Increase of limit for mandatory VAT registration and flat-rate tax regime

The Government approved a draft law of the Ministry of Finance, which would increase the annual limit for mandatory VAT registration from CZK 1 million to CZK 2 million with effect from 1 January 2023. The annual income limit for entry into the flat-rate tax regime should also be doubled from next year to CZK 2 million. The proposal is currently being discussed by the Parliament.

The amendment to the VAT Act proposes to increase the annual turnover limit for compulsory VAT registration to CZK 2 million. The current limit of CZK 1 million corresponded to the amount of EUR 35,000 that the Czech Republic received when it joined the European Union in 2004, which has not changed in 18 years despite a significant increase in the price level. The increase of the limit up to €85,000 is supported by the EU itself, which will allow member states to implement this increase from 2025. However, the Czech Republic was allowed to increase the VAT limit to CZK 2 million at its request already from next year. So the main novelty should be the possibility to deregister from VAT on annual turnover of up to CZK 2 million.

The condition for using the flat-rate tax, i.e. paying taxes, social and health insurance in one regular monthly amount without tax returns and without insurance reports, should also increase to twice the amount, i.e. CZK 2 million from next year. The Ministry of Finance expects that next year up to 30,000 sole traders could newly register for the flat tax. However, due to the very wide range of income of flat-rate taxpayers, the monthly flat-rate advances will not be the same for all, but 3 bands should be introduced, primarily derived from the amount of income and secondarily from the expenditure lump sum.

We will see whether and in what form this proposal will be approved.

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