As of 1 January 2021, a VAT Act amendment has entered into force. The changes it brings mainly impact lessors of residential property. Other changes include an implementation of a concept of input VAT deduction advance or an extension of an obligation to make digital filings also for the subjects identified for VAT purposes.
Change in taxation of lease from residential properties
As of 1 January 2021, lease of residential property is exempt from VAT without a corresponding input VAT deduction by default. The VAT payer can no longer elect a regime of voluntary taxation in cases where the properties are leased to other VAT payers for business purposes. This change mainly impacts lease of apartments, family houses and buildings where at least 60% of the floor area consists of residential space, including the lease of land or a right to build, which are all connected to such residential buildings.
The change mainly impacts those lessors who recently acquired residential properties or made technical improvements on such properties and applied the relating input VAT deduction. With the obligatory transition to tax exempt lease as of 1 January 2021, such lessors will be obliged to annually correct the input VAT, which means that they will have to pay back 1/10 of the input VAT claimed until the end of the period for input VAT correction. The period for input VAT correction lasts 10 years and starts in the year when the property was acquired. Technical improvements made on properties are observed separately for the purpose of correcting input VAT deduction. The period for their correction also lasts 10 years.
In this connection, we would like to add that the VAT exemption does not impact short-term lease of residential property and of accommodation services, which, based on the view expressed by the General Financial Directorate, includes short-term lease of apartments provided through an internet platform such as Airbnb.
Implementation of a concept of input VAT deduction advance
This change results from the latest Tax Code amendment. You will find more information about this concept in our article Tax Code amendment as of 1 January 2021. The bridge between the Tax Code and VAT Act will be ensured by Article 105a (Input VAT deduction advance) newly included in the VAT Act, which makes a reference to the corresponding concept included in the Tax Code.
In connection with the Tax Code amendment, an amount of VAT refund arising as a result of an excess VAT deduction has changed in line with the fact that its method of its determination is newly governed by the Tax Code. A VAT refund shall newly be paid back if it amounts to at least CZK 200. Until now, a VAT refund of more than CZK 100 was refunded. If the VAT refund is less than CZK 200, the period for its return only starts once it exceeds CZK 200.
Obligatory digital filing for identified subjects
As of 1 January 2021, an obligation to file a VAT registration form as well as VAT returns digitally extends to subjects identified for VAT purposes (“identified subjects”). Based on prior rules, the subject liable to tax could file both the registration form as well as regular VAT returns in paper form.
Changes in e-commerce
As a concluding remark, we would like to remind you that several changes are upcoming in 2021 in relation with cross-border digital trade (e-commerce), which all result from the amendment of relevant EU VAT regulations. The relating amendment has not yet entered into force. New rules for e-commerce were supposed to enter into force on 1 January 2021, but their effect has been postponed until 1 July 2021 due to the Covid pandemic. Given the fact that the situation is not improving, it is possible that another postponement will be made. The amendment should introduce a change in rules relating to consignment of goods, abolition of VAT exemption for low-value goods (based on the current wording of Article 71 of VAT Act, goods with a value of up to EUR 22 are VAT exempt), extension of applicability of a special regime for VAT administration (the so-called Mini-One-Stop-Shop) and new obligations for internet platforms. We will inform you about this amendment in more detail in one of our upcoming issues of Tax News.