Summary of the most important Tax Amendments in the Czech Republic for 2020.
1. Amendmanets of Value Added Tax 2020
More types of insolvency proceedings are now considered by the CZ VAT Act (e.g. bankruptcy, execution, decease of the debtor, etc.) and correcting the taxable amount in case the insolvency proceedings take more than 5 years and are not finished is now allowed. Further, preclusive period of 3 years for correction of taxable amount is newly stopped during ongoing insolvency/court proceedings.
In case the significant repairs (total value of purchases related to one repair with cumulative value above CZK 200,000/EUR 7,837) were performed to a certain immovable property and the property was sold within 10 years, it is necessary to check the VAT deduction claimed from the significant repair should not be adjusted.
Newly, a supplier not established in CZ may apply the reverse-charge mechanism for supplies of goods with installation/assembly effected to customers registered either as the Czech VAT payer or person identified for CZ VAT only if this supplier is not registered as the CZ VAT payer.
As of 1.1.2020, a leasing contract with an option to purchase if it can be inferred from the terms of the contract that exercising the option appears to be the only economically rational choice (following CJEU case C-164/16 Mercedes-Benz Financial Services UK Ltd) should be considered as a long term asset and supply of this leasing product should be considered as a supply of goods (not service). As of 1.1.2021, it will not be possible to opt for taxation for supplied rent of housing premises (e.g. flat, house).
As of 1.1.2020, super reduced (10%) VAT rate is applicable for supply of heat and cold.
2. Tax Deductibility of Borrowing Costs
The amendment to the Income Tax Act introduces for the Czech ATAD implementation two thresholds for tax deductibility of net borrowing costs: 80,000,000 CZK (approx. EUR 3.1M); or 30% of EBITDA (earnings before interest, taxes, depreciation and amortization). Net borrowing costs which would exceed the higher of the two thresholds will be treated as tax non-deductible. This limitation comes into effect in the tax period starting 1 January 2020 (applicable for a taxable calendar year) or tax period starting 1 April 2019 or later (applicable for a taxable business year). The old Czech rules for tax deductibility of interest (e.g. debt equity ratio of 4:1) remain unchanged and will be applied parallel to the new ATAD-based rules.
3. New Duty to Inform about Income Paid out into a Foreign Country
Since 1 April 2019 taxpayers are newly obliged to submit the notification even in the event of paying out an exempt income (e.g. exempt dividend payments) or an income which is not taxed in the Czech Republic based on a relevant double tax treaty (e.g. an interest income or license fee taxable only in the recipient’s country). No duty to inform arise if the income of the same kind not taxable in the Czech Republic paid out to a single recipient does not exceed CZK 100,000 during a calendar month; Or for an income from employment that is subject to withholding tax.
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