When is it good to be a VAT payer?
What does it mean that a company or self-employed person is a VAT payer, how to register for VAT and when is it worthwhile? Find out the answers to these questions in the article.
Who is a VAT payer?
A VAT or value added tax payer is a legal or natural person who can purchase goods or services at a "discount" for the purposes of their business. The amount depends on the VAT rates for the year (currently 21, 15 and 10%). After the end of the accounting period, a percentage of the purchase price will be paid back to the entrepreneur by the state - so the entrepreneur buys so-called tax-free.
When do I become liable for VAT?
You can to some extent decide to be VAT-liable yourself - you are legally obliged to become VAT-liable as soon as your turnover for 12 consecutive months exceeds CZK 1,000,000.
If your annual turnover does not exceed one million crowns, but you would like to become a VAT payer, you can register voluntarily. However, it is up to the tax office to decide whether to approve your registration.
The annual turnover is the sum of all the amounts you have earned as an entrepreneur in the course of your business in the Czech Republic as part of the supply of goods, transfer of property or provision of services. The annual turnover does not include money you have earned from the sale of fixed assets or income you have earned during your occasional supplementary activities.
The brackets within which the amounts received as part of the annual turnover must fall are specified in Section 4 of the Value Added Tax Act. According to this Act, these are:
- taxable supplies,
- tax-exempt supplies entitled to a tax deduction,
- tax-exempt supplies without the right to deduct tax, as specified in §54, §55§56 and §56a of the VAT Act (but only if they are not ancillary activities which are carried out occasionally).
When you meet the conditions for compulsory VAT registration, you must register for VAT with the tax office. This must be done by the 15th day of the calendar month following the month in which your turnover exceeded CZK 1 million. The deadlines are easier to understand using a concrete example: if you exceed your turnover in March, you must register for VAT by 15 April and you are officially a taxpayer from 1 May - from this date you issue invoices with VAT.
If you have chosen to register for VAT voluntarily, it doesn't matter so much when you submit your VAT registration. You can take this step at any time. However, if you register voluntarily for VAT, you do not automatically become a VAT payer and the authorities may reject your application.
When does it pay to be VAT registered?
Whether or not it is more profitable to be a VAT payer depends on your position on the business market.
If your customers are VAT payers or you yourself buy from a company that is VAT payer, it is more profitable for you to register for VAT even if your annual turnover does not exceed CZK 1,000,000.
It is also worthwhile to be VAT-registered, for example, in situations where:
- Your income is less than the expenditure on the goods you buy - the state then refunds the difference to the business, which is the difference between the VAT on the purchase of goods from the supplier and the VAT applied when selling the goods to the end customers.
- A higher rate of VAT applies to goods bought from a supplier than to goods you sell to customers.
When is it worthwhile to be a VAT non-taxpayer?
If your customers are not VAT payers or if you are in the role of a customer to a company that does not pay VAT, it is usually more profitable for you not to be a VAT payer.
Furthermore, not being subject to VAT is worthwhile, for example, in situations where:
- Your customers are consumers - they almost always do not pay VAT, so it would be unnecessary for you to be liable for VAT.
- Goods bought from a supplier are subject to a lower rate of VAT than goods you sell to customers.
Disadvantages of being a VAT payer
Although there are many advantages to being a VAT payer, there are a few things to look out for. The main disadvantage is the relatively heavy administrative burden. As a rule, you cannot do without an accountant.
The duties of a VAT payer include, in particular, making tax documents for customers, keeping and filing VAT returns and filing the so-called control report.
You have to submit the documents within predefined deadlines. You must then archive the tax documents for at least 10 years.
Are you wondering whether it is advantageous for you to register as a VAT payer? Contact us! We will be happy to advise you on your decision during an accounting consultation and explain everything to you.