Areas of Strength
- Czechia has substantially reduced its VAT compliance gap in recent years. While the VAT compliance gap stood at 14% of the VAT Total Tax Liability (VTTL) in 2014, the latest available estimates for 2023 indicate a VAT compliance gap of 8%, which is below the EU average of 9.5%.
- In addition, Czechia’s VAT administration benefits from a fully online registration system, integrated with the One-Stop-Shop (OSS) and underpinned by updated IT systems introduced in 2025. Taxpayers have access to secure e-filing, with pre-filled forms and online services supporting compliance. Refunds are generally processed promptly, complemented by automated checks for suspicious claims. The tax administration has also adopted a compliance plan outlining key VAT risks, to guide monitoring and strengthen enforcement capacity.
- Overall, Czechia has in place an efficient tax enforcement system balancing targeted and risk-based controls, combined with proactive efforts to raise awareness and foster voluntary compliance among taxpayers. This approach seems helpful to contain the size of the shadow economy.
Areas for Improvement
- Data availability issues hamper further strengthening of Czechia’s tax expenditures monitoring and reporting system. Current limitations stem largely from insufficient data availability and the administrative burden associated to data collection for the tax administration. Tax expenditures mainly relate to the personal income tax (PIT) and VAT, with foregone revenues estimated at 29.1% of the government’s total revenues for 2023.
- There is room for improvement in Czechia’s tax recovery operations. Czechia has IT systems in place for managing VAT and tax arrears. There is scope for further use of dedicated digital tools to improve early detection of non-compliance and tax recovery performance. Tax arrears in Czechia are above the EU average, with a level of outstanding tax arrears amounting to 15.9% of the total net revenue in 2023. Recovery under mutual assistance remains limited with a recovery rate in 2022–2024 at around 4.7% of the amounts requested.
- Czechia could benefit from enhanced investments in the digitalisation of its tax administration to foster tax compliance and increase revenues. Czechia would benefit from a detailed roadmap outlining its strategy towards the implementation of digital transformation and Artificial Intelligence (AI) within the tax administration. AI and advanced analytics can better combat tax evasion and avoidance while improving fairness and cutting collection costs.
Tax Complexity
The Czech Republic ranks 17th out of the 27 Member States in the Tax Complexity Index (‘TCI’), where a higher rank corresponds to lower tax complexity. The TCI is based on the Global MNC Tax Complexity Project, a joint research project of Deborah Schanz (LMU Munich) and Caren Sureth-Sloane (Paderborn University). The TCI 2024 places Czechia 21st among the Member States with regards to Tax Framework Complexity, and 14th with regards to Tax Code Complexity. This may indicate that there is room to improve the tax processes carried out by the tax authorities (notably in the area of enactment, according to the authors) and, to a lesser extent, the structure of the tax regulations (particularly in the area of investment incentives, according to the authors).
The full Commission Staff Working Document of the Mind the Gap Report - Challenges and opportunities for tax compliance and tax expenditure in the EU regarding Czech Republic can be found here.
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