VAT payers and non-payers: What are their obligations?

Quick Overview

So what is the difference between a VAT payer and a non-VAT payer? A VAT payer has more administrative obligations but, under certain conditions, can claim a VAT deduction on supplies received. A non-VAT payer has simpler administrative procedures and does not invoice VAT on their regular domestic taxable supplies; however, they also cannot deduct the VAT paid on purchases. Which option is more economically advantageous depends primarily on customers, costs, and the structure of the business.

Are you wondering whether it’s worth voluntarily registering for VAT, or are you already required to register? Our tax lawyers can review your specific situation with you and highlight the obligations and risks associated with being a VAT payer.

What Is VAT and Who Is Affected?

VAT is an indirect tax that is ultimately borne by the consumer but collected by the business—the taxpayer. The standard rate has remained at 21% since 2013, while as of January 1, 2024, there is only one reduced rate of 12% (previously there were two reduced rates of 10% and 15%). The reduced rate applies to goods and services listed in the annexes to the VAT Act (e.g., tickets to cultural or sporting events); all other transactions fall under the standard rate. According to the law, a taxable person is anyone who independently carries out an economic activity. However, not every TPA is automatically a VAT payer.

Who Is a VAT Payer, a Non-VAT Payer, and a Taxable Person

The VAT Act defines anyone who independently carries out economic activities as a taxable person (OPD). However, not every taxable person is automatically a VAT payer. You become a VAT payer only after you file a VAT registration and the tax office enters you into the VAT registry. Until then, you are considered a non-VAT payer —you issue invoices without VAT, but when purchasing from VAT payers, you pay the tax and cannot deduct it.

VAT Payer

You become a VAT payer either through mandatory registration upon reaching the threshold or voluntarily upon your own request:

Mandatory VAT Registration

You are required to register for VAT if you reach a certain turnover threshold. Starting January 1, 2025, turnover is calculated for the entire calendar year, and two thresholds apply:

• 2,000,000 CZK – if you exceed this threshold by December 31, you become a VAT payer as of January 1 of the following year.
• CZK 2,536,500 (equivalent to EUR 100,000) – exceeding this threshold results in immediate VAT registration effective the following day.

In both cases, you must file a VAT registration application no later than 10 business days after reaching the threshold. The deadline is short—monitor your revenue in real time, because the invoiced amount at the time of delivery counts, not the date payment is received.

In addition to turnover, five other situations may require you to register for VAT (joining an association, purchasing a VAT-registered business, a merger, taking over a business from a deceased VAT payer, etc.).

Voluntary VAT Registration

If you benefit from input VAT deductions (e.g., when purchasing expensive machinery) or primarily invoice other taxpayers, you can register voluntarily. You submit the application using the VAT form in EPO and provide evidence of your economic activity. Once your registration is approved, you will receive a VAT ID number, and starting the next day, you can issue tax documents with VAT.

Special Category – Identified Person

There are also VAT entities that remain non-taxpayers domestically but become identified persons due to cross-border purchases or sales. An identified person is not entitled to a deduction but must file a tax return and a summary report.

Non-VAT Payers

If you mainly sell to end consumers (hair salons, auto repair shops) and don’t have high VAT expenses, it’s usually more advantageous to remain a non-VAT payer, as you’ll save both time and accounting costs. On the other hand, you cannot add tax to your prices, so your margin is 21% lower than that of a VAT payer.

Practical Example

Let’s imagine two graphic designers, Jana and Petr. Jana is a non-VAT payer; Petr is a self-employed VAT payer:

• Jana issues an invoice for 10,000 CZK. She does not add anything to the price.
• Petr sets the base amount at 10,000 Kč + 21% VAT, so he invoices 12,100 Kč.

Impact on the client (VAT payer)

• The client-taxpayer will claim 10,000 CZK as an expense from Jana, but the VAT is missing.
• With Petr, they will claim 10,000 CZK as an expense and claim 2,100 CZK as input tax on their tax return—so the service costs them the same.

Impact on the non-taxable client

• The non-taxable client pays Jana 10,000 CZK and has nothing to deduct.
• Petr is 2,100 Kč more expensive for him, so he would have to reduce his taxable income or risk losing the contract.

Entrepreneur’s Cash Flow

• Jana receives 10,000 CZK and keeps it all.
• Petr receives 12,100 Kč, but pays 2,100 Kč to the government (unless he has a deduction). To maintain balanced cash flow, he must have comparable income or a financial reserve.

The difference in pricing explains why some self-employed individuals voluntarily register as VAT payers, while others remain non-payers until their revenue forces them to register.

From practice: The most common mistake when deciding between VAT registration and non-registration is to focus solely on the amount of turnover. It is equally important to consider who the business owner is invoicing and how high their VAT-subject costs are. The implications of registration may differ for a business owner who provides services primarily to VAT-registered companies compared to one whose customers are mainly consumers.

Are you approaching the threshold for mandatory registration or considering voluntary registration? It’s worth addressing this before you issue your first invoice under the wrong tax regime. We’ll help you assess when you become a VAT payer and the resulting tax obligations.

Obligations of a VAT Payer

Once you become a VAT payer, you enter a regime that, while allowing you to claim VAT deductions and enhancing your credibility, also requires you to perform several regular and relatively strict tasks. In the following paragraphs, you’ll find everything you need to know—from issuing your first invoice to verifying the reliability of your suppliers.

1. Issuing Tax Documents

Every invoice issued by a taxpayer, whether on paper or electronically, must include the basic identification details of both parties, the date of the taxable supply (DUZP), the tax base, the VAT rate and amount, a description of the supply, and the agreed price.

The VAT Act gives you 15 days from the DUZP to issue a proper tax document. For so-called advance payments, you first issue a tax document for the payment received and, after the goods or services are delivered, a final invoice settling the advance payment. If you issue a document in a foreign currency, you are required to include the conversion to CZK based on the Czech National Bank’s exchange rate in effect on the DUZP date.

You correct an incorrect document with a corrective tax document (credit memo or debit memo), which must be recorded within the same time limit and reflected in the next VAT return.

2. Record-keeping and Archiving

Every VAT payer and non-payer is a “taxable person,” but VAT entities (payers) must maintain records for tax purposes —ledgers of received and issued tax documents, often integrated directly into accounting software. You must archive these records for at least 10 years from the end of the tax period so that, in the event of an audit, it is possible to trace the connection to each VAT return.

We recommend secure cloud storage with a backup or a professional DMS system; simply “taking photos of receipts with a cell phone” is no longer accepted by the tax authority as reliable archiving.

3. VAT Returns, Control Reports, and Selection of the Tax Period

You must file your VAT return and control report (KH) exclusively electronically, no later than the 25th day following the end of the tax period. The standard is monthly, but if your turnover for the previous calendar year did not exceed 15 million CZK and you are not listed as an “unreliable taxpayer,” you may apply for the quarterly filing regime starting in the second year after registration.

You can find the interactive VAT return form in the EPO —Electronic Filing—application on the MOJE daně portal. The system also offers an XML structure for automatic submission from accounting software.

The fixed penalty for late submission of a VAT return is 1,000 CZK, but failure to file even after a reminder may result in a fine of up to 50,000 CZK, and serious obstruction of tax administration may even result in a fine of up to 500,000 CZK. Therefore, keep track of deadlines in your calendar or use the automatic reminders in your software.

4. Summary Report: Overview of Trade Within the EU

If you supply goods or certain services to a VAT payer in another EU member state, you must file a summary report (known as VIES). It must be filed within 25 days after the end of the calendar month in which you made the supply—even if you are a quarterly taxpayer. For each transaction, you must provide the country code, the customer’s VAT ID, and the value in EUR. The summary report is not required if you did not supply any goods or services to EU member states during the month.

5. Supplier Reliability Checks and the Concept of Liability

The VAT Act introduced the concept of an “unreliable taxpayer” and, more recently, “unreliable persons.” Anyone who seriously violates their tax obligations will be placed on the Financial Administration’s public list, and customers are liable for the unpaid VAT.

Before making any large payment, therefore, be sure to check your business partner in the ARES registry or directly on the Financial Administration’s website—enter the VAT ID, and the system will immediately display the status. If you identify non-compliant entities, you can pay the tax directly to the tax administrator’s account.

Summary

VAT payers and non-payers differ primarily in how they handle the tax on sales and purchases. VAT payers charge VAT on applicable taxable transactions and, provided they meet the legal requirements, may claim an input tax credit; however, they must also maintain records and fulfill obligations related to, for example, VAT returns and control reports. Non-VAT payers typically issue invoices without VAT, and their administrative burden is simpler; however, they cannot deduct VAT paid on purchases. For mandatory registration in 2026, the key revenue thresholds are CZK 2,000,000 and CZK 2,536,500 per calendar year; if the lower threshold is exceeded, VAT payer status typically takes effect at the beginning of the following year, though the law allows for an earlier effective date, whereas exceeding the higher threshold results in VAT payer status taking effect the very next day. Therefore, whether it is more advantageous for a business owner to be a VAT payer or a non-payer cannot be determined solely based on turnover—the structure of customers, costs, and business relationships is also important.