At the TaxWise accounting firm, the same mistakes are made over and over again with new clients. Here are a few of them, listed in order of frequency.

Failure to Comply with the Registration Requirement When Purchasing Services

If you purchase services from the EU (most commonly Google and Facebook advertising), you are required to register as a VAT payer under Section 7a before the service is provided. You will then provide this number to your business partner, who will include it on invoices with a “reverse charge” notation. Upon receipt of the invoice, you must file a VAT return and pay the 20% tax by the 25th day of the month following the month of service provision. Failure to comply with the registration requirement will cost you €30, and failure to file a VAT return will cost you €60. If this applies to multiple months, you may be fined repeatedly.

Many business owners believe that if they pay for something with their personal credit card but use it for business purposes, they can avoid this obligation and, at the same time, not claim it as a business expense. However, this is not true. From the perspective of the state budget, the amounts involved are the same, but this results in a reduction in tax (VAT) and, at the same time, you forfeit the ability to classify these expenses as business costs (for income tax purposes). Nine out of ten business owners who do not have an accountant immediately upon registering their company in the commercial register fail to meet this obligation.

Cash Loans to Companies

The passage of the law on non-cash loans has regulated the possibility of lending money between a company and its managing partner. These transactions must be conducted exclusively by non-cash means. This means a transfer between accounts or a deposit/withdrawal by the entrepreneur to/from the company’s bank account. If you borrow money from the company, you are considered related parties, and you must proceed in accordance with Section 2 of the Act in conjunction with Section 18 of Act No. 595/2003 Coll., the Income Tax Act. Market rates are required; therefore, you must set a market interest rate and subsequently pay tax on the interest.

VAT Listed on Invoices for Non-VAT Payers

If you are not a VAT payer, or if you are a VAT payer under Section 7 or Section 7a, you do not include VAT on your invoices. If you incorrectly state VAT on an invoice, you must proceed in accordance with Section 69(5) of Act No. 222/2004 Coll. on VAT. This incorrectly stated tax must be paid to the tax authority even though you are not a VAT payer.

Cash Register in the Red

A common mistake made by business owners who pay a lot in cash is that they purchase goods and services for more money than they actually have on hand. From an accounting perspective, this is a fairly serious mistake that needs to be addressed. There are at least two solutions:

• Goods and services that have already been purchased are recorded as payments to shareholders, thereby creating a liability to the shareholder/managing director
• or, if such a situation is foreseeable, it is possible to provide a partner with an advance from the account for such purchases.

If the company is a VAT payer, there is an additional issue regarding the deduction of VAT. Under the Commercial Code, a person becomes the owner of an item upon payment. However, since a natural person is not a VAT payer—and therefore not a taxable person—when selling an item to the company, the company is not entitled to a VAT deduction under Sections 49 and 51. This problem can also be resolved, for example, through an internal policy stating that the managing director, or a partner, may purchase goods and services on behalf of and for the account of the company using a personal bank account or a personal debit/credit card. In such a case, the company becomes the owner at the time of payment and is liable to the managing director.

Incorrectly Calculated Turnover for Mandatory VAT Registration

If you achieve a turnover of €49,790 over 12 consecutive months, you must file for VAT registration under Section 4, paragraph 1 of Act No. 222/2004 Coll. by the 20th day of the month following the end of the month in which the turnover was achieved. A common mistake is that business owners assume the period always resets on January 1. However, it is always 12 consecutive months. For example, May 2019–April 2020, June 2019–May 2020, and so on… Another related mistake is that not every sale constitutes turnover for VAT purposes. This does not include exempt supplies, supplies to foreign countries, supplies without consideration, and certain other types of transactions.

Illegal Work

The obligation to register an employee with the Social Insurance Agency must be fulfilled no later than the start of employment. If you are a new company, you must send the employer and employee registration forms to the Social Insurance Agency (by certified mail) ideally the day before the employee starts work. If your company is already registered and you have set up electronic services, the registration is done electronically. Of course, you should ask your accountant to handle this for you. If you fail to meet the deadline, you risk fines from the Social Insurance Agency for each day of delay, according to their fee schedule. However, the Labor Inspectorate imposes even higher fines and can fine you as much as €2,000 for even a single day of delay.

The vast majority of these errors can be prevented in one of the following ways:

• Keep the books regularly (on a monthly basis)
• to have a qualified accountant who will oversee all obligations
• If you have plenty of time, you can study all the changes in the law and serve as both a business owner and an accountant, but it's better to leave that to an accountant