Rules for e-commerce can be found in the Czech VAT Act from October

An amendment to the Value Added Tax Act came into force on 1 October. It sets the rules for taxation of distance sales of goods (e-commerce), which have been in force in the European Union since 1 July, and therefore many entities took advantage of the direct effect of the Directive and started to follow the EU provisions three months earlier than they were legislatively regulated in the Czech VAT Act. In addition to the new rules for distance selling of goods, which we wrote about in detail in our May newsletter, and the abolition of the VAT exemption for purchases of goods from non-EU countries whose value did not exceed EUR 22, the amendment brought several other changes.

In response to the case law of the Court of Justice, the condition that the debtor must still be a taxpayer for the creditor to be able to adjust the tax base of a bad debt is abolished. This entails an entirely new provision in Section 79e, which the debtor must bear in mind when cancelling their VAT registration. Their new obligation is to repay the deduction they have claimed on the supplies received which remained unpaid at the date of cancellation. If they then pay part or all of the debt to the creditor in the following three years, they can reclaim VAT on the paid part of the debt by filing an additional tax return.

In other particulars, the amendment clearly defines the period for which the deduction can be claimed in the claim for refund. The rule is set in such a way that persons registered in another EU Member State can claim a VAT refund in the Czech Republic for the year in which the transaction took place or in which the tax document was issued. The later date is decisive. If the transaction took place on 31 December 2020, but the document was not issued until 5 January 2021, the refund can be claimed only for 2021.

A marginal but relatively common and sometimes emotionally charged issue is the question of rounding. This has so far applies only to cash payments for the practical reason that the Czech currency no longer has heller coins, i.e. when buying one croissant priced at CZK 1.90, only a cash payment of CZK 2 is possible. However, as many invoices intended for non-cash payment contained a rounding of the amount to be paid to whole crowns, the amendment introduced the same rounding rule for non-cash payments. Therefore, as of 1 October, the amount of the rounding-off is not included in the tax base for both cash and non-cash payments.