Czech Republic – a VAT-friendly environment for foreign entities supplying goods
Jakub Vršecký
by Jakub Vršecký
Foreign entities considering supplying goods with a place of supply in the Czech Republic have various options when planning their tax obligations. These entities do not need to register for value-added tax (VAT) for every single transaction; instead, they can take advantage of the reverse-charge mechanism even for domestic supplies. Similar to other EU countries, foreign entities not registered for VAT in the Czech Republic can apply the reverse-charge mechanism[1] * in most common situations:
Supply of goods with a place of supply in the Czech Republic (typically when both dispatch and delivery occur within the country); and
Supply of goods involving installation or assembly;
Amongst others.
This regime is particularly beneficial for entities supplying goods with installation, or those importing goods into the Czech Republic only once with a high margin.
When supplying goods, two main options permitted by the VAT Directive can be considered when claiming Czech input VAT is necessary:
Voluntary VAT registration Currently, the Czech tax authorities do not heavily challenge VAT registrations for foreign entities. Our experience with the designated tax office for foreign businesses has been predominantly positive. However, it is crucial to plan transactions in advance, as the registration process may take up to 30 days (or even longer if supporting documents about the planned transaction are insufficient). However, a shorter time may be possible when using informal ways of communication with the tax office.A foreign entity that registers for VAT can claim VAT refunds, thereby accelerating VAT recovery (or directly reducing VAT due). While this approach is more favourable for cash flow, it requires careful planning. Additionally, foreign businesses are not required to file VAT returns if no transactions occur in a given month, allowing them to maintain registration without unnecessary costs.
VAT refund for CZ non-established entities This option is more suitable for foreign businesses engaged in one-off transactions. Currently, Czech tax authorities accept most supporting documents and generally do not dispute them even for larger transactions in this regime. However, as in other EU countries, proving VAT eligibility for accommodation and fuel expenses is more complex. While recovering VAT is relatively straightforward, it involves significantly longer processing time and, thus, higher cash flow demands. This regime is advantageous for last-minute transactions since business operations can proceed smoothly without prior registration. However, reclaiming input VAT takes longer.
In summary, supplying goods, including those involving installation or assembly (even with subcontracting), can be carried out smoothly in the Czech Republic. The system allows for flexibility in handling various situations, making the Czech market one of the more VAT-friendly environments for foreign suppliers.
[1] The reverse charge applies if the recipient is a VAT payer in the Czech Republic.
GGI member firmGrinex Czech RepublicPrague, Budweis, Carlsbad, Czech RepublicT: +420 222 516 889
Advisory, Auditing and Appraisals, Corporate Finance, Tax
Grinex Czech Republic provides its clients with a wide range of professional services. The firm makes comprehensive evaluations of the businesses of its clients, and draws on the expertise of its professionals to offer the best solutions available.
Jakub Vršecký, Senior Consultant at Grinex Czech Republic, leads the tax team at Grinex and has provided TP documentations to enterprises including finance, automotive and others. Thanks to his compliance and transactional background, processing set up and post implementation of transfer pricing rules can be part of TP projects in the Czech Republic. Contact Jakub.
