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Value Added Tax (VAT)

photo:  (sxc.hu)

Value Added Tax makes up one of the most important sources of income of the state budget. Everyone pays it during purchase of most goods and services. This tax is imposed practically throughout the world and the Czech Republic is naturally no exception. The principle of VAT consists of the supplier, if it is registered as a payer, being required to pay part of the value of its executed trade to the state, if this trade is subject to taxation.

The principle of x1 Value Added Tax x1 consists of only paying tax on the difference in the price during input and output, i.e. on the amount by which the price of the goods is increased by the supplier. A subject pays suppliers the price plus this tax and receives payment for the goods including this tax. It then pays the difference between the tax it receives and pays to the state budget, or this tax may be refunded.

The European Union defines goods and services that can be (but do not have to be) the subject of a reduced Value Added Tax rate and determines the minimum value of the basic VAT rate (15%) and the minimum value of the reduced VAT rate (15%).

Czech Republic

The amendment to the Value Added Tax Act was published effective from 1st January 2010 on 31/12/2009, in the Collection of Laws under no. 489/2009 Coll. In practice this means that from 1st January 2010 VAT increases by one percent. The reduced VAT rate is 10% and the basic VAT rate is 20%.

A Value Added Tax payer is any subject with a registered office, business premises or site of business, and registered as a VAT payer. In the Czech Republic subjects, whose turnover achieves the sum of one million crowns for the last 12 preceding consecutive calendar months, are obliged to become VAT payers. The subject must submit an application for registration as a VAT payer within 15 days of elapse of the period during which the subject exceeded the statutory limit, and it becomes a payer on the first day of the third month following the month in which it exceeded the specified turnover. If it does not do so the Tax Office is required to impose a fine of 10% of all income for the period for which it should have been a payer and was not.

Another alternative is to become a voluntary VAT payer. This means that a company or an individual applies as a VAT payer of its own volition, in spite of the fact that its turnover has not exceeded the sum required by the law, i.e. one million crowns. The Tax Office then allocates a Tax Identification Number (DIČ), which serves to identify payments from the payer. This number is automatically allocated to obligatory VAT payers. Voluntary VAT payers pay the tax every quarter. Obligatory payers pay VAT Tax once a month. The tax is always due payable by the 25th day after the end of the taxation period.

Author: Aleš Martínek

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