What was approved?
From 1.7.2021, the threshold for supplying goods and services to end customers in the EU was unified. Previously, this threshold applied only to TBE services — telecommunications, broadcasting and electronically supplied services. It will now cover both goods dispatched to customers in other EU states and services with a place of supply in other EU states. A new single threshold of EUR 10 thousand also applies to sales of goods and services to all EU countries combined! In other words, the total across all EU states.
I do not want to alarm half the business owners providing services to EU businesses, or other services whose place of supply is the Czech Republic. The services discussed here are only services supplied to end users, meaning non-business customers, private individuals. Even if you supply a service to an end user, that does not necessarily mean it counts towards these thresholds. You must always determine the “place of supply of the service”.
That sounds complicated, and if you are unsure, a suitable accountant or tax adviser will be happy to help. All I can say is that it basically covers services connected with property, transport of passengers in the EU, services connected with cultural, artistic, sporting, scientific, educational and entertainment events held in the EU, long-term hire of a means of transport actually used in the EU, and of course the previously mentioned TBE services (telecommunications, broadcasting and electronically supplied services). This may include, for example, selling software and computer games.
How did it work before?
To explain the change, it is important to know the previous situation. The threshold for services is not changing. The main changes concern goods. If you dispatched goods from the Czech Republic to end customers, you had to know the limits in each destination state. These could differ — Germany, for example, had EUR 100 thousand, Slovakia EUR 35 thousand and Poland PLN 160 thousand. In the Czech Republic, you were a non-VAT payer, a VAT-identified person or a VAT payer under the usual conditions. Abroad, you monitored local thresholds and, once you exceeded one, had to register as a local VAT payer in that state, issue invoices with local VAT, file VAT returns there and pay it. Quite complicated.
So what is changing?
These changes to EU supplies of goods significantly reduce the registration threshold. Notice that whereas previous thresholds were equivalent to around CZK 900 thousand or more, the single threshold is now equivalent to CZK 260 thousand.
Countries can no longer be assessed separately either. You now add goods and services supplied to end customers in all EU states together. Once the combined total exceeds EUR 10 thousand, you must register for VAT in every relevant state.
As if that were not enough, you monitor the EUR 10 thousand threshold for both the entire previous and current calendar years! This means that if you have been supplying this way for some time and, for example, last year did not exceed local thresholds but did exceed the new EUR 10 thousand threshold, registration from 1.7.2021 applies to you too! It makes no difference how you are doing this year. From 1.7.2021, all your EU invoices must account for foreign VAT.
This is where the newly introduced OSS scheme comes in. Instead of registering for VAT in every country and going through bureaucratic hell, you can register just once, in the Czech Republic.
One Stop Shop — OSS
Up to EUR 10 thousand, you supply to the EU as if selling goods to Czech individuals. In other words, without VAT if you are not VAT-registered, or with Czech VAT if you are. Once you exceed EUR 10 thousand, you must begin invoicing with foreign VAT. Invoices will no longer be without VAT or with Czech VAT, but with the VAT applicable in the destination state. One option is to register for VAT in each state and arrange everything locally.
Another solution is to register for OSS in the Czech Republic. If you use this option, you file a quarterly OSS VAT return reporting what you supplied to each state, its value and the local VAT amount. This VAT is paid in EUR to the Czech tax office (Brno I administrator), which forwards it to the foreign tax offices. This saves you all the foreign administration. The drawback is that you must already be a VAT-identified person or a VAT payer in the Czech Republic before registering for OSS. You therefore need to anticipate the thresholds and in advance be able to respond.
I want to register for OSS: how does it work?
Registration for this scheme was available from 1.4.2021. The system has operated since 1.7.2021.
In my view, the new scheme significantly reduces bureaucracy and costs for cross-border transactions. However, I think its record-keeping is advanced accounting, and I recommend contacting a good accountant to manage it. 🙂
If you are unsure, do not hesitate to get in touch and we will look at it together. 🙂