Selling goods through an e-shop is a fast and popular form of trading. From the point of view of value added tax (VAT), this form does not require any special adjustment. Nevertheless, its operation has some specifics that need to be known and respected. Here are three areas that you should know about with regards to VAT and running an e-shop in the Czech Republic:
1. VAT registration and regimen
- In order to operate an online store based in the Czech Republic (domestic), where your customers are mainly non-domestic buyers from both the Czech Republic and the EU, it is essential for you to register for VAT and then to set the VAT on the place of fulfilment.
- After establishing an e-shop based in the Czech Republic, it is necessary to monitor the turnover for VAT registration. Registration is mandatory after exceeding the turnover of 1 million CZK from domestic deliveries in 12 calendar months. If it is advantageous for you, you can also register voluntarily, for example, when your major customers are business taxpayers. After registration, the e-shop will become a full payer with the obligation to pay VAT on goods sold in the Czech Republic, while you will be able to claim tax deductions from your purchases.
- In addition to registering to be a full VAT payer, you may be required to pay VAT identification before you become a payer. Identification occurs when an e-shop purchases goods from another EU Member State and its value exceeds 326,000 CZK in a calendar year, or when an e-shop provides or receives services from an EU supplier more frequently (e.g. advertising, brokerage, electronics, etc.). As the identified person, you will be paying VAT on EU goods or services received from the EU, but you cannot deduct VAT from these transactions.
- If you are registered for VAT, the issue of VAT liability should be pointed out at the same time also. The institute of liability, in practice, means that there may be situations where the purchaser has to pay the unpaid VAT by the supplier to the tax office even if the purchaser has paid their obligations to the supplier properly. In this case, the tax indicated on the tax document will be paid by the customer twice – once by the supplier and once by the tax office. However, this institute is limited to Czech VAT payers and domestic taxable transactions only.
2. The place of taxable supply
- If you become an e-shop payer of VAT, you have to distinguish between customers where the place of performance of the transaction is to be sold to the customer in question. If the place of performance is located within the country, the domestic tax rules will apply. Otherwise, the state of the place of performance will apply.
- If the customers of your e-shop pick up items in a domestic store or are sent to domestic addresses, the local delivery mode applies and sales are subject to Czech VAT. In the case of the sale of goods sent to customers (non-business) to the EU, the applicable “EU shipments” procedure is used to determine the place of performance. This specific placement scheme may be understood as a supply of goods from one Member State to another Member State for a customer for whom the acquisition of the goods is not subject to tax, i.e. the supply of goods to non-business customers.
- For the purpose of determining the place of performance, the value of the goods sent to another EU country is followed, i.e. the value limit for the calendar year that the States have set between themselves. If the value of the goods sent in the period does not exceed the limit of the country of destination, then the place of performance shall remain in the State of dispatch. After the limit is passed, the place of delivery is the state of delivery and your e-shop must register for VAT in the state of destination and taxes that apply there. Conversely, for EU-based e-shops, the limit of CZK 1,144,000 per year applies when sending goods to non-businessmen in the Czech Republic. Once this limit has been exceeded, an EU-based e-shop has to become registered in the Czech Republic.
- The registration can also be voluntary for this mode without exceeding the value limit of the delivered goods in the state of delivery. These limits do not apply to excise goods. For these goods, the place of delivery is always considered to be the country where the delivery ends and is associated with immediate registration. We recommend voluntary registration in the state of the purchaser if this country has a lower VAT rate than the state of the supplier or if the supplier has become an “identified person” without the right to deduct.
3. Electronic revenue register
- Finally, a note on the newly introduced electronic revenue register (EET) in the Czech Republic. From March 1st, 2017, the mandatory electronic sales records are valid when selling goods. This applies to all receipts received in cash or by wire transfer, e.g. by credit card, by mobile or via payment gateways on the Internet. As a Czech e-shop (taxpayer), you must register all sales in the EET, i.e. also the sales earned abroad.
- According to the records of sales receipts, the receipts are recorded at the moment of realisation of the recorded sales at the latest. You can register your sales and issue a bill, but you can also set it, for example, to the delivery date. You can also post the bill in electronic form so you can send it to your customer, for example, by email.
- Also, remember that customers of your e-shop are legally entitled to reclaim the goods, not accept the goods or return the goods – and you must register such a “cancellation” of payments according to the EET!
Establishing and operating an e-shop is fairly simple and fast nowadays. In addition, e-commerce knows no boundaries, so it is easier to trade outside the borders of your country. Unfortunately, the tax rules know these borders so I recommend that you monitor not only the developments in the Czech Republic, but also in the countries you most frequently trade with – relying on knowledge of the local environment in the field of e-commerce is simply not enough.
Jaroslava Cihelková – jaroslava.cihelkova@moorestephens.cz
