Tax News 2025

Author of the article: JUDr. Jakub Dohnal, Ph.D., LL.M., ARROWS (office@arws.cz, +420 245 007 740)

With the new year comes significant tax changes that will affect businesses and individuals. From new rules for deducting VAT on unpaid invoices to the introduction of limits on the taxation of exceptional income. Get an overview of what's ahead and find out how to prepare effectively for the changes.

1. VAT deduction: new limits and risks

From 1 January 2025, VAT payers will have to repay a deduction already claimed if they fail to pay an invoice within six months of the due date. This measure is intended to help eliminate tax evasion, but for businesses it means more pressure to manage cash flow.

Imagine a situation where your key supplier is still expecting payment from you, but you are already struggling to recover VAT from the tax office. Such a scenario can significantly affect the financial stability of a business. Proactive payment planning and consistent control of invoice due dates are now a must.

If an invoice is paid late, the deduction can be reclaimed. However, the administrative burden involved can be time-consuming and requires meticulous record-keeping.

2. VAT registration: two thresholds and a new calculation method

The new thresholds for compulsory VAT registration may bring unexpected complications for businesses. While the annual turnover threshold of CZK 2 million remains unchanged, the introduction of a second threshold (CZK 2.536 million) for immediate registration adds to the complexity.

For example, a company that exceeds the CZK 2 million limit in October will only become subject to VAT in January of the following year. However, if it exceeds the CZK 2.536 million limit, it becomes VAT-liable immediately. This difference requires careful management of turnover and planning for the acceptance of new orders.

Remember that a miscalculation or late registration can lead not only to heavy penalties but also to a loss of business confidence.

3. Taxation of extraordinary income: new exemption limit

The sale of securities or shares will no longer be as advantageous as before. The introduction of the CZK 40 million cap on income tax exemption is forcing investors and entrepreneurs to rethink their strategies.

For example, if you plan to sell shares with proceeds of CZK 50 million, the amount in excess of CZK 40 million will be taxed at the standard personal income tax rate. This move may affect decisions to sell shares or reorganise ownership structures.

We recommend consulting tax experts early to optimize your investments and minimize the tax impact.

4. Real estate: the end of the five-year test

One of the key changes is the abolition of the five-year time test for VAT exemption on the sale of real estate. Only the first sale of real estate within two years of the completion of construction or substantial alteration will now be taxed. This change simplifies the rules but brings new challenges.

For example, if you sell an apartment two years after it has been renovated, that sale is subject to VAT. The advantage for the supplier is the ability to elect to be taxed even on exempt transactions. This option can be beneficial if you want to claim a VAT deduction for construction or renovation.

Businesses should carefully consider whether taxation is worthwhile. Consultation with tax advisers may reveal hidden opportunities and risks.

5. Adjustments to the tax base

The new seven-year period for correcting the tax base is a major change that may make it easier for businesses to manage VAT. The period also applies to entities that are no longer subject to VAT, which expands the possibilities for managing historical claims.

For receivables up to CZK 10,000 including VAT, the procedure is simplified. If the receivable is six months overdue and the debtor has been asked to pay at least twice in writing, the tax base can be corrected using a correction document. However, this instrument is limited to an overall limit of CZK 20 000 per debtor.

Practical advice: Keep careful records of bad debts and calls for payment. Faulty documentation can lead to problems during the tax office's audit.

6. Taxation of extraordinary income: Impact on your investments

From 1 January 2025, the rules for the exemption of income from the sale of securities and shares will change. The new limit of CZK 40 million per tax year may have a major impact on investment strategies.

For example, if you sell shares in a company for CZK 60 million, gains above CZK 40 million will now be taxed at the personal income tax rate. This change encourages careful planning of asset sales to minimize the tax impact.

Tip: Talk to your tax advisor to find an effective way to optimize taxes on extraordinary income.

The new VAT, property sales and income tax rules are changing the environment in which entrepreneurs and investors operate. Don't wait to be caught off guard - plan the necessary steps early. Contact our specialists to help you adapt to the new rules and ensure you are in full control of your finances. Call us today!