As part of its Recovery Package, the government has introduced new VAT rules that bring changes to amounts of rates and new classification for some items. The effect of the amendment to the VAT Act on real estate is postponed to January 2024. And the General Financial Directorate is currently preparing three reports related to VAT. Details can be found in the May VAT news.
Government proposal for changes to VAT rates
As we have already informed you, the government of the Czech Republic included changes in the area of VAT in its Stabilisation Tax Package. In principle, the proposed steps are limited to adjusting VAT rates and reclassifying certain items between the individual rates. Three VAT rates are to be introduced from 2024, namely a zero rate, a 12% reduced rate, and a 21% standard rate. At the same time, some items that are currently subject to a 10% or a 15% tax rate will be reclassified to the list of supplies subject to the standard rate. Specifically, they include hairdressing and barber services, draft beer, author and art services, municipal waste collection, transportation and storage, shoe, leather goods, and bicycle repairs, cleaning services, firewood, and newspapers. It is the last item that is most often cited as highly controversial, as printed media will effectively be subject to three different VAT rates: 0% will relate to books, the 12% rate will apply to magazines, and the 21% rate will be imposed on newspapers. The question is how the relevant commodities will be distinguished in the VAT Act. Confusion exists about the reclassification of all beverages (except tap water) to the 21% VAT rate, as the information presented to the public is contradictory.
Postponement of the effective date of the amendment to the VAT Act in the field of real estate
In early May, the Senate of the Czech Republic adopted a change in the date of effect of the new building regulations, including a related amendment to the VAT Act. The changes, which were to affect the definition of a family or apartment house in the VAT Act from 1 July 2023, will not be effective until January 2024.
Reports prepared by GFD
As we have already informed you, the General Financial Directorate is currently preparing three reports in the field of VAT. We summarise the state of preparatory works below:
- As regards the report on the application of VAT in the field of real estate, this is in principle merely a consolidation of older documents issued by the General Financial Directorate over the years. In practice, GFD maintains its positions that have already been published in previous reports without any significant substantive shift. In principle, this will not change the approach to the assessment of a building plot of land, the functional unit, to the role of the Real Estate Register in determining the type of a construction, etc. In view of the postponement of the date of effect of new building regulations and the amendment to the VAT Act from 1 July 2023 to 1 January 2024 (see the section above), the report will not respond to upcoming new rules. The General Financial Directorate has further announced that the report will be released later than originally planned (probably in July 2023 at the earliest).
- By contrast, the GFR is already finalising the report on setting the base for the donation of goods to food banks or, more generally, for the donation of goods that are practically non-marketable. The GFD will continue to allow the tax base to be set at the minimum amount for such donations. According to our information, the latest version of the report being prepared should continue to include the opinion that when giving away goods that have not met the non-marketability condition, the tax base is linked to the current market price of similar goods. This position is contrary to the view on the taxation of giving away goods by the European VAT rules.
- Preparatory works on the report, which was to have a significant effect on the manner internally produced assets are taxed, are likely to be discontinued. It is quite probable that the relevant report will never be published, as the concept of internally produced assets could be completely removed from the VAT Act in the near future.
Judgements of the CJEU
Electric vehicles charging
In its judgment in case no. C-282/22 Dyrektor Krajowej Informacji Skarbowej, the Court of Justice ruled that the supply provided at recharging devices for electric vehicles must be classified as a supply of goods, although it encompasses a number of services (searching for chargers through an application, parking during the time of charging, etc.). This position is unlikely to significantly change the practice in the Czech Republic.
Taxation of unlawful electricity consumption
Ruling of CJEU in case no. C-677/21 Fluvius Antwerpen that concerns the taxation of unlawful electricity consumption for lump-sum compensation confirmed the need for the VAT application to a payment made by a consumer. We believe that the CJEU’s approach is fully in accordance with rules applied in the Czech Republic and that its opinion does not change anything in the issue of taxation of unlawful consumption of services.