Companies that are linked to other companies in terms of personnel or capital should take note, as the deadline for submitting applications for group VAT registration is approaching. What does group registration mean? Several companies register for VAT and act as a single VAT payer. Now is the right time to consider forming a VAT group.
This is not a new provision in the VAT Act, but it is often overlooked because group VAT registration is voluntary. Entities wishing to form a VAT group must submit an application by 31 October 2025 in order to become a group from 1 January 2026 and act as a single VAT entity.
Who can form a group and for whom is it advantageous?
Only related entities can form a group. The entities must be related in terms of capital, with a share in the registered capital or voting rights of at least 40%, or they must be related in terms of personnel (a natural person is a member of the board of directors or managing director of several commercial corporations). One of the conditions is that the group can only be formed by persons who have their registered office or place of business in the Czech Republic. If a person does not meet these conditions, they cannot become a member of the group.
The following advantages can be seen in group registration:
1. Transactions between individual members are not subject to tax.
-
In a situation where one person provides a taxable supply to another related person who is not entitled to a deduction, there is a saving in the form of a tax deduction that the recipient of the supply would not normally be able to claim. As supplies between group members are not subject to tax, they are not taxed.
-
In the case of a taxable supply between two taxpayers who are fully entitled to a tax deduction, there may only be a time saving between the supply and the payment of tax by the supplier and the application of the deduction by the customer (typically a supply with a date of performance at the end of the month and the issuance of a tax document in the following month).
-
Alternatively, it may lead to time savings between the payment of the supply including tax and the refund of VAT from the tax administrator in the case of excessive tax deductions. The customer can thus avoid verification of excessive deductions caused by invoicing between group members.
-
Another advantage is that group members do not have to agree on the date of performance or the tax rate.
2. A single reduction coefficient is calculated for the entire group (supplies made with a right to tax deduction vs. tax-exempt supplies without a right to tax deduction) and, as mentioned above, supplies between members are not subject to tax and do not affect the calculation of the coefficient. For example, if one member provides supplies without tax deduction (an example would be financial activities in the form of providing loans and cash advances) to another related person, then this transaction is not included in the calculation of the group's reduction coefficient, which may result in an increase in the input tax deduction. Of course, the opposite effect may also occur, where the exclusion of supplies with a tax deduction entitlement results in a reduction in the reduction coefficient. For this reason, it is always necessary to analyse the output and input for individual entities, but also for the entire intended group.
3. A single VAT return is filed for the entire group.
It is also worth mentioning the disadvantages, such as the joint and several liability of all group members for any underpayments. Any changes in the group are valid from 1 January of the following year.
Creating a VAT group can be advantageous and lead, for example, to more efficient VAT management. However, it is important to first perform an economic analysis and, if it makes sense, not to forget to submit the application in time. Remember that the deadline for submitting the application is 31 October 2025.
If you are interested, please do not hesitate to contact us. We will be happy to help you with the analysis and submission of your application for VAT group registration.