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Application of VAT to storage and logistics services for foreign customers

In our alert today, we would like to draw your attention to a problematic area that we encounter in practice in warehousing, logistics and similar services related to goods.

The VAT Act contains a special provision in Section 9a on the place of supply for services provided to a company established in a non-EU country (the so-called "use and enjoyment rule"). If the recipient of the service is registered for VAT in the Czech Republic and the service is actually used in the Czech Republic, the place of taxation is the Czech Republic. In practice, it can be quite complicated to determine whether the service is actually used in the Czech Republic.

Some time ago, the tax administration published answers to questions on this provision (HERE, only in Czech) and provided interpretative guidance on certain services. In the case of services such as the processing of goods and, more generally, work on movable property, the tax administration ruled that it is decisive whether these particular goods are subsequently sold in the Czech Republic or shipped outside the country. If the goods leave the Czech Republic immediately after processing, the processing service is not considered to have been actually used in the Czech Republic and is not subject to Czech VAT. However, if the goods change ownership before being transported outside the Czech Republic, Czech VAT applies. In such a case, it is essential for the Czech service provider to obtain sufficient information from its foreign customer to apply VAT correctly.

The application of this interpretation also to storage services may not always be entirely straightforward and each individual case must be assessed according to the specific circumstances.

In practice, however, this rule is often forgotten, which can have unpleasant consequences in the form of complicated discussions with the tax authorities and a lack of evidence, where it is often extremely difficult to obtain convincing documentation with a time lag of several months or even years. We therefore recommend not to underestimate this area.

For the sake of completeness, let us add that for storage services, in addition to the actual use and enjoyment, the connection to the immovable property must also be addressed, regardless of whether the customer is established in the EU or outside the EU. If the storage service is (based on the available interpretations) qualified as a service related to immovable property in the Czech Republic, then it will be subject to Czech VAT and the destination of the stored goods is irrelevant.

If you are interested in this case and it applies to your company, we will be happy to discuss the issue with you in more detail and help you with the appropriate VAT settings.

If you have any questions, please contact the authors of the article or the EY client team you work with.

Authors:

David Kužela

Jevgenija Bajzíková