What is a VAT-identified person?
A VAT-identified person is a hybrid between a non-VAT-registered business and a VAT payer. For Czech invoicing, they act as non-VAT-registered, while for cross-border transactions, they act as a VAT payer. Unlike a VAT payer, a VAT-identified person has fewer administrative obligations, but does not benefit from the right to deduct input VAT.
When do I become a VAT-identified person?
When trading in services, you become a VAT-identified person in these two cases:
- Buying a service from a company based in the EU or elsewhere in the world
The condition concerns the place of consumption of the purchased service. The basic rule is that you consume the service where you are established, which is in the Czech Republic.
One of the most typical examples is buying paid advertising on Facebook or Google, various software and antivirus programs, or subscriptions to Zoom, Skype and other services. Most of these providers are based in Ireland, the Netherlands or America.
- Selling a service to a customer based in the EU (not elsewhere in the world!)
Here too, what matters is the place of consumption of the service, which in this case is outside the Czech Republic. Essentially, this is the reverse of the situation described in point 1.
Typical examples are again sales of IT, marketing and other services. If your client is a registered business in the EU outside the Czech Republic, pay attention. I most often encounter surprise that invoicing a Slovak company also needs to be addressed. Yes, it does.
An exception is invoicing a non-business customer: in that case, you treat the invoice as domestic Czech invoicing, wherever that customer is based. Another exception concerns services generally exempt from VAT (in most countries, primarily healthcare, financial or postal services).
I have discovered I am a VAT-identified person – what now?
You must submit your registration for this scheme within 15 days of the first transaction (receiving an invoice from abroad, whether EU or non-EU, or issuing an invoice to the EU, not outside it). You can register yourself using the online form on the Ministry of Finance website. I always recommend attaching the relevant invoice that triggers your registration. If you need help registering and would also like ongoing administration of your VAT-identified status, contact me! 🙂
What obligations do you have afterwards?
For clarity, let us divide them into two situations:
- Buying a service from a company based in the EU or elsewhere in the world
By the 25th day of the month following the month in which you bought the service, you must submit a VAT return and pay 21% VAT on the service. This means the service costs you 21% more, as you must hand this “surcharge” to the Czech tax office. If you keep tax records, the VAT paid is an expense for you.
- Selling a service to a customer based in the EU (not elsewhere in the world!)
By the 25th day of the month following the month in which you sold the service, you must submit an EC Sales List. This report simply “tells on” your customer. Essentially, you tell the Czech tax office: last month, I supplied this customer with a service for this amount. Why? Because the Czech tax office passes this information to the relevant tax office where your customer is based. That office then checks whether your customer paid VAT on your invoice, just as in point 1. What matters for you is that you only report the transaction – you pay nothing in this situation!
If, in one month, you both invoice an EU customer and buy a service from the EU or elsewhere, you naturally submit both a VAT return and an EC Sales List.
Does the same apply to trading in goods?
You can also become a VAT-identified person when trading in goods, but the conditions differ, and that is a topic for another article. 🙂
As a non-VAT-registered business, it is important to watch out for these cross-border service transactions, but you do not need to avoid them deliberately. If you are unsure what to do, please get in touch and we can look at it together. 🙂