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The Czech authorities have extended again the scope of domestic reverse charge. This extension applies retroactively from 1 February 2016 to electricity and gas sold to retailers as well as electricity rights.
Regarding other items to which this scheme was already applicable, the threshold of CZK 100,000 on the domestic reverse charge on specific goods such as metal products and IT equipment is no longer mandatory. Businesses can agree to apply revere charge on these products irrespective of the volume. This agreement should meet certain conditions.
In addition to the above, Czech Republic is planning to expand the reverse charge on supplies by non-established suppliers (article 194 of the VAT Directive). From 1 May 2016, all supplies made by a non-established and non-VAT registered business to a registered company in the Czech Republic will be subject to the reverse charge, irrespective of the customer being established.
Reverse charging VAT is an exception to the general rule on VAT. Normally, it is the supplier who must account to the tax authorities for any VAT due on the supply. However, for certain goods and services, the obligation to account for the VAT element of the transaction is ´reversed´ and passed to the customer. From an accounting point of view, this system is easy for the customer as it only requires the VAT element to be booked both, in the input VAT account and output VAT account, with the corresponding nil effect in the VAT position.