Czech Republic: Application of VAT deduction for selected passenger cars in 2024

The General Financial Directorate (GFD) issued new guidelines on the application of value added tax (VAT) changes from 2024, including the VAT deduction for passenger cars with a purchase price of more than CZK 2 million (approximately U.S. $84,500).

For selected passenger cars (category M1 with a purchase price of more than CZK 2 million) that are part of the taxpayer's fixed assets, the right to deduct VAT is limited to CZK 420,000. If the taxpayer is required to claim the deduction only on a proportionate basis, the VAT deduction limit will be reduced by the relevant coefficient.

Vehicles for which an advance has been received and was subject to taxation before the end of 2023, and vehicles that have undergone subsequent technical improvements will not be subject to this limitation.

However, 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 subsequently classified as a fixed asset, the taxpayer is required to reduce the VAT deduction in the VAT return for the period in which the vehicle was classified as a fixed asset.

Any sale of a vehicle for which the VAT deduction has been limited does not allow the right to adjust the VAT deduction above the limit.

An exception is made for taxpayers who acquire vehicles for the purpose of providing them via finance lease arrangements. The exception does not apply to vehicles provided via operating lease arrangements.

The GFD's information provides practical examples of these rules but does not address the interpretation of the law in the case of demo cars that are often classified as tangible fixed assets by car dealers.

Read a February 2024 report prepared by the KPMG member firm in the Czech Republic