Czech Republic: Guidance on reduction of VAT deduction for bad debts
VAT payers are obliged to reduce a deduction claimed on a received taxable supply when the related receivable remains unpaid just six months after its due date.
The General Financial Directorate (GFD) in early July 2025 issued guidance on the correction of the value added tax (VAT) deduction for bad debts, explaining the practical application of the new provision of the VAT Act applicable to the mandatory adjustment of the right to deduct VAT arising after January 1, 2025.
Under the new provision, VAT payers are obliged to reduce a deduction claimed on a received taxable supply when the related receivable remains unpaid just six months after its due date—on the part of VAT payers to whom the obligation applies, this constitutes an unpaid debt. If the debt is subsequently paid, the debtor is entitled to reclaim the deduction even if the creditor has assigned the relevant receivable.
The GFD’s guidance specifies that for debts with agreed-upon split maturity or payable in installments, the six-month period is tested for each part separately. However, it must be proven that the obligation to reduce the claimed deduction has arisen for each part. Therefore, the GFD recommends keeping a record of the dates of overdue payables and their parts.
Read an August 2025 report prepared by the KPMG member firm in the Czech Republic