VAT payers must reduce the VAT deduction for a taxable supply if the payment remains unpaid six months after its due date.
The Czech Republic’s General Financial Directorate (GFD) released guidance on correcting VAT deductions for bad debts in July 2025.
This guidance clarifies the practical application of a new VAT Act provision, which mandates adjustments to the right to deduct VAT for cases arising after 1 January 2025.
According to the new provision, VAT payers must reduce claimed VAT deductions on unpaid taxable supplies if the receivable remains unpaid six months after its due date, classifying it as an unpaid debt. If the debt is paid at a later date, the debtor can reclaim the deduction, even if the creditor has assigned the receivable. For VAT purposes, the due date is determined by the relevant contract, applicable terms and conditions, and any other governing documents or legislation.
The GFD advises that for debts with split maturity or instalment payments, the six-month period should be assessed separately for each part. It must be demonstrated that the obligation to reduce the claimed deduction applies to each part. Therefore, the GFD recommends maintaining the records of the dates of the overdue payables and their components.
In the VAT return form, any increase or decrease in deduction rights for overdue payables must be reported in lines 40 or 41 and in information line 34.
According to the GFD’s information, quarterly VAT payers are exempt from reducing deductions if they pay by the end of the taxable period. For instance, if a quarterly VAT payer settles their liability at the end of September 2025, six months after the due date in July 2025, no correction is needed in the VAT return for Q3 2025.
The GFD confirms that the obligation to reduce a deduction does not apply to supplies under the reverse charge mechanism or to offsetting mutual receivables. The GFD also states that a claimed deduction must be reduced even if the payable is unpaid due to ongoing complaint proceedings.
