Several amendments to the Czech Republic’s VAT regime take effect on 1 January 2027. Some changes implement elements of the EU’s VAT in the Digital Age (ViDA) package and are intended to simplify cross-border VAT compliance. Other measures affect input VAT recovery on passenger cars, the treatment of unpaid invoices and the VAT rates applicable to beverages.
From 1 January 2027, the cap on input VAT recovery for passenger vehicles will be abolished. Under current rules, taxpayers may deduct no more than CZK 420,000 of input VAT, even when the VAT charged on the purchase exceeds that amount. Once the cap is removed, VAT will be fully recoverable if the vehicle is used exclusively for taxable business purposes and proportionately recoverable if it is used for both business and private purposes.
Transitional provisions will apply to certain transactions that begin before 1 January 2027. If a passenger vehicle is purchased in late 2026 but is not put into use until 2027, the taxpayer will be allowed to claim the full VAT deduction in the December 2026 VAT return. However, the taxpayer must be able to demonstrate that the vehicle is first put into use in 2027 (for example, by reference to the registration date in the Czech vehicle register).
The same treatment will apply to advance payments. If a taxpayer makes an advance payment for a passenger vehicle in December 2026 and the vehicle is not delivered until 2027, the VAT deduction on the advance payment should not be subject to the CZK 420,000 cap.
A business whose VAT deduction on an advance payment made before 2027 was limited by the cap may claim the remaining deduction by filing an additional VAT return for the period in which the original deduction was claimed. This will be possible if the vehicle is not brought into a condition fit for use before 1 January 2027 and the general conditions for deduction are satisfied. The supplementary VAT return must be submitted by 1 February 2027.
Two years after the rules were introduced, the VAT treatment of unpaid invoices is set to change again (for prior coverage, see the article in the July 2025 issue of Indirect Tax News). From 1 January 2027, the relevant time limits will be shortened and the simplified relief available to creditors for smaller claims expanded.
Shorter adjustment period for debtors
Under the current rules, a debtor that fails to pay an invoice must reduce the related input VAT deduction once six calendar months have elapsed after the month in which the invoice became due. This period will be reduced to three months starting 1 January 2027. Because the amendment does not contain any transitional provisions, the new period should apply only to receivables arising from taxable supplies made on or after 1 January 2027. For example, if a taxable supply takes place on 31 December 2026 and the related invoice is due on 12 January 2027, the 2026 rules will continue to apply and the six-month period will expire on 31 July 2027. By contrast, if goods are supplied on 3 January 2027 and the invoice is due on 15 January 2027, the three-month period will apply and will expire on 30 April 2027.
Broader relief for creditors with small claims
For creditors, the waiting period for adjusting the taxable amount of small receivables will also be reduced from six months to three months and the definition of a small receivable will be broadened. The limit for an individual receivable will increase from CZK 10,000 to CZK 20,000, including VAT, and the annual aggregate limit for claims against a single debtor will increase from CZK 20,000 to CZK 100,000.
The current limitation allowing only one adjustment per calendar year, which must be made in the last tax period of the respective calendar year, will be removed. Nevertheless, all other conditions for the adjustment will continue to apply, most notably the requirement to send the debtor two written payment reminders.
A creditor-friendly transitional provision accompanies the higher annual limit. If, by 1 January 2027, a creditor has not adjusted the taxable amount of an unpaid receivable arising from a taxable supply made on or after 1 January 2025, the creditor may apply the rules effective from 1 January 2027. This will allow adjustments for certain receivables from 2025 and 2026 that did not qualify under the previous rules.
The VAT treatment of non-alcoholic beverages also will change in 2027. The new rules are intended to simplify the current framework, under which similar products may be taxed differently depending on how they are supplied.
From 1 January 2027, all non-alcoholic beverages supplied as part of restaurant or catering services will be subject to the 12% reduced VAT rate. Non-alcoholic beverages supplied outside restaurant and catering services will generally remain subject to the standard VAT rate of 21%. The reduced 12% rate will continue to apply only to tap water, milk-based beverages and plant-based alternatives to milk-based beverages.
The distinction between restaurant or catering services and a supply of goods will therefore remain important. A beverage supplied as part of a restaurant service may qualify for the reduced 12% rate, whereas the same beverage sold separately for takeaway may be subject to the standard 21% rate.
From 1 January 2027, the following changes to the One Stop Shop (OSS) regimes are proposed to take effect as part of the EU’s VAT in the Digital Age (ViDA) reforms:
Businesses should assess the impact of these VAT changes before the end of the year. Particular attention should be given to the timing and documentation of passenger vehicle purchases and advance payments, procedures for monitoring overdue invoices, eligibility for the expanded relief for small receivables and the correct classification of beverage supplies. Businesses using or considering the OSS regimes should also review whether the expanded rules could reduce their VAT registration obligations in other EU member states.
Petr Linx
Kristýna Pecníková
BDO in the Czech Republic
Full VAT Recovery on Passenger Cars
From 1 January 2027, the cap on input VAT recovery for passenger vehicles will be abolished. Under current rules, taxpayers may deduct no more than CZK 420,000 of input VAT, even when the VAT charged on the purchase exceeds that amount. Once the cap is removed, VAT will be fully recoverable if the vehicle is used exclusively for taxable business purposes and proportionately recoverable if it is used for both business and private purposes.Transitional provisions will apply to certain transactions that begin before 1 January 2027. If a passenger vehicle is purchased in late 2026 but is not put into use until 2027, the taxpayer will be allowed to claim the full VAT deduction in the December 2026 VAT return. However, the taxpayer must be able to demonstrate that the vehicle is first put into use in 2027 (for example, by reference to the registration date in the Czech vehicle register).
The same treatment will apply to advance payments. If a taxpayer makes an advance payment for a passenger vehicle in December 2026 and the vehicle is not delivered until 2027, the VAT deduction on the advance payment should not be subject to the CZK 420,000 cap.
A business whose VAT deduction on an advance payment made before 2027 was limited by the cap may claim the remaining deduction by filing an additional VAT return for the period in which the original deduction was claimed. This will be possible if the vehicle is not brought into a condition fit for use before 1 January 2027 and the general conditions for deduction are satisfied. The supplementary VAT return must be submitted by 1 February 2027.
VAT Treatment of Unpaid Invoices
Two years after the rules were introduced, the VAT treatment of unpaid invoices is set to change again (for prior coverage, see the article in the July 2025 issue of Indirect Tax News). From 1 January 2027, the relevant time limits will be shortened and the simplified relief available to creditors for smaller claims expanded.Shorter adjustment period for debtors
Under the current rules, a debtor that fails to pay an invoice must reduce the related input VAT deduction once six calendar months have elapsed after the month in which the invoice became due. This period will be reduced to three months starting 1 January 2027. Because the amendment does not contain any transitional provisions, the new period should apply only to receivables arising from taxable supplies made on or after 1 January 2027. For example, if a taxable supply takes place on 31 December 2026 and the related invoice is due on 12 January 2027, the 2026 rules will continue to apply and the six-month period will expire on 31 July 2027. By contrast, if goods are supplied on 3 January 2027 and the invoice is due on 15 January 2027, the three-month period will apply and will expire on 30 April 2027.
Broader relief for creditors with small claims
For creditors, the waiting period for adjusting the taxable amount of small receivables will also be reduced from six months to three months and the definition of a small receivable will be broadened. The limit for an individual receivable will increase from CZK 10,000 to CZK 20,000, including VAT, and the annual aggregate limit for claims against a single debtor will increase from CZK 20,000 to CZK 100,000.
The current limitation allowing only one adjustment per calendar year, which must be made in the last tax period of the respective calendar year, will be removed. Nevertheless, all other conditions for the adjustment will continue to apply, most notably the requirement to send the debtor two written payment reminders.
A creditor-friendly transitional provision accompanies the higher annual limit. If, by 1 January 2027, a creditor has not adjusted the taxable amount of an unpaid receivable arising from a taxable supply made on or after 1 January 2025, the creditor may apply the rules effective from 1 January 2027. This will allow adjustments for certain receivables from 2025 and 2026 that did not qualify under the previous rules.
VAT Treatment of Non-Alcoholic Beverages
The VAT treatment of non-alcoholic beverages also will change in 2027. The new rules are intended to simplify the current framework, under which similar products may be taxed differently depending on how they are supplied.From 1 January 2027, all non-alcoholic beverages supplied as part of restaurant or catering services will be subject to the 12% reduced VAT rate. Non-alcoholic beverages supplied outside restaurant and catering services will generally remain subject to the standard VAT rate of 21%. The reduced 12% rate will continue to apply only to tap water, milk-based beverages and plant-based alternatives to milk-based beverages.
The distinction between restaurant or catering services and a supply of goods will therefore remain important. A beverage supplied as part of a restaurant service may qualify for the reduced 12% rate, whereas the same beverage sold separately for takeaway may be subject to the standard 21% rate.
Changes to the OSS Regime
From 1 January 2027, the following changes to the One Stop Shop (OSS) regimes are proposed to take effect as part of the EU’s VAT in the Digital Age (ViDA) reforms:
- The rules determining when VAT becomes chargeable will be clarified for supplies covered by the Union and non-Union OSS schemes. In particular, the issuance of an invoice will not, by itself, determine when VAT becomes chargeable for these supplies.
- The deemed-supplier rules for electronic marketplaces and platforms will be extended to cover certain supplies of goods within the EU made by non-EU-established suppliers to taxable person or non-taxable legal persons whose intra-Community acquisitions are not subject to VAT.
- The Union OSS scheme will be extended to certain supplies of electricity, gas, heat and cooling energy, reducing the need for suppliers to register for VAT in multiple EU member states. This special rule allowing these supplies to be reported under the OSS is temporary and will apply only until 30 June 2028.
BDO Perspective
Businesses should assess the impact of these VAT changes before the end of the year. Particular attention should be given to the timing and documentation of passenger vehicle purchases and advance payments, procedures for monitoring overdue invoices, eligibility for the expanded relief for small receivables and the correct classification of beverage supplies. Businesses using or considering the OSS regimes should also review whether the expanded rules could reduce their VAT registration obligations in other EU member states.Petr Linx
Kristýna Pecníková
BDO in the Czech Republic