From 2019, will VAT be returned to us from the unpaid claims?


The government of the Czech Republic prepared an amendment with a probable effective date from the 1st of January 2019. There is a huge change in the approach to bad debts and the VAT, which is connected with them.

Until this date, this issue will be solved only by the very controversial provision, in our opinion, that allows the taxpayer to correct the tax base only if the debtor has entered into insolvency proceedings, the solution of which was a bankruptcy.

After the amendment, the creditor will be entitled to correct the VAT, reduce the tax liability, when:

1. at least 2 years since the chargeable day has elapsed and the receivable from this chargeable event has not ceased and is still due;
2. the receivable has been wholly or partially unsuccessfully enforced on the ground of the decision or seizure;
3. the debtor is in insolvency;
4. the debtor has died;
5. the liquidation of a debtor was announced;
6. the proceeding commenced according to points 2 to 5, but all the facts that are decisive for the correction have not occurred so far.

It is a fact that one of the basic conditions for correcting the tax base due to the non-payment of the receivable is the fact that it can be considered definitely unpaid.

The creditor will normally be required to meet a number of conditions under which he will be entitled to correct the mentioned tax (i.e., collecting receivables actively, register it into the insolvency proceeding or into the bankruptcy, deliver the tax document to the debtor, etc.).

It will be possible to correct the tax in the case when the creditor will be not active when collecting the receivable. However, the law determines the limitation for each unpaid receivable by the sum of 10000 CZK, or by the sum of 50 000 CZK maximum for all receivables within one calendar year.

A general deadline of 3 years from the end of the tax period is set for the correction of the tax base, in which the goods were delivered or the service was provided. The law determines some exceptions for specific cases.

This is clearly a positive step for the benefit of the creditors – taxpayers. The fact that the law imposes relatively strict conditions under which creditors or taxpayers are entitled to correct the tax is the price the state has to pay to return the already paid tax.

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