Costs to rise for services from abroad after EU accession

While the halls of Parliament continue to rumble with tax talk, domestic banks are abuzz figuring how to work the higher costs into their budgets. On Jan. 1 domestic services such as telecommunications, legal help and consulting were shifted from the 5 percent value-added tax (VAT) bracket to 22 percent, costing financial institutions hundreds of millions of crowns. With European Union entry May 1, VAT payers will be required to pay the VAT for professional services they buy abroad, which currently come tax-free. The government coalition last month agreed to propose an amendment that will lower the VAT to 19 percent. Still, businesses such as banks, whose own services are not subject to the tax hike, are facing an especially hard hit. Most banks have thus far been able to avoid the higher tax by purchasing VAT-subject services from their multinational owners. "Advertising, software, marketing and human resources were previously bought by Czech banks from their parent companies, and taxes were not paid for them," Milan Tomisek of KPMG told the Czech News Agency. The Czech Republic is one of the few states not to apply this import-services charge, but it is a common practice in EU member states and in some accession states.