The Czech Tax Authority has launched another phase of its “Daňové echo” project. This time, it focuses on VAT obligations of so-called identified persons.
The letters are being sent to selected taxpayers who are registered as identified persons for Czech VAT purposes and who, according to the Tax Authority’s records, may have underreported or failed to report VAT on cross-border transactions in 2024.
For many foreign freelancers and small businesses in the Czech Republic, this is an important reminder. Being an identified person is often misunderstood and the related VAT obligations are frequently overlooked.
What is an identified person for VAT purposes?
An identified person is not a full VAT payer. This means that they usually do not charge Czech VAT on their invoices and they usually cannot claim VAT deductions.
However, they still have certain VAT obligations, especially in connection with cross-border transactions.
This status often applies to Czech freelancers and sole traders who:
- receive services from businesses established outside the Czech Republic,
- buy goods from another EU Member State above the relevant threshold,
- provide services to business clients established in another EU Member State.
Typical examples include receiving invoices from platforms and service providers such as Meta, Google, Adobe, Zoom, Upwork, Fiverr, Etsy, Airbnb, Stripe, Claude, Canva or other foreign suppliers.
Common mistake 1: receiving services from abroad and not reporting Czech VAT
One of the most common mistakes is receiving a service from a foreign supplier and assuming that no Czech VAT needs to be dealt with because the invoice was issued without VAT.
In many cases, the opposite is true.
If a Czech business receives a service from a foreign business, the Czech recipient is generally required to report Czech VAT under the reverse charge mechanism. This can apply even if the recipient is only an identified person and not a full VAT payer.
The obligation may arise, for example, when a freelancer uses paid advertising on Meta or Google, pays for foreign software, uses online tools, or pays platform fees to foreign providers.
Common mistake 2: thinking that registration is enough
Registration as an identified person is only the first step. After registration, the person must also monitor whether any monthly VAT filing obligation arises.
If an identified person receives a relevant cross-border service, they may need to submit a Czech VAT return for that month and pay the Czech VAT.
The rules are different from those for full VAT payers.
Common mistake 3: confusing identified person status with full VAT payer status
Identified persons often believe they have the same position as regular VAT payers. This is not the case.
In general, an identified person:
- does not charge Czech VAT on standard domestic invoices,
- does not claim input VAT deductions,
- may need to report and pay Czech VAT on selected cross-border purchases,
- may need to submit an EC Sales List if they provide services to EU business clients.
This distinction is important because an incorrect approach can lead either to missing filings or to issuing invoices incorrectly.
Common mistake 4: ignoring EU B2B invoices
Another frequent issue is invoicing EU business clients.
If a Czech freelancer provides services to a business client established in another EU country, this may trigger the obligation to register as an identified person and submit EC Sales Lists.
The invoice will usually be issued without Czech VAT under the reverse charge mechanism, but it still needs to be reported correctly.
This is especially relevant for IT specialists, consultants, designers, marketers, coaches and other freelancers working with EU-based business clients.
Common mistake 5: not checking invoices from platforms
Many VAT issues arise from invoices that clients do not even think of as important accounting documents.
Examples include invoices or fee statements from:
- advertising platforms,
- software subscriptions,
- payment gateways,
- marketplace platforms,
- booking platforms,
- freelance platforms.
These documents may contain information about the supplier’s country, VAT number and the type of service. This information is important for determining whether Czech VAT reporting is required.
What should you do if you receive a letter from the Tax Authority?
If you receive a letter under the Daňové echo project, it should not be ignored.
The purpose of the letter is usually to give the taxpayer an opportunity to check the situation and correct possible mistakes voluntarily before the Tax Authority starts more formal proceedings.
The correct response will depend on the specific transactions. In practice, it is usually necessary to review:
- foreign supplier invoices,
- platform statements,
- VAT registration status,
- whether Czech VAT returns should have been filed,
- whether EC Sales Lists should have been submitted,
- whether any correction is needed.
If a mistake is confirmed, it may be possible to correct it by submitting the relevant VAT return or other filing. The exact steps should be assessed case by case.
Practical recommendation
If you are registered as an identified person, or if you are a Czech freelancer working with foreign clients or suppliers, it is worth reviewing your VAT position regularly.
In particular, check whether you:
- receive services from foreign suppliers,
- pay for foreign software, advertising or platforms,
- invoice EU business clients,
- submit VAT returns when required,
- submit EC Sales Lists when required,
- keep the relevant invoices and statements.
Identified person status is less complex than full VAT payer status, but it is not just a formality. Missing VAT obligations can easily arise from ordinary online services and platform fees.
If you are unsure whether your transactions create VAT obligations in the Czech Republic, it is better to check this before the Tax Authority contacts you. Get in touch or book your consultation here.