How is turnover for VAT purposes determined?
No entrepreneur can avoid registering for value added tax (VAT) when sales are higher. The obligation to pay VAT depends on the amount of turnover. We will advise you how to calculate it correctly.
Who is obliged to pay VAT?
According to Section 6 of the VAT Act, a taxable person (simplified as an entrepreneur carrying out economic activity) with its registered office in the Czech Republic becomes a VAT payer if its turnover in the 12 preceding consecutive calendar months exceeds CZK 2,000,000 (until 2023 the limit of CZK 1,000,000 was applicable).
Anexception is made for persons who perform only exempt supplies without the right to deduct tax (e.g. various financial services).
What counts as turnover for VAT?
The VAT Act (Section 4a) defines turnover as the total of the tax-free payments (including any price subsidies) due to an entrepreneur (taxable person) for all transactions carried out by him with the place of performance in the domestic territory. You can think of it as, for example, all the amounts invoiced for products you have supplied to customers.
The aggregate of all payments for:
- General taxable supplies - typically goods and services supplied in the Czech Republic.
- Exempt supplies with a right to deduct tax - most often these are supplies of goods within the EU (which are, however, exempt from VAT in the Czech Republic if the conditions are met) or exports of goods to third countries.
- Exempt supplies without the right to deduct tax under § 54 to 56a (mainly financial services), unless they are supplementary and occasional activities. These specific supplies must be monitored by the entrepreneur, even though he does not have to register automatically for VAT when providing them (even if the amount exceeds the relevant threshold). However, if he also provides some taxable supply, he cannot do without registration.
They are not included in turnover:
- Fees for the supply or provision of fixed assets, unless they are part of the economic activity of the enterprise.
- Advances for taxable supplies and transactions with a place of supply outside the country (e.g. reconstruction of foreign property or provision of consultancy services to a business from another country).
To explain: Turnover is primarily intended to reflect how your business is doing - so it does not include extraordinary transactions. For example, a sole trader who does not reach the threshold for registration through his normal activities could exceed it in a one-off sale of land. The exception is intended to prevent such situations.
What about the deadlines?
When calculating the amount of turnover for a given period, the date on which the taxable supply (possibly an exempt supply with a right to deduction) is carried out and the amount to be received by the entrepreneur as consideration are always decisive. It is therefore irrelevant when the invoice is actually paid.
According to Section 94 of the VAT Act, you must register for VAT with the tax authorities if you exceed the specified turnover. You have until 15 days after the end of the calendar month in which you exceeded the threshold.
Do you have any questions? Read more in the article on VAT compliance. Our experts will also be happy to help you with your taxes. Contact them using the form below.