As of 2025, changes to the Czech VAT (DPH) system have come into effect, aimed at addressing a long-standing issue: input VAT deductions were often claimed on transactions that were never actually paid. The new §74b of the VAT Act (ZDPH) introduces an obligation for the recipient of goods or services to return a previously claimed input VAT deduction if the invoice was not paid within the agreed timeframe.
Now the right to deduct is directly linked to actual payment: no payment means no deduction. If payment is received later, the deduction can be reclaimed, but only through the procedure set out in the law.
This article provides a detailed explanation of why the new provision was introduced, how it works, and what businesses need to pay attention to.
The 2025 VAT reform was introduced in response to a long-standing issue: businesses frequently claimed VAT deductions immediately upon receiving an invoice — well before any actual payment was made. Even if the buyer failed to fulfil their obligations, the deduction remained valid. This practice resulted in several negative consequences:
To eliminate these risks, the legislation was revised. The new § 74b ZDPH establishes a clear principle: if the obligation is not paid, the deduction must be returned. This brings the VAT system closer to actual cash flows — tax credit arises only when the transaction has been completed in practice, not just formally.
The aim of the reform is to strengthen payment discipline, reduce opportunities for abuse, and align the tax system with the principle of economic substance.
Paragraph § 74b ZDPH introduces a new key obligation for recipients of goods and services: linking the right to deduct VAT (DPH) to the actual payment of the obligation.
In simple terms, if a recipient claims a VAT deduction but fails to pay the invoice within the required period, they are obliged to adjust that deduction — i.e. return the tax to the state.
Main provisions of the regulation:
Thus, § 74b makes the right to deduct not a declarative formality but a consequence of a transaction actually fulfilled. The law creates a direct link: if there is payment — there is a deduction; if there is no payment — there should be no deduction.
The provision applies to all VAT (DPH) payers — without exceptions:
This makes § 74b a universal tool for enhanced oversight and unified rules in the area of VAT — regardless of business type or scale.
Until 2025, the Czech VAT (DPH) deduction system operated on a declarative principle. The recipient of goods or services could claim a VAT deduction immediately after receiving and recording the invoice, even if actual payment had not yet been made. A correct tax document was sufficient — proof of payment was not required. There was no obligation to return the deduction in the event of non-payment: corrections were only applied in exceptional cases, such as when a receivable was declared uncollectible, and mostly by the supplier rather than the recipient.
This model led to systemic issues. The state refunded VAT on transactions that, in practice, had not been fulfilled. This opened the door to abuse: deductions were claimed on fictitious or only partially completed transactions. Some companies used the mechanism as a way to obtain funds from the state budget in advance, without incurring actual expenses. As a result, a fiscal gap arose: the state lost revenue by paying out tax that was never received down the supply chain. Meanwhile, oversight was difficult, since the deduction existed only “on paper” and was not backed by any actual payment.
As the losses increased and transparency declined, it became clear that the previous approach no longer reflected real economic relations. That is why § 74b ZDPH was introduced in 2025 — a mechanism designed to close the gap between documentation and payment, and to tie the right to a deduction to actual performance of the transaction.
Since 2025, a fundamentally new approach has applied in the Czech VAT (DPH) system: the right to a deduction no longer arises automatically upon receipt of an invoice. Now, it is based not only on the presence of a correct tax document, but also on the actual fulfillment of the obligation — that is, the payment for the delivered goods or provided service. If the obligation is not fulfilled within the statutory period, the previously claimed deduction must be corrected and returned to the state.
This mechanism makes the deduction system more transparent and aligned with actual cash flow. The state no longer refunds VAT in situations where a transaction has not been financially completed. The tax benefit is granted only if the taxpayer has genuinely paid the invoice and fulfilled all obligations under the transaction. If payment is received later, the right to the deduction is reinstated — but not retroactively, rather in the tax period when the obligation was actually fulfilled.
To reinstate the deduction after payment, the company must have proof of payment and properly reflect the transaction in its tax reporting for the relevant period.
This approach effectively prevents abuse, particularly in situations where deductions were used as a way to obtain advance financing from the state budget. The new principle blocks the ability to claim deductions on fictitious, postponed, or unfulfilled transactions. It encourages market participants to maintain payment discipline, eliminates gaps between documentation and real payments, and makes the business environment more transparent and stable.
The new §74b does not apply to all transactions, but only to those where a VAT deduction was previously claimed and where the principle of “no payment — no deduction” is relevant. The provision applies to:
If all of these conditions are met simultaneously, the recipient is required to monitor the actual payment and, if necessary, return the claimed deduction within the time limits set by law.
The new §74b ZDPH does not apply to all types of VAT transactions. The law explicitly defines cases where the obligation to return a VAT deduction due to non-payment does not arise. It is important for taxpayers to understand the limits of this provision to avoid excessive or erroneous corrections.
Key exceptions include:
In addition, §74b only applies to transactions with a tax point (DUZP) on or after 1 January 2025. Transactions with a DUZP before this date continue to follow the previous rules.
It is also important to note that the new provision does not apply to transactions that are not eligible for VAT deduction (nárok na odpočet). In such cases, the issue of returning a previously claimed deduction does not arise.
The new mechanism established by §74b ZDPH is mandatory for all VAT payers without exception. The law does not differentiate taxpayers by legal form, business size, or accounting method — the obligation to adjust the deduction in case of non-payment applies equally to everyone.
Specifically, this includes:
Thus, §74b ZDPH introduces a unified, universal standard: the right to deduct VAT is now inseparable from actual performance of the obligation. This creates a more transparent and level playing field for all market participants.
The introduction of § 74b ZDPH changes not only the procedure for handling VAT deductions, but also the behavior of market participants. The new mechanism directly links the right to deduct VAT with the actual payment, transforming payment discipline from a purely commercial issue into a tax matter.
First, the rule encourages companies to settle invoices with suppliers more quickly. A delay in payment now means not only the risk of damaging business relationships, but also the obligation to return a previously claimed deduction. This makes late payments significantly more costly for the taxpayer.
Second, businesses are motivated to reconsider standard payment terms in contracts. Long due dates (splatnosti) increase the likelihood that the obligation will fall under § 74b, prompting companies to shift toward shorter and more manageable payment periods or to use advance and milestone payments.
Third, the VAT deduction becomes not declarative but “real” — it must be supported by actual payment. This levels the playing field for companies that maintain discipline and eliminates the advantage previously held by those using formal deductions without actual settlement.
Finally, the new mechanism requires companies to implement systematic debt control. Without tracking due dates, monitoring overdue payments, and conducting regular reconciliations, the risk of non-compliance rises. Many firms are already adapting their processes: creating overdue obligations registers, implementing automated reminders, and strengthening coordination between accounting, sales, and finance departments.
To understand the significance of the VAT reform, it is important to compare how the approach to deductions changes before and after the introduction of § 74b ZDPH.
Before 2025:
From 2025:
Thus, the system moves from a more formal, document-based approach to a model where the right to deduction is closely tied to the actual execution of the transaction and payment discipline.
Venera Service Delivery s.r.o. assists businesses in adapting to the new legal requirements under § 74b ZDPH, effective from January 2025. We conduct audits of internal payment discipline, set up monitoring of due dates (splatnosti), help revise contractual terms, and eliminate errors that may lead to VAT deduction returns.
If you want to minimize tax risks, preserve working capital, and operate confidently under the new rules — contact the experts at Venera Service Delivery.