The president has signed the consolidation package. What does it mean for VAT?

Here is the next part of our basic overview of the most important things that the consolidation package brings from 1 January 2024 in terms of taxes. We’re continuing in what we discussed in our previous tax newsletter, this time with a focus on VAT.

Rate changes

The amendment abolishes the second reduced VAT rate and introduces a single reduced rate at 12%. The basic rate remains at 21%. A new 0% rate (or more accurately, a deductible tax exemption) is also introduced for books.

Reclassification of services and goods from the reduced to the basic rate

Some services will be reclassified under the basic rate, such as hairdressing and barbering services, shoe repairs, household cleaning, collection and transport of municipal waste and the services of authors and performers, and so will some goods, such as draught beer and all beverages except for tap water and milk, including if provided as part of a catering service.

Other reclassified goods include in particular firewood, cut flowers and the import of works of art, collectibles and antiques.

Water treatment and distribution, sewage disposal and treatment, mass transportation of passengers, accommodation services and catering services (excluding beverages) retain the reduced rate.

Settlement of advances during the rate change

When billing for goods or services the deposits for which were paid in 2023, the new rate will only apply to the remaining payment, i.e. the difference between the total tax base and the sum of tax bases of the advances. If the paid advances exceed the tax base from the billing, the tax rate muse be applied to the overpayment for each advance, starting from the most recent one.

Limitations on deduction for “expensive” cars

Similarly as with income tax, the deduction for vehicles in category M1 (passenger cars) will be possible only up to the amount of CZK 420,000 (which corresponds to a purchase price of CZK 2 million without VAT). This limitation applies to vehicles registered as fixed assets, regardless of whether they are owned or used under a financial lease agreement. It does not apply to vehicles intended only for sale and registered as stock. Thanks to provisional provisions of the amendment, the limitation should not apply to domestic purchases of vehicles started in 2023.

And what about still wine?

Let’s end with the same topic as in our recent overview of income tax news – the media-driven focus on still wine.

Unlike in the amendment of the Income Tax Act, under the VAT regime it still will be possible to deduct VAT from still wine provided as a gift, just like before. The VAT deduction can still be applied if the gift is provided as part of economic activities, if the price without VAT does not exceed CZK 500. Even though from 2024 onwards, the gifting of wine or any other alcohol to business partners is always a non-taxable expense for the purposes of income tax, the right to deduct VAT remains.

RSM contributors

Kateřina Provodová

Head of Tax

Štěpánka Králová

Senior Consultant