VAT exemptions

The exemption from paying VAT only applies to businesses whose domestic turnover did not exceed CZK 2,000,000 in the previous calendar year or CZK 2,536,500 in the current calendar year, or who carry out only supplies exempt from VAT without the right to deduct VAT.

When a business is exempt from paying VAT

The exemption from paying VAT only applies to businesses whose domestic turnover did not exceed CZK 2,000,000 in the previous calendar year or CZK 2,536,500 in the current  calendar year,  or who carry out only supplies exempt from VAT without the right to deduct VAT.  The turnover shall mean the total of considerations without tax that pertain to the taxable person for carried out supplies that include supply of goods and provision of service with the place of supply in the Czech Republic, if these are considerations for: taxable supplies, supplies that would be taxable if they were not exempted in the Czech Republic under the special scheme for small enterprises (SME), supplies exempt from VAT with the right to deduct VAT, or certain supplies exempt from VAT without the right to deduct VAT (financial, pension-related , insurance activities, supply of land, supply of selected immovable things and lease of immovable things), unless they are a supplementary activity. The turnover shall not include the considerations for sale or provision of fixed assets, unless a part of the business’s common economic activity.

In the domestic territory, the supply carried out by a person registered for the special scheme for small enterprises (SME), who may use this regime, or by a person liable for tax with its seat in the domestic territory who is not a taxable person, which would be a taxable supply if carried out by a taxable person, is exempt from VAT.

VAT exemption applies also to businesses who only perform supplies exempt from VAT without the right to deduct VAT.

What products/services are exempt from VAT

VAT exemptions apply to selected transactions carried out in the public interest and to other transactions for which an exemption is provided under the VAT Act. Transactions that are not consumed in the Czech Republic are also exempt from VAT.

There are three main categories of VAT exemptions:

  • exemption from VAT without the right to deduct input VAT
  • exemption from VAT with the right to deduct input VAT, and other VAT exemptions.

Exemptions without the right to deduct VAT:Examples include:

  • universal postal services and the supply of postage stamps,
  • radio and television broadcasting services,
  • financial services,
  • pension-related services,
  • insurance services,
  • the supply of land (other than building land), with the possibility of opting for taxation,
  • the supply of selected immovable property, namely buildings, units, land forming a functional unit with a building, and rights of superficies (except for the first supply within 24 months of completion or substantial alteration), with the possibility of opting for taxation;
  • the letting and leasing of immovable property (excluding short-term letting, accommodation services, the leasing of parking spaces, safe-deposit boxes, machinery and other fixed equipment), with the possibility of opting for taxation under the conditions laid down in the VAT Act;
  • education and vocational training services,
  • healthcare and closely related supplies of goods and services,
  • social welfare and social security services,
  • the operation of lotteries and other similar games,
  • other transactions exempted without the right to deduct VAT.

Exemption with the Right to Deduct VAT, examples include:

  • intra – Community supplies of goods,
  • exports of goods,
  • supplies of services to a third country,
  • transport services and services directly linked to the importation and exportation of goods,
  • certain passenger transport services,
  • imports of goods transported from a third country, where the dispatch or transport of those goods ends in another Member State, and the subsequent intra-Community supply  of those  goods  is exempt from VAT,
  • the supply of books, picture books, drawing books, colouring books, brochuress, sheet music and cartographic products, including audio  recordings of their contents and the supply  of services similar to the supply  of a book.

Certain  transactions that would normally be subject to VAT are exempt from VAT under certain conditions, including:

  • the intra-Community acquisition of goods, where the supply of such goods would be exempt from VAT, the importation of such goods would be exemptfrom VAT, or the acquirer is entitled  to  a VAT refund,
  • the importation of goods (e.g. goods contained in personal luggage, goods imported for EU entities,  NATO forces or r diplomatic missions.).

Whether VAT exemptions exist for small companies and, if so, what the thresholds are

Businesses (taxable person carries economic activities) established in Czech Republic are exempt from paying VAT if their domestic turnover for the calendar year does not exceed CZK 2.000.000.  After exceeding the domestic turnover business becomes a VAT payer and should register for VAT purpose according to the current version of the VAT Act.

Businesses, whose carries only exempt supplies without right of deduct VAT (e.g. financial, insurance, pension transactions or social services) are exempt completely from paying of VAT.