When does a VAT non-payer become an identified person and how to do it?
Even if you are not a VAT payer in the Czech Republic, be careful when trading with foreign countries. You may be obliged to register as an identified person.
WHO MUST REGISTER AS AN
In short, an identified person (IP) is a VAT payer only for cross-border transactions. As an IO, you get your VAT number, but unlike VAT payers, you only report and pay the tax and are not entitled to input tax deductions.
You become an identified person if, for example:
- you receive services from a foreign company, either from within the EU or from a third country,
- you provide ("sell") your services to businesses in other EU countries,
- you buy goods from other EU countries worth more than CZK 326,000 in 2 consecutive years.
This may sound too abstract, so we have some examples for you. Typical situations that would trigger an identified person filing requirement might be:
- you use social media advertising for your business,
- you earn revenue from Google AdSense banners on the site,
- you have purchased a foreign online course,
- you pay for graphic programs (e.g. Canva) and other online services (e.g. Mailchimp),
- and many other similar services.
OBLIGATIONS OF THE IDENTIFIED PERSON
If you use anything on the list above for business purposes, you must register as an identified person. This only applies to you if you are not a VAT payer. You only become a VAT payer when you have a turnover of more than CZK 1,000,000 in 12 consecutive months. We always recommend discussing your specific situation with a tax specialist.
REGISTRATION OF AN IDENTIFIED PERSON
The first obligation of an identified person is to register within 15 days from the date of receipt or provision of the service or when the value of the goods purchased exceeds the value. You will use the EPO Tax Portal form. In the list, select the form "Application for VAT registration valid from 1 January 2015", start the wizard and select the identified person in the first step. You can attach the invoice for which you have incurred the registration obligation.
TAX RETURN AND SUMMARY REPORT
Send the VAT return to the tax office within 25 days after the end of the calendar month in which the obligation to declare the tax arose. You do not file it if you have no reason to do so in that month (you did not provide or receive a service from abroad, purchase goods, etc.).
The VAT return form can again be found on the EPO Tax Portal. The return must always be sent electronically. You can do this by:
- via data box,
- using an electronic signature,
- without the use of an electronic signature (you bring the printed confirmation of electronic submission to the tax office - it applies only to self-employed persons, legal entities must communicate with the authorities via a datapad).
Tips for completing the VAT return of an identified person: the acquisition of goods and the receipt of services from EU countries should be entered on lines 3-6, and the receipt of services from non-EU countries on lines 12-13.
Another common obligation is the VIES summary report, which you submit for months in which you have provided a service with a place of supply in another Member State, i.e. you invoiced an EU business. Send it electronically within 25 days after the end of the calendar month.
NON-TAXPAYER AND FOREIGN INVOICES.
HOW DOES IT LOOK IN PRACTICE?
- If you are receiving services from abroad, you will provide the other party with your VAT number, which you obtained when you registered as an identified person. You will receive an invoice without VAT, file a tax return and pay VAT to the tax office. This applies to services from both EU and non-EU businesses.
- On the other hand, if you sell your service to a company from another member state, you invoice the same as in the Czech Republic with zero VAT. The invoice must contain your VAT number and the customer's VAT number and he will pay the tax in his country. You have to fulfil your administrative obligations in the Czech Republic (file a tax return and a summary report). For invoicing to third countries, you do not deal with VAT or IO status.
VOLUNTARY REGISTRATION FOR VAT
In the Czech Republic you pay VAT, but you cannot claim a deduction because you are not a VAT payer. Therefore, think about whether it is more advantageous for you to register for the tax voluntarily.
However, VAT registration is not automatic. The tax office will ask you to provide a number of documents and the whole process will take a lot of time, unfortunately without a guarantee that you will actually become a VAT payer. We can help with voluntary VAT registration - we know what documents to prepare and we speak the language of the authorities. Contact us and we'll get started.
CANCELLATION OF THE REGISTRATION OF AN IDENTIFIED PERSON
You may cancel your registration as an identified person if: :
- You have not been obliged to declare tax on services received, supplies of goods or have not been obliged to submit a summary report in the last 6 months.
- You did not buy more than CZK 326 000 worth of goods from another EU country in this or the previous calendar year.
- You have ceased to carry out economic activity.
The cancellation takes effect the day after you request it.
NEED HELP WITH VAT? CONTACT US
Foreign trade and the issue of value added tax is not a simple matter. In this article we summarise the basic information, but it is not possible to describe every exception, of which there are, unfortunately, many.
The best way to do this is to use our tax consultancy services. We will take care of the issues related to the obligations of an identified person for you and, if you need, we can also advise you on voluntary VAT registration. Just fill in the contact form and we can get started!