Updated 30.3.2023

What is turnover?

Turnover is the total of your “income” over a given period. For VAT, that means 12 consecutive months. Be careful: this is not a calendar year, but actually 12 consecutive months — for example, August 2022 to July 2023. It is a rolling period. 

What counts towards VAT turnover?
  • Invoicing in a foreign currency

In most cases, turnover includes all invoices from your business — the value of invoices issued over the last 12 months. If you invoice in a foreign currency, convert the amounts into CZK at the Czech National Bank's daily rate.

  • Unpaid invoices and advance payments received

Unlike income tax, in this case it makes no difference whether your customers have paid the invoices. So if you are uncertain about payment from a client, it is better to issue a pro forma invoice first. A pro forma invoice is only a payment request saying “Pay!”. It is not an actual invoice that counts towards turnover. Nor do we count an advance payment received towards turnover!

  • Activities excluded from turnover

Turnover does not include a self-employed person's sales of tangible fixed assets, services provided abroad or certain specified services.

Sales of fixed assets make sense: imagine your turnover was around CZK 1,800 thousand a year and every now and then you bought and subsequently sold a car for, say, half a million. Illogically, this sale would distort your turnover and catapult you into VAT registration. 

The rule for providing services to the EU and elsewhere in the world is more complicated. It is based on the idea that a service is consumed where its customer is located (VAT is a consumption tax). Since the service is consumed in the EU or elsewhere abroad, it should not affect VAT in the Czech Republic. So if you are an IT specialist and your main client is in Slovakia, you do not count invoices issued to that client towards turnover. If you also work on smaller projects in the Czech Republic, compulsory registration only applies once you exceed CZK 2 million solely from services provided to Czech clients. This rule is very often overlooked. If you invoiced only your main client in Slovakia, you would not become compulsorily VAT-registered even if you invoiced 20 million over 12 consecutive months. However, your very first invoice makes you a VAT-identified person, but I have already written about that. 🙂

The specified services include postal services, television and radio broadcasting, upbringing and education, healthcare and supplies of medical goods, social assistance and gambling operations. In practice, I have only come across doctors. 🙂

  • VAT-exempt activities

However, there are activities on which no VAT is paid, but which count towards turnover. The most common are financial advice and property rental. Here you determine the turnover threshold differently. You add up all your income and register for VAT once you exceed the threshold. Subsequently, however, only activities that are not VAT-exempt are subject to VAT. 

Suppose you are the IT specialist mentioned above and your business income consists solely of invoices to Czech clients. You add that income to the rental income from the flat you inherited from your grandmother. If the total exceeds CZK 1 million over 12 consecutive months, you must register for VAT. However, as a VAT payer, you will pay VAT only on your self-employed activity. Rental will be VAT-exempt, and for that activity you will continue to “act as a non-VAT payer”.

How can you monitor turnover?

Most of my clients invoice using online software such as Fakturoid, which monitors this threshold for you. But if you issue invoices another way or want to keep these records yourself, an Excel spreadsheet is perfectly adequate. Always enter the invoice number, customer including company registration number, amount and issue date (and the payment date for income tax). I covered this topic in more detail in income records for income tax. 

When keeping these records, watch the rule of 12 consecutive months. Ideally, record your invoices in one table containing all invoices in sequence from at least the current and previous year. A simple total column will then let you monitor turnover for the past 12 months. This total is always calculated for whole months. To check whether you exceeded the VAT-registration threshold in October, add up all invoices issued from 1.11.2022 to 31.10.2023. 

Now comes the complication

I must also mention one crucial and slightly complicated issue. For some of you, calculating turnover by invoice issue date will not be accurate. In fact, income should be counted according to the date of supply.

If it is a one-off service or a sale of goods, the date of supply is the day it happened. This covers typical one-off services such as hairdressing, restaurants or shopping in a small shop — you immediately issue a receipt and count it towards turnover. That still seems clear enough to us all. 🙂

But more complicated situations can arise when you deliver a service over a longer period. If it is a one-off project, such as supplying building documentation, which may take several months, I would look at what the two parties agreed. If your agreement is that the supplier becomes entitled to payment when the project is submitted to the building authority, I would regard the day the final project is submitted as the date of supply. If the agreement is that the project will be delivered in stages , each followed by invoicing, the supply should occur on the day each individual stage is handed over.

However, some services can last several years. Accounting services, for example. I have clients with whom I work on a one-off basis, so the supply occurs on the day I provide the consultation. But I also have clients whose companies' accounts I handle monthly. In that case, I supply the service on the last day of the month, when I become entitled to my fee.

And this is where the twist comes. I may well invoice for October's service only in early November. So which month should I count that service in? From the text above, you have probably already realised that you follow the date of supply and therefore count it in October. If you work in a sector affected by this confusing invoicing, I can recommend two approaches. Issue invoices with the issue date equal to the date of supply. It does not matter if you give the invoice to the client a few days later. That avoids a mess. Or add another column to your records for the date of supply and use it to calculate turnover. 🙂

How does the timing work?

As soon as you exceed turnover of CZK 2 million, you must register for VAT within 15 days after the month in which you exceeded the turnover threshold. You then become a VAT payer with all the obligations the following month. So if you exceed turnover for October, you must register by 15.11. and become a VAT payer on 1.12.

There is no need to fear turnover. A simple spreadsheet is enough to monitor it. If you are unsure, do not hesitate to get in touch and we will look at it together. 🙂