In mid-January, the General Financial Directorate issued two pieces of information dealing with the practical application of VAT in 2024. One part deals specifically with the right to deduct VAT on passenger cars with a purchase price of more than CZK 2 million.
The selected group of passenger cars is the M1 category with a purchase price exceeding CZK 2 million., which are in the taxpayer's fixed assets. For such cars, the right to deduct VAT is limited to CZK 420,000. When the taxpayer is obliged to claim the deduction on a pro rata basis, the limit will be reduced by an appropriate coefficient.
Example:
- The taxpayer purchased a selected passenger car worth CZK 3,000,000 + VAT of CZK 630,000. This car has become a fixed asset of the taxpayer, who will use it both for the purposes of his transactions and for other purposes for which he is not entitled to deduct tax. The taxpayer has set the proportionate coefficient under Article 75(3) of the VAT Act at 40%. For the purposes of determining the partial amount of the tax deduction, the taxpayer assumes the limit amount of input tax of CZK 420 000 and reduces this amount by the appropriate proportional coefficient. In this case, the taxpayer is therefore entitled to a tax deduction of CZK 168 000 (the product of CZK 420 000 and a proportional coefficient of 0.4).
- The taxpayer purchases a selected passenger car for business purposes with a taxable amount of CZK 2 600 000 + tax of CZK 546 000. The car will be used in the economic activity of the taxpayer both for the purposes of carrying out transactions for which the tax is deductible and for the purposes of carrying out exempt transactions without the right to deduct tax. Thus, according to the provisions of Section 76 of the VAT Act, the taxpayer is entitled to deduct the tax only in a reduced amount corresponding to the extent of use for the performance eligible for the deduction. According to Section 76(2) of the VAT Act, the relevant amount of the tax deduction in the reduced amount is calculated as the product of the input tax and the coefficient, which for the year in question is 63 %. The input tax will thus be CZK 420 000 in relation to Section 72(3)(a) of the VAT Act and the amount of the tax deduction will be CZK 420 000 x 63 % = CZK 264 600.
The limitation on the right to deduct does not apply to the acquisition of vehicles that are not part of the taxpayer's fixed assets (e.g. inventories). If the vehicle is later transferred to fixed assets, the taxpayer must reduce the deduction claim in the tax return for the period in which the vehicle was classified as fixed assets. At the time of sale of a vehicle for which the VAT deduction has been limited, there is no right to adjust the deduction to an amount above the limit.
However, there is an exception. This is available to taxpayers who acquire vehicles for the purpose of providing them as finance leases. The vehicle becomes the fixed asset of the customer to whom the limitation already applies. The limitation on the part of the lessor would lead to double taxation. This exception does not apply to vehicles provided by way of operating lease.
Furthermore, the above limitation (CZK 420,000) does not apply to vehicles for which a deposit has been received by the end of 2023 and are therefore taxable in 2023. These selected vehicles will also not be subject to the limitation on the deduction of VAT in the case of subsequent technical improvement. The same is true for vehicles acquired before the end of 2023.
In general, however, for technical improvement (when assessing whether the taxpayer is entitled to deduct VAT on the cost of technical improvement), the VAT deduction originally claimed must also be taken into account (the VAT amounts are added together for the assessment of the limit).
A VAT deduction claimed up to the limit (but with a higher tax on the tax invoice) is shown in the full entitlement column of the VAT return, provided that the entitlement is not reduced by a coefficient. The taxable amount will therefore be declared in full in the VAT return - the purchase price of the vehicle.
The change is effective from 1 January 2024 as part of the consolidation package.
