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When does a VAT non-payer become an identified person?
In practice, clients often encounter invoices issued by companies from the European Union such as Microsoft, Google, Facebook, etc. In most cases, clients who do business and are not VAT payers have no idea that they may be subject to VAT law, registration obligation and obligation file a VAT return. If you purchase services or goods from a VAT payer from another EU member state, or, conversely, you invoice for the supply of services or goods to a VAT payer to the EU, this article is for you.
Since 2013, there has been a special institute of an identified person (VAT) in the VAT Act, which, although it remains a non-payer of VAT for domestic transactions, is obliged to register for transactions received or carried out within the European Union.
The purpose of the status of an identified person is to apply the principle of transfer of VAT liability between a supplier and a customer who are located in other EU Member States. The non-payer of VAT, as the identified person, starts to buy VAT from VAT payers in the EU and is obliged to assess the Czech VAT (at the appropriate rate) and pay the amount to the relevant tax administrator (Tax Office). This does not necessarily mean that this VAT non-payer as an identified person pays some extra VAT, because the total amount invoiced by the EU supplier is reduced by the value of foreign VAT (he practically buys without VAT, but he assesses the VAT himself in the return). Instead of paying VAT in the purchase price of the service or goods (the price invoiced by a VAT payer from another Member State), the non-payer of VAT as an identified person pays this VAT in the Czech Republic to the Tax Office. In essence, it only shifts the payment of VAT from the payment to the supplier in the EU to the payment to the Czech tax office.
Likewise, a Czech non-VAT payer becomes an identified person if, on the contrary, he provides services to a VAT payer in another EU Member State.
Characteristics of the identified person for VAT
- These are entrepreneurs who are not VAT payers and acquires goods or services to or from the European Union or third countries.
Conditions for the creation of an identified person for VAT
- Acquisition of goods - the total value of acquired goods exceeds CZK 326,000 excluding VAT per calendar year.
- Acquisition of services - when the service is received (Google, Facebook, etc.) or the acquisition of goods with installation or assembly (SW from abroad) from abroad, where the place of performance is domestic, it does not matter the amount of performance.
- Provision of services - for a provided service with a place of performance in another Member State of the European Union (EU).
Obligations of the identified person for VAT
- The person identified for VAT is obliged to report to the Tax Office within 15 days of finding out this fact, where he will be assigned a VAT number, which he will use when issuing tax documents and as part of his identification in tax returns.
- The registration will be made using the same form as regular VAT payers, only the person identified for tax will check in the header in the type of registration.
- The identified person files a VAT return only in cases where he provides a service to a VAT payer in another EU Member State or when he obtains a service or goods from a VAT payer from another Member State. If she does not incur a tax liability in that month, she does not file a zero tax return, as ordinary VAT payers.
- In domestic business, it acts as a non-payer of VAT, ie it does not apply output VAT to its domestic invoices. The identified person, unlike the VAT payer, never submits a Control Report.
How does it work in practice?
Both the VAT payer and the identified person must file a VAT return for the relevant transactions, stating the VAT number (VAT identification number) of the counterparty. If a VAT payer from another EU Member State invoices his service to a Czech identified person, he will report this transaction in his return. As the Czech identified person is obliged to self-assess VAT from this received invoice (calculate Czech VAT and pay it to the Czech Tax Office) and report this transaction again in his tax return, this same transaction will be subject to automatic comparison by the tax authorities on the supplier and customer side. If the supplier reports the provision of this service to the Czech Republic, but the Czech identified person does not report this accepted service in the declaration, a request from the Tax Office will come to the Czech identified person in a few weeks or rather months.
The foreign supplier from the EU therefore invoices without VAT and the Czech customer must assess VAT on this transaction and pay it to the Tax Office.
The same principle of so-called self-assessment also works between VAT payers from other EU member states, with the difference that VAT payers can claim self-assessed VAT (on the other hand, they must charge Czech VAT for their services or goods in the Czech Republic).
Checking international VAT numbers is possible in the VIES system at this address, where everyone can test that the VAT number of the supplier or customer is correct, ie that he is registered as a VAT payer or an identified person:
http://ec.europa.eu/taxation_customs/vies/?locale=cs
Our recommendation
In practice, we find that entrepreneurs order services from the EU as non-taxable persons (ie as non-entrepreneurs) or companies (s.r.o.) do not make mandatory registration as identified persons. As part of tax audits, we have met several times with the initiation of tax proceedings, which consisted in the re-registration of the identified person and in the additional assessment of VAT, including accessories (interest on arrears, etc.).
Clients who have foreign transactions are always advised to check whether received or issued invoices should not be part of the identified person's regime. If the client has become or is becoming an identified person, we register the identified person and explain all related circumstances. From an administrative point of view, the client does not even feel the impact of the identified person on himself.
A typical example where we have dealt with the registration of an identified person in large numbers is the issue of Airbnb with the provider. If you have an Airbnb account and only one customer reservation has been made (resulting in a service charge to the Airbnb platform based on their invoice), you have become an identified person and should register with the Tax Office.
Some sample examples
Example 1
The businessman purchases lathes from Germany for his activities. In the last year, he bought them for a total of CZK 295,000.
Because the entrepreneur has not exceeded the limit of CZK 326,000 per year, he is not obliged to register as an identified person and therefore does not have to pay VAT.
Example 2:
The entrepreneur purchased technical equipment with accessories in Austria for more than CZK 360,000 for his activities.
As he exceeded the limit of CZK 326,000, he becomes an identified person by purchasing this equipment, so he must register as an identified person and pay VAT.
Example 3:
The businessman imported clothes from the USA for sale worth CZK 650,000.
By importing goods from a third country, the entrepreneur does not become an identified person or a VAT payer. Value added tax is collected by the customs office when the goods are cleared through customs.
Example 4:
The entrepreneur pays CZK 1,300 per month for his business at Google.
Google is registered for tax in Ireland, and because the entrepreneur received the service in the country from a non-resident, he becomes an identified person and is required to pay VAT.
Do not hesitate to contact us if you need to assess your situation or provide an explanation.
Thank you.
Your TrimmTax team
