VAT treatment of undocumented shortages and damages applicable from July 1, 2017 in the Czech Republic | News Flash

The amendment to the VAT Act changes, among other, the procedure for applying VAT on shortages, damages, losses or thefts of business assets. In case of undocumented shortages, damages, losses or thefts of business assets, the VAT Act introduces the duty to settle the entitlement to input VAT deduction originally claimed. The adjustment shall be made within the period in which the taxpayer discovered such circumstances or could discover them, for example through goods inventory. The time period for which such adjustments are required is 3 years with respect to inventories and low-value assets and 5 (10 respectively) years with respect to fixed assets.

We would like to stress that if shortages and damages are supported with proper documentation (e.g. natural shortages), the treatment remains the same regardless the amendment to VAT Act, i.e. there is no need to adjust the originally claimed VAT deduction.

In case your company performed goods inventory in July, it is obliged to settle the originally claimed VAT deduction upon purchased goods / material within the July VAT return which is to be filed by August 25, 2017.