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Czech Republic Cuts VAT Rates During Pandemic

Posted on June 18, 2020

The Czech Parliament has approved measures to reduce the VAT rate for accommodation services from 15 percent to 10 percent and to allow businesses to carry back their 2020 net operating losses.

The Czech Chamber of Deputies (lower chamber of Parliament) on June 16 approved various tax measures that aim to mitigate the effects of the COVID-19 pandemic for businesses, according to a Ministry of Finance release. The VAT reduction will apply to admissions to cultural and sporting activities. The legislation will be signed by the Czech president and take effect when it is published in the official gazette.

The legislation, which was first introduced to the Chamber of Deputies on May 29, also provides that businesses can offset tax losses in 2020 against profits from their 2018 and 2019 tax years. Losses from the tax period ending June 30 may be carried back, up to a maximum of CZK 30 million (approximately $1.26 million). The legislation is applicable only to taxpayers within the Czech Republic; therefore, foreign companies will not be able to carry back a tax loss of a Czech-based subsidiary. The support is intended for Czech-based businesses that pay Czech taxes, Minister of Finance Alena Schillerová said in the release.

Additionally, the road tax for vehicles that weigh over 3.5 metric tons will be reduced by 25 percent under the legislation. The reduction will be applied retroactively to the beginning of 2020. 

According to the release, these measures are temporary in response to the pandemic and will not create a budget deficit in the medium term.

The Czech government published an update March 16 announcing the adoption of a tax package in response to the COVID-19 crisis that included extending the income tax filing deadline without penalties until July 1. To provide further relief for businesses and individual taxpayers, the package also included penalty forgiveness for late tax payments and interest for all tax entities that are directly affected by the crisis. A business whose accountants or other employees essential to its tax function are sick or in quarantine would be eligible for penalty forgiveness, the government said.

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