Supplies of goods (paintings, photographic prints, statues) and supplies of services (a performance by a dancer or an actor) in the course of business on a domestic market in exchange for a remuneration are liable to the value added tax (as defined in section 2 of Act 235/2004 Sb., on Value Added Tax, as amended).
To find out whether and when to charge VAT for the supply of goods and services in the Czech Republic, we recommend asking the following three questions:
Is the VAT charged with the price? Is the supply of goods liable to VAT? Or is the transaction exempt from VAT?
Some supplies are exempt from VAT. The VAT Act draws a distinction between two types of exemptions, depending on whether the tax may be deducted in the transaction or not. The relevant categories are described in detail in sections 52 through 71 of the VAT Act. So, for example, under section 61(e) of VAT Act, a supply of cultural services and goods closely associated with such services by an administrative region, municipality, public corporation established by law, a corporate entity set up by the Ministry of Culture of the Czech Republic or a not-for-profit or a non-business organisation is exempt from VAT without giving rise to deductibility. This type of exemption is available only to certain types of entities that supply the goods and services, such as to theatre companies or to organisations that receive contributions from the State Budget, whose principal activities are exempt from VAT.
Which tax rate applies? The standard rate (21%), the first reduced rate (15%) or the second reduced rate (10%)?
The standard rate applies to a large majority of goods and services. The first reduced rate applies to goods listed in Schedule 3 to the VAT Act, while the second reduced rate applies to goods listed in Schedule 3(a). The first reduced rate is used also for services listed in Schedule 2, as well as for the import of the works of art, antiques and collector’s items specified in Schedule 4. It is therefore advisable to verify the VAT rate that applies to particular goods or services in the law and its Schedules.
To give an example, the following services are included in Schedule 2 as services taxed at the first reduced rate:
- A grant of an entitlement to attend cinema (or movie tickets, in normal speech).
- A supply of services by writers, composers, sculptors and other performing artists, except for the grant of license to use the work and except for the services of independent journalists and independent fashion models.
- A grant of a right of admission (tickets) to museums and other cultural facilities (cultural events and monuments, exhibitions, zoos and botanic garden, natural reserves, national parks, amusement parks and funfairs, circuses, historical buildings and other similar tourist sites).
- Grant of a right of admission to firework shows, light and sound performances.
As for goods classified in the first reduced rate under Schedule 3, these include for example books, brochures, leaflets, programmes, picture books, coloring and drawing books for children, musical scores (both printed and manuscripts), cartographic products of all types, including map books, wall maps, topographic plans and globes, but excluding printed matter wholly or substantially devoted to advertising. Under Schedule 3a, the second reduced rate applies to printed books, pictorial books for children, newspapers and periodicals; printed or handwritten music scores in a book or illustrated form, provided the advertising does not exceed 50% of the contents.
When it comes to the issue of liability for damage caused in connection with VAT, the issue turns on the proper identification of the place of supply for goods and services. In the absence of a specific exemption, when you sell goods or supply services in the Czech Republic, the value added tax must be collected in the Czech Republic. The matter becomes more complicated for cross-border supplies of goods and services.
In the following instance, you have the obligation to register as an identified person (person identified for VAT purposes):
1) You purchase goods over the course of a calendar year from another Member State for the total amount (net of VAT) of CZK 326,000 (certain exemptions exist for tripartite arrangements).
- You have accepted a service with a local place of supply from a foreign tax resident (that does not have a registered office or an establishment in the Czech Republic, or does not involve its establishment in the transaction); this applies to the Google AdWords service, for example. You become the identified person on the day you accept the service.
- You have accepted a taxable supply with a domestic place of supply from a foreign tax resident – specifically, the supply of goods with installation or assembly or a supply of goods through computer systems or networks. You become the identified person on the day you accept the supply.
- You supply services to a place of supply in another Member State under section 9(1) of the VAT Act (excluding the services that are exempt from VAT in the Member State); for example, this applies to advertising income from Google AdSense. You become the identified person on the day you supply the service.
You must register as an identified person within 15 days from becoming one.