What is the VAT regime for the lump-sum reimbursement of employer’s costs for administration of distraints?
Employers who make deductions from wages to their employees due to a writ of execution are now entitled to a lump sum reimbursement of related costs, in the amount of CZK 50 per calendar month and each employee who is subject to execution, regardless of the number of executions or distraint procedures. However, this lump sum compensation belongs to the employer only for executions that have been ordered after January 1, 2022, and it can only be collected at the same time as the execution deduction is made, not later.
Still, the VAT regime for this lump sum reimbursement remains an open question for the time being. This issue is the subject of negotiations between the Chamber of Tax Advisers and the General Financial Directorate (GFD). The GFD originally proceeded from the assumption that this was a taxable transaction with the obligation to return output VAT from it. However, based on the latest information, we expect the final opinion that the lump sum compensation is not subject to tax because it is not a product of an economic activity. In our opinion, this conclusion is logical and, at the same time, really serviceable from the point of view of the manageability of value added tax. We will, of course, inform you about the final result.