A new provision in the Czech Republic VAT Act affects VAT payers that claim an input tax deduction but do not pay for the relevant supply in a timely manner (for prior coverage, see the article in the January 2025 issue of Indirect Tax News, as well as an update by BDO in the Czech Republic). As from 1 January 2025, new section 74b requires that previously claimed VAT deductions be reduced or repaid if the taxpayer received a taxable supply of goods or services and the liability remains unpaid six months after its due date. The Czech tax authorities release guidance on the rule on 27 June.
While the rule applies only to taxable supplies received as from 1 January 2025 for which the recipient (debtor) has claimed the right to a VAT deduction, its practical application begins in July 2025. The obligation to reduce/repay a VAT deduction arises if the debtor fails to fully settle liability for a taxable supply by the last day of the sixth calendar month following the month in which the liability became due. In such a case, the debtor must adjust the VAT deduction claimed and repay to the Czech tax authorities the portion of the input VAT relating to the unpaid part of the supply. It should be noted that this obligation does not apply for received supplies from which the VAT amount must be declared by a recipient (e.g., through the reverse-charge mechanism).
When an adjustment is required, it is to be made for the tax period in which the last day of the obligation falls. For example, assume a debtor (VAT payer) receives a taxable supply on 5 January 2025 and claims a VAT deduction (tax base = CZK 500,000, VAT = CZK 105,000). The liability was due on 20 January 2025, but the debtor had not paid it by 31 July 2025. The debtor must repay the entire amount of VAT claimed for the July 2025 tax period or, where applicable, the third quarter of 2025.
For accounting purposes, the debtor accounts for the repayment of the VAT deduction using an internal accounting document, typically posting the correction as an expense.
If the liability is subsequently settled, the debtor can reclaim the previously adjusted VAT deduction in proportion to the payment made. As an example, assume a debtor partially settles the liability on 22 November 2025 (tax base = CZK 300,000, VAT = CZK 63,000). The debtor can correct the VAT deduction by CZK 63,000 for the November 2025 tax period or, if applicable, the fourth quarter of 2025.
Affected VAT payers should immediately review and pay any overdue liabilities, especially those arising as from 1 January 2025. Otherwise, the relevant VAT amounts will have to be repaid.
Igor Pantůček
Petr Linx
Petr Vondraš
BDO In Czech Republic
While the rule applies only to taxable supplies received as from 1 January 2025 for which the recipient (debtor) has claimed the right to a VAT deduction, its practical application begins in July 2025. The obligation to reduce/repay a VAT deduction arises if the debtor fails to fully settle liability for a taxable supply by the last day of the sixth calendar month following the month in which the liability became due. In such a case, the debtor must adjust the VAT deduction claimed and repay to the Czech tax authorities the portion of the input VAT relating to the unpaid part of the supply. It should be noted that this obligation does not apply for received supplies from which the VAT amount must be declared by a recipient (e.g., through the reverse-charge mechanism).
When an adjustment is required, it is to be made for the tax period in which the last day of the obligation falls. For example, assume a debtor (VAT payer) receives a taxable supply on 5 January 2025 and claims a VAT deduction (tax base = CZK 500,000, VAT = CZK 105,000). The liability was due on 20 January 2025, but the debtor had not paid it by 31 July 2025. The debtor must repay the entire amount of VAT claimed for the July 2025 tax period or, where applicable, the third quarter of 2025.
For accounting purposes, the debtor accounts for the repayment of the VAT deduction using an internal accounting document, typically posting the correction as an expense.
If the liability is subsequently settled, the debtor can reclaim the previously adjusted VAT deduction in proportion to the payment made. As an example, assume a debtor partially settles the liability on 22 November 2025 (tax base = CZK 300,000, VAT = CZK 63,000). The debtor can correct the VAT deduction by CZK 63,000 for the November 2025 tax period or, if applicable, the fourth quarter of 2025.
Affected VAT payers should immediately review and pay any overdue liabilities, especially those arising as from 1 January 2025. Otherwise, the relevant VAT amounts will have to be repaid.
Igor Pantůček
Petr Linx
Petr Vondraš
BDO In Czech Republic