In this circular, we would like to address the amendment to the Value Added Tax Act (Act No. 235/2004 Coll., as amended), which entered into force on 01.01.2015, and which consists of a change in the method of taxation of the provision of electronically supplied services to Member States of the European Union to persons not liable to value added tax. This amendment has important consequences for all entities (VAT payers) that provide electronic services abroad.
At the outset, it is necessary to define what is meant by an electronically supplied service. The Value Added Tax Act means by an electronically supplied service a service provided via a public data network or electronic network, with the exception of communication itself via an electronic address, in particular the hosting of websites, provision of software and its updates, provision of images, texts or information or making databases accessible, provision of music, films or games, provision of political, cultural, artistic, sporting, scientific or entertainment programmes or events, with the exception of programmes which are broadcasting services, or provision of distance learning services. A person not liable to tax means a natural or legal person who does not independently carry out economic activities.
Until 31.12.2014, in the case of provision of electronically supplied services to Member States of the European Union to persons not liable to value added tax, taxation always occurred at the place of the registered office of the service provider. Thus, in the case where the service provider had a registered office in the Czech Republic, it issued tax documents with the Czech value added tax rate and paid the tax in the Czech Republic.
Example: An entrepreneur with a registered office in the Czech Republic provided paid hosting of websites to Austrian customers (persons not liable to tax) in 2014. Solution to the example in 2014: In this case, the entrepreneur with a registered office in the Czech Republic will charge for services with the Czech value added tax rate and will pay the tax in the Czech Republic.
From 01.01.2015, a substantial amendment to the Value Added Tax Act occurs, consisting in the fact that the place of supply will, when providing electronically supplied services to Member States of the European Union (to persons not liable to value added tax), always be the registered office (residence) of these persons. Thus, value added tax (its foreign equivalents) will force service providers to pay in the place of the registered office (residence) of the customer, at the rate applicable there. Solution to the example in 2015: In this case, the entrepreneur with a registered office in the Czech Republic will charge for services with the Austrian value added tax rate and will pay the value added tax in Austria or through the so-called “Mini-one stop shop” (see below).
The above-mentioned legislative regulation brings a number of practical problems. Service providers will have to register for value added tax in individual Member States of the European Union and will have to know the individual value added tax rates. The above-mentioned negative consequences should be resolved by the introduction of the so-called single administrative point, the so-called mini-one stop shop.
The mini-one stop shop was created for the purpose that the provider of electronically supplied services avoids the lengthy obligation to register for value added tax in each individual Member State of the place of establishment of its end customers and does not have to separately file a tax return and pay tax in each EU Member State. Through the mini-one stop shop, the service provider will then file a tax return and pay the value added tax to which the special scheme relates. We rather recommend the use of the mini-one stop shop in view of facilitating the payment of value added tax.
In conclusion, it is necessary to point out that the above relates only to the provision of electronically supplied services to Member States of the European Union to persons not liable to value added tax. Thus, not to the provision of services other than electronically supplied services, or the provision of these services to persons liable to value added tax.
Ondřej Bahník
Law Firm Mašek, Kočí, Aujezdský www.e-Advokacie.cz – on-line legal advisory services
This text was originally prepared by the law firm Mašek, Kočí, Aujezdský in cooperation with the Association for Electronic Commerce (APEK) as legal circular No. 12/2014 intended for members of this association.
This text was translated from Czech to English using an AI translator.