paid VAT for a long time. In practice, this means that you are not allowed to issue invoices with VAT; however, if you exceed the limit again, you would become a taxpayer again by law.
The most common mistakes made by taxpayers are related to late filing of the return, failure to fill in the mandatory fields of the new form and failure to notify a change of bank account – failure to comply with the procedural obligation is punishable by a fine of up to CZK 500,000.
Add an error in the tax rate or omission of a mandatory audit report: each additional error increases the likelihood of a tax audit, which, if repeated, can lead to the business being labelled as an unreliable taxpayer – and your business partners becoming suspicious.
From 1 January 2025 we are looking at two turnover thresholds – £2m.cZK and 2.536 million.cZK – and a move to a calendar year calculation. Exceeding the lower limit makes a business taxpayer only from January the following year, the higher limit means immediate taxpayer status. Voluntary VAT registration remains a convenient tool for those who make purchases with VAT and want a deduction.
Taxpayers submit VAT returns and control statements electronically by the 25th of the month as a matter of principle. Verification of partners via ARES by the VAT payer minimises the risk of transactions with bogus entities. If you wish to cancel your VAT payment, fill in the application for cancellation of registration and, once the conditions are met, you will cease to be a taxable person on the day following receipt of the decision.
Whether registering or deregistering, meet the deadlines: penalties for late submission can be as high as 0.05% of the tax per day, and up to CZK 500,000 for control statements. But with timely and correct procedures, you don’t have to worry about VAT – the law and practice are in your favour.
Not sure how to do your taxes correctly so you don’t get it wrong? We can help you navigate the law, whether it’s dealing with a specific tax situation, preparing for an audit by the tax authority or defending yourself in court.
Ondřej is the attorney who came up with the idea of providing legal services online. He's been earning his living through legal services for more than 10 years. He especially likes to help clients who may have given up hope in solving their legal issues at work, for example with real estate transfers or copyright licenses.
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