The place of supply is a crucial concept in VAT law, particularly for businesses providing digital services. Correctly determining where the VAT applies ensures compliance with tax regulations, especially in cross-border transactions. This article focuses on § 10i of the Czech VAT Act, which outlines the rules for determining the place of supply for telecommunication services, broadcasting services, and electronically provided services to non-taxable persons.
1. What is the Place of Supply for Digital Services?
According to § 10i of the VAT Act, the place of supply for the following services provided to non-taxable persons (i.e., individuals or entities not registered for VAT) is determined as follows:
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Telecommunication services,
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Broadcasting services, and
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Electronically provided services.
The place of supply for these services is where the recipient is located, as per the EU regulations that apply to VAT. This means that these services will be subject to VAT in the country where the recipient resides or is established, not as otherwise in line with the basic rule where the service provider is based. More information about that could be found in our article here.
2. What Are Telecommunication, Broadcasting, and Electronically Provided Services?
The VAT Act defines these services in the following way:
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Telecommunication service: Any service associated with the transmission, reception, or broadcasting of signals, texts, images, sounds, or any information via cable, radio, optical, or electromagnetic systems. This includes access to networks or the right to use bandwidth for transmission.
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Broadcasting service: A service that involves the provision of audio or audiovisual content, such as radio or television programs. This content is broadcast to the public via communication networks, under editorial responsibility.
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Electronically provided service: A service provided via a public data network or electronic network. These services include, but are not limited to:
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Website hosting,
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Provision of software and software updates,
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Providing access to databases or content like text, images, or information,
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Streaming music, films, or games, as well as cultural, political, sports, or entertainment events (except for broadcasting services),
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E-learning services.
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These services are subject to VAT in the country where the recipient is located, as determined by the applicable EU regulations.
3. Special Exemption Criteria for Small Transactions
In some cases, smaller businesses providing these services may not need to follow the rules of § 10i, under the following conditions:
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If the service provider has its establishment in only one EU Member State (or outside the EU with a single establishment in an EU Member State), and the service is provided within that state.
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The total value of the services provided to non-taxable persons does not exceed €10,000 (or the equivalent in another currency) in the current or previous calendar year.
If these conditions are met, the place of supply will remain in the service provider’s country, even if the recipient(s) is located in a different EU Member State.
4. When the €10,000 Threshold is Exceeded
If the total value of the services provided to non-taxable persons exceeds €10,000 in a calendar year, the place of supply is determined according to § 10i of the VAT Act. This means that for the relevant services, VAT will apply in the country where the recipient is established, even if the service provider is located elsewhere.
5. Voluntary Decision to Apply the Place of Supply Rules
A service provider can also choose to apply the § 10i rules voluntarily, even if the total value of the services is below the €10,000 threshold. If the service provider chooses this option, they must apply the place of supply rules in this way for at least two consecutive calendar years.
Once this decision is made, it is considered as a choice for determining the place of supply under § 8(4) of the VAT Act, and the provider must continue to apply these rules until the end of the second following calendar year.
6. Examples of Digital Services
Example 1: A Company Providing Online Streaming Services
A Czech company provides streaming music services to individuals in the EU. If the total value of these services exceeds €10,000 in the calendar year, VAT will be charged in the EU country where the recipient is established (i.e., where the customer resides).
Example 2: Web Hosting Services to a Non-Taxable Person in Another EU Member State
A web hosting company based in the Czech Republic provides hosting services to an individual in France. If the total value of the services provided to non-taxable persons is below €10,000, the place of supply will remain in the Czech Republic. However, if the value exceeds €10,000, the place of supply will be in France.
Example 3: Online Tutoring Services Provided by a Teacher
A Czech-based teacher offers online tutoring services in English to students located in various EU countries. The total value of these services for non-taxable persons (students) in the previous calendar year is under €10,000.
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Situation: The teacher provides lessons to students from Germany, France, and Italy. Since the total value of the services does not exceed the €10,000 threshold, the place of supply is in the Czech Republic, where the teacher is established.
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Solution: If a registered VAT payer, the Czech teacher will charge Czech VAT on these tutoring services. Since the €10,000 threshold has not been exceeded, the place of supply remains in the Czech Republic, and VAT will be calculated at the Czech rate.
However, if the total value of the tutoring services exceeds €10,000 in a subsequent year, the place of supply will shift to the countries where the students are located (Germany, France, Italy), and the teacher will be required to apply VAT according to the respective country’s VAT rules for non-taxable persons.
Conclusion
Understanding the place of supply for telecommunication, broadcasting, and electronically provided services is crucial for VAT compliance, especially when dealing with cross-border transactions. Providers should be aware of the €10,000 threshold, the voluntary decision option, and the general rules that determine the place of supply based on the recipient’s location. By carefully analyzing these factors, businesses can ensure they apply VAT correctly and avoid any potential issues with tax authorities.
If you provide digital services, always check whether your services fall under these provisions and ensure your VAT return is accurately filed according to the rules set out in § 10i of the VAT Act.