Last month, Kofax communicated that the Czech Republic Parliament had approved a VAT rate consolidation, taking effect from 1 January 2024. The VAT rate consolidation introduces a new reduced VAT rate of 12% in the Czech Republic, which in turn will abolish the current reduced VAT rates of 10% and 15% in the country.

To this effect, the Czech President has signed the law confirming the VAT rate consolidation into effect on 22 November 2023. The legislative process will conclude with the publication in the Official Gazette, which is expected to be a formality only.

Kofax is compliant in the Czech Republic, and Kofax will accommodate the new reduced rate of 12% as part of our Czech e-invoicing solution. The new 12% reduced VAT rate will be available on the Tungsten Network portal for supplier selection from 1 January 2024, and we have contacted Integrated Solution suppliers to facilitate the new reduced VAT rate.

The reduced rates of 10% and 15% will remain integrated in the Tungsten Network system, if required, for the facilitation of credit and debit notes.

Kofax has closely been monitoring the proposed VAT rate consolidation in the Czech Republic, which will lead to the replacement of the two current reduced VAT rates in the country (10% and 15%) and result in a new, single consolidated 12% reduced VAT rate.

The Czech Parliament has now finally approved the new 12% reduced VAT rate via the Upper House in Parliament.

The Czech Republic is a compliant territory for Kofax, and this approval means that Kofax can now initiate the process of incorporating the new 12% reduced VAT rate as part of its e-invoicing solution.

Kofax will communicate with our Czech customers to ensure that our e-invoicing solution supports the new reduced VAT rate by 1 January 2024, when it becomes effective in the Czech Republic.

The 10% and 15% VAT rates will remain part of our e-invoicing solution for an interim period, so that impacted suppliers can make use of these rates when raising credit and debit notes.

Kofax has closely been monitoring the proposed VAT rate consolidation in the Czech Republic, a compliant territory for Kofax.

As a reminder, the Czech Republic currently accommodates 2 reduced VAT rates: the 10% and 15% rate. The Czech government has proposed that the two current reduced rates are consolidated into a single reduced VAT rate of 12%.

Subject to final approval and publication in the Official Gazette, the latter of which appears to be a formality only, this will mean the new, consolidated VAT rate will be effective from 1 January 2024.

Kofax is closely following the final approval and its subsequent publication in the Official Gazette. If confirmed, Kofax will initiate our standard process to support the new reduced VAT rate.

Kofax will communicate with impacted suppliers and buyers once the Czech government definitively confirms the reduced VAT rate consolidation.

2022 and 2023 currently is witnessing a proliferation of measures relating to limiting single-use plastic, but more generic fiscal measures can also prove effective in fostering positive environmental behaviours.  To incentivise recycling, the Czech Republic is advocating lower VAT rates for the use of recycled products, with the clear aim of promoting the purchase of recyclable products.   To this effect, the Czech Republic has issued an application to the European Commission outlining its proposals.  Notably, a specific potential reduced VAT rate has not yet been touted by the Czech government, indicating that the proposal still requires further definition.    While the EU Commission has recently afforded Member States significantly increased autonomy to determine VAT rates, the reduced rate category, which can be applied with greater liberty, does not yet extend to products incorporating recyclable content. The proposal is therefore intended to stimulate not only a discussion pertinent to the Czech Republic specifically, but also more widely to other EU Member States, who may find themselves contemplating similar concerns at a future point.  The Czech Republic’s proposal to the European Commission can be located below:  pdf (europa.eu)  The Czech Republic is a compliant territory for Kofax. We will support any new VAT rates confirmed further to this proposal as part of our e-invoicing solution. 

Fiscal policies have always been a high priority for countries, but especially so during periods of economic uncertainty as countries endeavor to balance fiscal strategies with soaring inflation. The Czech Republic’s most recent initiative- the austerity and consolidation package - aims to do precisely this, by providing some stability in the market and reducing inflation.  Kofax’s recent post commented on the proposal to introduce a new VAT rate in the country. The austerity and consolidation package re-affirms that the country’s intention to consolidate the reduced rates (10% and 15%) into a new single rate of 12%. The new 12% rate would apply primarily to food, medicine, magazines, construction for residential housing, and medical devices.  The rate on draft beer, hairdressing services, beverages, firewood, and certain other items would be increased to the standard VAT rate of 21%. Books would be exempt from VAT. Currently, these changes are scheduled for 1 January 2024, but are still subject to approval.  The Czech Republic is a compliant territory for Kofax. If confirmed, Kofax will support the VAT rate and incorporate this as part of our e-invoicing solution in the country. 

Our earlier post commented on the Czech government’s proposal to consolidate their VAT rates. The Czech government are signalling further intent that this will be implemented as part of the Czech government’s wider fiscal framework.   Currently, the following VAT rates apply in the Czech Republic:  

• 21% standard rate  
• 15% reduced rate  
• 10% reduced rate    

The Czech government is planning to consolidate the 10% and 15% rates into a new, single VAT rate of 14%, with the 21% VAT remaining unaffected. Inevitably, this will mean that goods formerly subject to the 10% VAT rate will find themselves subject to a higher VAT rate. It follows that the Czech government stands to gain considerably from an economic perspective ”“ with predicted figures initially forecasting gains of around 1 billion per annum. Such measures serve to demonstrate the far-reaching effects of VAT rate changes on the wider economy.     The proposals will be sent to Parliament in June for review. Implementation of the consolidated rates is currently touted for 1 January 2024.     The Czech Republic is a compliant territory for Tungsten Network and we are closely following developments in relation to the VAT rate change. If confirmed, Tungsten will support the VAT rate change and incorporate this as part of our e-invoicing solution in the country.  

The volatile economic situation of the past few years has compelled multiple countries to review their fiscal policies. Countries have responded with significant fiscal measures, including modifying standard and reduced VAT rates. Switzerland, for example, is implementing some modifications to its VAT rates in January 2024. Similarly, the Czech Prime Minister is proposing to make some changes to the VAT rates in the country, through consolidating the two current reduced VAT rates in the country (15% and 10%). The single new reduced rate proposed would be either 13% or 14%. The standard VAT rate of 21% would remain unchanged. The current proposed timeframe put forward for the implementation of the new VAT rate, like Switzerland, is 1 January 2024. The Czech Republic is a compliant territory for Tungsten Network. Our e-invoicing solution accommodates all valid VAT rates in the country, and we are closely monitoring any confirmation of the new VAT rate in the country. If confirmed, we will arrange for integration of the new VAT rate as part of our solution.

Increasing the VAT registration threshold in a country has multiple fiscal implications- one being the simplification of the VAT process, as a reduced number of businesses will be subject to being caught within the scope of the VAT registration threshold. Small businesses especially stand to benefit.   Of course, countries also need to consider the impact these will have on their economic position.     From 1 January 2023, the Czech Republic will increase its VAT registration from CZK 1 million to CZK 2 million- the latter equating to c. 80,000 Euros. The doubling of the VAT registration threshold represents a significant reduction in the number of businesses falling under the scope of the VAT threshold.    

There are multiple reasons why a country may want to increase its VAT registration threshold. In June, we communicated that the Bulgarian government raised the VAT registration threshold to combat rising inflation. The Czech government is proposing a bill to double the VAT registration threshold by a sizeable margin- from CZK 1 million to CZK 2 million (c. 85,000 Euros) per annum. The European Council has provided permission for the Czech government to raise its VAT registration threshold. If successfully implemented, this would take effect from 1^st January 2023 until 31 December 2024. The threshold does not apply to non-resident businesses, who must register immediately if providing certain supplies.