The place of deal and regulations on VAT payment when purchasing goods from other EU countries.
We will describe a turnover between the Czech Republic and other EU countries in this article. Although the same rules and regulations apply to all the EU countries, there are some nuances in the legislation of a particular country. Today we will look at the situation from the position of the Czech Republic in relation to all other member states.
Why is it important to define the place of a deal?
Depending on the place of a deal (město plnění), a country where it is necessary to recognize VAT, the rate of the tax and the procedure of paying it may vary.
Purchasing merchandise from the EU countries
By purchasing goods from another EU country according to the law on VAT payments is implied the acquisition of ownership of goods from a company or an entrepreneur registered as a VAT payer in any (except for the Czech Republic) EU country, or having the obligation to register after this delivery if the goods are actually moved from another EU country (except for the Czech Republic) to one of the EU countries. The Czech Republic in this case will be logically excluded as a sender country.
Sounds a bit complicated, doesn’t it? Let us elaborate the main theses:
- we purchase goods from another EU country (not from the Czech Republic that is why it is excluded);
- a seller either already is registered as a VAT payer in the country of residence or will be obliged to register (trade between two VAT payers);
- merchandise should be moved from the seller country to another EU country: the Czech Republic or another member state (except for the seller country).
What does not apply to the acquisition of goods from the EU
- delivery of goods with installation;
- supply of goods by networks (gas, electricity, etc.);
- sale of goods to EU citizens (dispatch of goods, from Czech zasílání zboží);
- transfer of company property between EU countries, according to §13 paragraph 7 of the Law;
- purchase of returnable packaging.
Place of responsibility
The VAT place of responsibility when purchasing goods from the EU countries is described in §11 of the VAT Law.
Paragraph 1 of §11 of the VAT Law unambiguously establishes that when goods are purchased from another EU country, a VAT should be paid by an EU country where the delivery of goods was completed, i.e. the goods were transferred to the customer.
A Czech company ‘Prague’ purchases goods from a German company ‘Berlin’. The customer company ‘Prague’ provides its VAT number (Czech. DIČ) to the seller company ‘Berlin’ which will supply an invoice without VAT, reassigning the tax obligation to the customer. The company ‘Prague’ should recognize VAT in the Czech Republic as the delivery was completed in this country. In this case the ‘Berlin’ company will be released from the VAT payment on this deal. Moving the merchandize from Germany to the Czech Republic is an obligatory condition.
The customer can move a purchased product not only to the country of its registration (an EU country where one has a VAT number), but also to a different member state where ones economic interest may lay.
The paragraph 2 of §11 of the VAT Law prescribes that in the case when the delivery of the purchased goods does not end in an EU country which assigned the VAT number to the buyer of the goods and the buyer did not confirm that s/he recognized the VAT in the country where the delivery of goods was completed, the place of fulfillment will be the EU country that assigned the VAT number to the customer. Moreover, the buyer only has the obligation to recognize VAT in the country of one’s registration as a VAT payer, but in this case one does not receive the right to claim a VAT refund since according to paragraph 1, s/he is obliged to recognize this tax in an EU country where the delivery of the goods was actually over.
A Czech company ‘Prague’ purchases goods from a German company ‘Berlin’. The goods will be delivered from Germany to France. A customer will provide a seller with the VAT number; the seller will send the invoice without VAT reassigning tax obligation to the Czech company. The ‘Prague’ company gets the obligation to recognize VAT in the country where the delivery was completed, i.e. in France. If ‘Prague’ is not registered as a VAT payer in France, i.e. does not fulfill its obligation, it will be obliged to recognize VAT in the country where it was registered, in the Czech Republic. The fact that the customer recognizes VAT in the Czech Republic does not negate one’s obligation to recognize VAT in the country where the delivery of goods was completed – in our case, in France – and the French tax authorities will demand that this obligation is fulfilled and VAT paid to their budget.
What to do:
In case you had to recognize and pay VAT in the Czech Republic and later you fulfilled the legal obligation in the country where the delivery of goods ended, you can claim the refund of the VAT paid for the second time.
According to paragraph 3 of §11 of the VAT Law, the customer company that fulfilled the conditions of paragraph 2 (recognizing VAT both in the Czech Republic and in the country where the goods were delivered) has the opportunity but not the obligation to reduce the tax base in the Czech VAT tax return in the amount with which VAT was recognized in the country where the delivery of goods was completed – in our case, in France.
Speaking of the concept of “Trilateral transaction in the EU trade”, the Law implies the sale of goods between three VAT payers from three different EU countries, and merchandize moves immediately from the first seller to the last customer.
Paragraph 4 of §11 of the VAT Law establishes the place of deal for trilateral trade. It is determined by the end-customer in the EU country where the delivery of goods was completed under the condition that the last buyer recognized and paid VAT in the country where the delivery of goods was finished, and the mediator company filed a summary report where the VAT number of the end-customer is indicated. In this case the mediator company does not have an obligation to recognize VAT in the country of its registration, although it provided the seller with its VAT number.
A Czech company is a mediator in the trilateral contract. The merchandize will be sold by a German company and delivered right to the end-customer to France.
Despite that the Czech company mediator acts as a customer in this deal, it will be released from the obligation to recognize VAT in the Czech Republic under a condition that the end-customer in France recognizes and pays VAT in this country and the Czech company filed a tax report where the VAT number of the French company is indicated. The accounting firm ‘DoMyTax’, that provide service for the Czech mediator company, will only reflect this transaction in the appropriate lines (30, 31) of the VAT tax return.
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