§ 74b of the Czech VAT Act (ZDPH) is now in force, and the question of “how not to return VAT” isn’t about finding loopholes—it’s about organizing your internal processes effectively. When invoices remain unpaid for too long, businesses are required to repay the claimed VAT deduction, which can directly impact cash flow.

In this article, you’ll learn how properly structured contracts, disciplined payment practices, accurate records, and robust internal controls can significantly reduce the risk of having to repay VAT on unpaid or partially paid invoices.

Why the New Rules Require a Rethink of Financial Processes

§ 74b of the Czech VAT Act (ZDPH) changes the entire approach to managing working capital. Previously, businesses could claim VAT deductions immediately upon receiving an invoice, without linking the deduction to actual payment. Now, the right to deduct VAT is retained only for the portion of the invoice that has been paid.

The mindset of “we’ll claim the deduction first, and the client will pay later” no longer works. Any delay in payment now automatically creates the risk of a VAT repayment, requiring the business to pull cash from its working capital and return it to the tax office.

This creates a direct chain:
Client payment discipline → Volume of unpaid liabilities → VAT repayment risk → Pressure on company cash flow.
That’s why the new rules call for a thorough review of financial processes and stricter payment tracking and control.

Internal Registers and Monitoring Payment Deadlines (Splatnost)

To minimize the risk of VAT repayment under § 74b ZDPH, companies need a dedicated and regularly updated register of payables. This tool helps track not only outstanding liabilities but also the approach of the six-month deadline (6měsíční limit), after which VAT deductions must be adjusted.

The register should include the following key fields:

• Invoice number
• Client name
• Total amount due
• Due date (splatnost)
• Actual payment status (úhrada)
• Six-month correction deadline for each invoice

Categorizing liabilities helps assess risks more effectively:

• Regular liabilities – still within the agreed payment term.
• Overdue liabilities (závazky po splatnosti) – require attention, but the § 74b deadline has not yet passed.
• Liabilities subject to § 74b – invoices nearing or exceeding the six-month limit and requiring VAT deduction correction.

A clear, structured register makes oversight systematic: the accounting team can see not only which invoices are unpaid, but also when exactly a specific invoice will trigger the obligation to adjust the VAT deduction.

Automated Reminders and Managing Overdue Payments

Effective control over payment deadlines is impossible without automation. Human error remains one of the main reasons companies miss payment due dates or the six-month threshold under § 74b ZDPH. That’s why a reminder system should function independently — without relying on accountants or account managers to remember key dates.

There are three critical points where automated reminders are especially valuable:

• Before the payment due date (splatnost): A proactive alert that payment is approaching, prompting the business to send a courtesy reminder to the client.
• Immediately after a payment becomes overdue: Enables quick follow-up, clarifies the reason for the delay, and helps reduce the risk of accumulating unpaid obligations.
• As the six-month limit approaches: This is a critical moment. If the debt remains unpaid, a VAT deduction correction (povinnost opravy) becomes mandatory. A timely alert ensures the company can prepare and avoid errors.

Any convenient tool can be used to manage this process: built-in reminders in accounting software, CRM systems, corporate calendars, or task managers. The key is ensuring the system works reliably and eliminates the risk of missing important deadlines.

Evaluating Clients’ Payment Discipline Before Starting Cooperation

With the introduction of § 74b ZDPH, the risk of working with a “bad payer” is no longer just a commercial issue. A client who consistently delays payments creates not only cash flow disruptions but also a direct tax burden: unpaid invoices may require the business to return the VAT deduction. In effect, an unreliable client becomes a tax risk.

To minimize this exposure, it’s essential to assess a client’s payment reliability before starting the business relationship. Key points to check:

• Payment history: Were there past delays and how long did they last?
• References from other suppliers: Are there reports or feedback about the client’s behavior from other vendors?
• Public registries: Check for records of outstanding debts, legal restrictions, or insolvency filings.
• Enforcement proceedings (exekuce): Any signs of financial distress or ongoing legal claims against the client.

A practical approach:

• For new or high-risk clients: set stricter terms — such as upfront payments, shorter payment deadlines, or installment-based invoicing.
• For established and reliable clients: apply standard or more flexible terms, as their payment discipline has already been proven.

By performing this type of due diligence in advance, companies reduce the risk of having to return VAT due to chronic non-payment by a business partner.

Shortening Payment Terms in Contracts

Long payment terms (splatnost) significantly increase the risk of VAT deductions having to be returned under § 74b ZDPH — for a simple reason: the longer a client is allowed to delay payment, the more likely the invoice becomes overdue and reaches the six-month limit. In such cases, the VAT deduction must be reversed, even if all supporting documents are correct.

Switching to shorter payment terms helps reduce the risk of triggering § 74b. If payment is due within 14, 21, or 30 days instead of 60–90, the debt is either settled faster or any overdue status is identified and addressed earlier.

Possible contract strategies include:

• Standard shorter payment terms: 14, 21, or 30 days to reduce the uncertainty period.
• Milestone-based payments: each project phase or delivery has its own price and due date.

These adjustments reduce the risk of VAT reclaims and improve the predictability and control of clients’ payment discipline.

Advance Payments and Proforma Invoices (Zálohové Faktury) as a Risk Mitigation Tool

Advance payments and proforma invoices (zálohové faktury) are among the most effective tools to reduce the risk of VAT deduction adjustments under § 74b ZDPH. When part of the total amount is paid upfront, the likelihood of large unpaid balances decreases — along with the risk of having to return VAT due to overdue invoices.

The logic is simple: if part of the price is covered by an advance, the remaining amount at risk of becoming overdue and falling under the six-month rule is reduced.

In practice, this can be implemented through:

• Upfront payments for new clients with unproven payment reliability;
• Partial prepayments for large orders to avoid building up a significant receivable with a single due date;
• Contractual clauses requiring advance payment before initiating work or delivery.

This approach reduces pressure on cash flow and keeps outstanding amounts within a manageable and compliant range.

Contract Terms: Penalties, Retentions (Zádržné), and Stage Payments

Well-structured contract terms are a powerful tool for managing payment discipline. They help reduce the risk of delayed payments and, consequently, the need to return VAT deductions under § 74b ZDPH.

Key mechanisms to include in contracts:

• Contractual penalties for late payment (smluvní pokuty.: Introducing financial penalties makes payment delays significantly less attractive for clients. Even a modest fixed fee or a small percentage of the overdue amount can be more effective than simple reminders.
  
• Retention (zádržné). A portion of the payment is withheld until obligations are fulfilled, and only if the main invoice has been paid on time. This reduces the risk of large unpaid balances.
  
• Stage payments with clearly defined due dates for each phase. Rather than issuing one large invoice, break down the contract into multiple smaller payments with individual due dates. This lowers the risk of accumulating significant overdue debt that would trigger a § 74b correction.

The main goal of these measures is to make late payments inconvenient and costly for the client, encouraging timely settlement and helping your business avoid VAT deduction reversals on unpaid invoices.

Best Practices for Accounting Teams

Effective implementation of § 74b ZDPH requires consistent internal oversight. Several accounting practices can help systematically track unpaid invoices and respond in a timely manner to high-risk situations:

• Monthly reconciliation of unpaid invoices. A must-have routine that includes reviewing all overdue receivables and checking invoices nearing or surpassing the six-month deadline. This reconciliation ensures timely identification of items requiring VAT deduction adjustments.
• Dedicated list for the six-month deadline. In addition to a general register of unpaid obligations, maintaining a separate list of invoices approaching or exceeding the six-month limit is helpful. Marking these entries with a “§ 74b risk” label makes it easier to visually identify critical items that may require correction.
• Monitoring of tax point (DUZP) and VAT regimes. It’s important to verify which transactions are actually subject to § 74b. Reverse charge transactions, certain cross-border services, or imports are excluded from the obligation to return VAT for unpaid invoices. Proper classification of these exceptions helps avoid unnecessary corrections and errors in the VAT return.

By implementing these practices, accounting teams can manage § 74b more predictably and significantly reduce the risk of VAT reversals due to technical or procedural oversights.

How to Structure Processes to Avoid Locking Up Working Capital in VAT

To minimize the risk of VAT refunds and protect working capital, a company must build a coherent, predictable, and transparent payment management process. While individual measures help, the best results come from integrating all elements into a single system.

Key components of an effective process:

• Contract terms. Short payment deadlines, milestone-based payments, penalties for late payments, and mandatory advance payments help shape responsible client behavior.
• Customer credit policy. Assessing a client’s financial reliability before cooperation, differentiating terms based on client categories, and tightening conditions for new or high-risk partners reduce exposure to payment defaults.
• Monitoring payment deadlines and the six-month limit. Maintaining up-to-date records, using automated reminders, and keeping a separate list of invoices nearing the six-month deadline all help ensure timely VAT corrections.
• Advance and milestone payment. Requiring partial prepayment reduces the total exposure and lowers the risk of triggering § 74b.

Ultimately, the goal is clear: the fewer overdue or unpaid invoices in the system, the lower the risk of VAT reversals, and the healthier the company’s cash flow — without placing unnecessary strain on working capital.

A sound business strategy doesn’t aim to “bypass” § 74b, but rather to structure client relationships and internal processes so that the need to reverse VAT deductions rarely arises. This approach strengthens both tax compliance and the company’s financial resilience.

How to Minimize VAT Reversal: Key Takeaways for Businesses

The new VAT system requires more than just occasional adjustments; it calls for a complete overhaul of payment and contract management practices. The simple approach of “adjust the declaration when we remember” is no longer sufficient.

Companies that maintain debt registers, regularly monitor payment deadlines and the six-month limit, update contract terms, and introduce advances or milestone payments will face VAT reversals much less frequently. As a result, less capital will be tied up in this tax.

Managing unpaid invoices is no longer just a matter of convenience — it has become a critical part of business financial stability. Cash flow management under § 74b ZDPH has become one of the key elements of corporate financial management.

Professional Support for VAT and § 74b ZDPH Compliance

Venera Service Delivery s.r.o. provides expert assistance to entrepreneurs and organizations working with Czech VAT. We help establish internal processes that minimize the risk of VAT deduction reversals, avoid penalties, and ensure financial stability in line with the current Czech tax legislation.

Contact us if you need a reliable tax strategy, transparent obligation tracking, and full confidence in meeting all § 74b ZDPH requirements.