Voluntary VAT Registration: How to Successfully Complete the Process?

Why register voluntarily in the first place?

The most common reasons why people want to register voluntarily, or why voluntary registration may be beneficial for them, are the following:

• most customers are VAT payers (B2B), making it possible to claim input VAT deductions,
• materials purchased from suppliers are subject to the standard VAT rate, while output supplies are subject to a reduced rate (e.g. in construction),
• expenses exceed income (typically when starting a business or equipping business premises),
• international trade: having the status of an identified person without the right to deduct input VAT could result in a loss (I only assess VAT, but cannot claim input VAT deductions),
• approaching the turnover threshold.

Registration also has disadvantages

• increased administration,
• stricter rules for issuing tax documents,
• a higher risk of penalties for failure to comply with obligations (for example in connection with requests relating to VAT control statements),
• the obligation to pay output VAT,
• mandatory document retention for 10 years.

How to proceed with voluntary registration

I can submit the application at any time. The basic step is simple: completing the registration form, for example on the mojedane.cz portal.

The application should state that the procedure is pursuant to Section 6f(1) of the VAT Act (voluntary registration). I do not become a VAT payer automatically upon submitting the application; the registration must be approved by the tax administrator (the Tax Office). However, the Tax Office may also reject the application.

Information to be included in the application

• identification and contact details (of the self-employed person or company),
• registered office and actual place of business,
• bank account numbers (accounts to be published and accounts for VAT refunds),
• expected or achieved annual turnover,
• reason for registration.

How long does voluntary VAT registration take?

The tax administrator has 30 days to respond. If my application is approved, I become a VAT payer on the day following delivery of the decision confirming that I have been registered for VAT.

Based on our practical experience with voluntary registrations, registration may be completed within one week in the fastest cases. The average processing time is around 3 weeks. In some cases, where a request to clarify doubts is issued (with a 15-day deadline), the process has taken as long as 6 weeks. In exceptional cases (where the client was unable to provide any evidence of economic activity or stopped cooperating), registration was also rejected.

The most common obstacle in voluntary registration: economic activity

Section 6f(1) of the VAT Act begins as follows:

A taxable person established or having a fixed establishment in the Czech Republic who carries out or will carry out supplies in respect of which they would be entitled to deduct VAT ……

This built-in condition assumes that the person submitting the application either carries out economic activity or is preparing for it (i.e. is engaged in preparatory economic activity).

A common occurrence after submitting a voluntary VAT registration application is that, instead of a VAT registration decision, the tax administrator sends a “Request to clarify doubts concerning registration details” together with a list of questions and requests for supplementary information intended to dispel the tax administrator’s doubts as to whether the taxpayer is carrying out, or preparing to carry out, economic activity.

How can I make the process easier and speed up voluntary registration?

If the company already has a history, it helps significantly to provide a brief description of its activities, an overview of issued invoices together with several examples, and a bank statement showing that the invoices were paid.

What the Financial Administration typically wants to know

• the actual place of business and the way in which the activity is carried out,
• technical, material and economic resources,
• who performs the activity,
• who will keep the accounts and where the documents will be stored,
• presentation of the business activity (website, social media, advertising),
• information about suppliers and customers.

Newly established companies receive such requests with almost clockwork regularity. It is therefore advisable to attach available information, received invoices, contracts and a business plan directly to the registration application. A bank statement or bank account agreement is also often attached in order to verify the account number.

At the same time, in order to register the bank account (and verify that it belongs to the company concerned), the Financial Administration frequently requests either a bank statement or a bank account agreement showing the account number.

Statistically, in roughly half of the cases it is possible to avoid such a request and thereby reduce the time required for registration. This depends on the quality of the supporting documents and on the assessment of the individual tax officer.

Conclusion

Voluntary registration can be either straightforward or time-consuming. The key is proving economic activity.

If my approach is “Give me VAT registration first, and then I will start doing business; otherwise it does not make sense for me,” the process will be more difficult. In such a situation there is usually very little documentation available to prove economic activity.

If, on the other hand, I figuratively take the first risky steps into the unknown even without VAT registration, I have clear evidence that I am already carrying on a business or am seriously preparing to do so, and registration is usually not a problem.

It is entirely possible to complete the voluntary registration process successfully, and we will be happy to provide you with support throughout the process.

Sources:

Section 6f(1) of the VAT Act