Extension of the reverse charge procedure

1.4.2015

From April 1st 2015 there will be a significant extension of the reverse charge procedure. The General Financial Directorate (Generální finanční ředitelství, GFŘ) therefore published information that brings answers to questions that are not always clearly answered by the legal regulation.

The crucial interpretation concerns a combination of advance payments and the amount of the actual supply. The tax obligation under the extended reverse charge applies to commodities specified by the Government Regulation with the tax base over 100,000 CZK. It is necessary to know how to deal with advances on supply that was, for example, determined to be 120 thousand and then amounted “only” to 90 thousand. Below we bring several examples on how to proceed in specific cases. In these examples, we assume that the supply of goods exceeding the limit of 100,000 CZK is liable to the reverse charge procedure (is carried out as well as the advance payment after 1st April 2015).

 

1) A 60,000 CZK advance payment on the supply for 120,000 CZK. Receipt of the advance payment will be without VAT because it is associated with the supply under the reverse charge procedure.

 

2) A 60,000 CZK advance payment on the supply for 90 thousand. Receipt of the advance payment will be subject to VAT because it is associated with the supply taxed at the normal mode.

 

3) A 60,000 CZK advance payment on the supply for 120,000 CZK. Receipt of the advance payment will be not subject to VAT because it is associated with the supply under the reverse charge procedure. After the advance payment is made, it will be agreed that the supply will “only” be 90,000 CZK. This 90,000 will be taxed in the normal mode and the contractor will have to be able to prove that the original order exceeded the limit of 100,000 CZK, which entitled him to the non-taxation of the advance payment.

 

4) A 60,000 CZK advance payment on the supply for 120,000 CZK. Receipt of the advance payment from 16th March will be subject to VAT because the reverse charge in this case is valid from 1st April 2015. But the ordered goods will be delivered on the 5th of April. Since the total value of the delivery exceeds 100,000 CZK, the supply will be subject to the reverse charge procedure, but it will only apply to the difference between the value of the supply and the deposit.

 

The Information from the GFD offers a number of answers to questions related to the tax regime valid from 1st April 2015. If you don’t find the answer to your questions in the information or if you are not sure with the interpretation, we will be glad to help you.

Author: Petr Vondraš




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