Issuing tax documents in the area of VAT

Issuing tax documents in the area of VAT

Barbora Halousková, Andrea Kleinová
22/10/2021
Issuing tax documents in the area of VAT
Today we have prepared an article on the topic of issuing tax documents for value-added tax (hereinafter referred to as "VAT") purposes. In our practice, we constantly encounter tax documents that do not contain all the statutory requirements. However, such an "administrative error" may cost the taxpayer quite a lot. First of all, it should be emphasised that in this respect, the person issuing the tax document must necessarily know essential information about the related transaction since they will affect the final form of the tax document.

However, let's start from the beginning and define the tax document itself. According to the Czech VAT Act, it is a document that meets the conditions stipulated in the law. Unfortunately, however, it happens quite often that the taxpayer receives, for example, a document called "invoice" and therefore, presumes that it is a tax document; although, this document does not fully meet the legal requirements of a tax document for VAT purposes.

To comply with the legal obligations stipulated in respect with issuing of a tax document, it is necessary to determine the place of taxable supply in the first place. This determines the particular national rules to be followed when issuing tax documents. If you are issuing a tax document where the place of supply is another EU Member State, the essentials of such document are governed by the legislation of that EU Member State.

Rules for issuing domestic tax documents

The tax document can be issued in both paper and electronic form, which is becoming increasingly common. The electronic form, when the tax document is issued and sent solely by electronic means, must be agreed to in advance by the person for whom the supply is carried out, i.e. by the recipient.

According to the Czech VAT Act, the taxpayer is obliged to issue a tax document in the following cases:

  • supply of goods or services to a taxable person or a non-taxable legal person, except for supplies which are exempt from tax without the claim to deduct,
  • distance selling of goods (formerly known as sending goods),
  • supply of goods to another EU Member State which is exempt from tax with a VAT refund claim,
  • receipt of advance payment where an obligation to declare tax or to declare the supply has arisen at the date of receipt of the advance payment.

The tax document must be issued within 15 days of the date on which the obligation to declare the tax or the supply has arisen, or within 15 days of the end of the calendar month in specific cases defined by law. The issuing of the tax document may also be transferred to the person for whom the supply is carried out, or to a third party, based on a written authorisation.

Essentials of tax documents

The Czech VAT Act also stipulates the requirements that a document must meet to be considered a tax document. Common mistakes occur, for example, with tax documents issued in foreign currency, where the document must contain, among other things, at least the amount of the tax in Czech crowns. Essentials also covers addendum such as "the transaction is VAT exempt", "issued by the recipient" or "the tax will be declared by the recipient" in relevant cases.

Obligation to declare tax on advance payment received

Where a supplier receives an advance payment prior to the date of actual realization of the taxable supply, they are obliged to declare tax on the amount received as of the date of receipt of such advance payment. However, there are situations where this obligation does not arise. This concerns a taxable supply that is not determined with sufficient certainty, i.e. when we do not know what goods will be supplied or what services will be provided, or we do not know the applicable tax rate or the place of supply (this is the case, for example, with multi-purpose vouchers).

Tax document for import and export of goods

In the case of import, the following document is considered as a tax document:

  • the decision placing the goods under the customs procedure in which the obligation to declare or pay tax arose (most often the free circulation of goods), or
  • another decision assessing the tax issued by the customs authority, if the tax has been paid under customs procedures.

In the case of export, it is necessary to follow the domestic rules for issuing tax documents, since the tax document in this case is not a customs office decision, but rather an invoice issued by the exporter (supplier), and it is, therefore, necessary to ensure that it meets all legal requirements of tax documents for VAT purposes.

Other types of tax documents

In certain situations, we can also encounter the concept of a simplified tax document, which can be issued in situations where the total amount of the supply does not exceed CZK 10,000 (i.e. the amount including VAT). However, even here are exceptions when a simplified tax document cannot be issued.

Other types of special tax documents are also used quite often. In particular, these are the instalment plan, the advance payment plan and the summary tax document, as well as, for specific supplies defined by law, the document of use and confirmation on auction and on sale outside the auction. The instalment plan is used in connection with lease contracts, while the advance payment plan can be used, for example, for the supply of electricity, heat, gas and water, where we do not know the exact amount of the final price, but these services are connected with advance payments and regular settlement. A summary tax document can be used in the case of either several separate taxable supplies provided that they are made to the same person within one calendar month, including one or more advance payments, or one separate taxable supply and one or more advance payments, again within one calendar month to one customer.

Issuing corrective tax documents

If there is a change in the amount of VAT base or amount of the tax itself once the original tax document has been issued, the correction can only be made in one way, by issuing a so-called corrective tax document. In this case it is important to distinguish whether the tax is changed as a result of a reduction (e.g. application of a discount, refund of a taxable supply or advance payment, etc.) or an increase (e.g. an additional charging, etc.) of the tax base, or whether it is a correction of an incorrectly applied amount or rate of tax itself.

In the case of a correction due to a change in the tax base, the change will be reflected in the regular tax return (i.e. in the tax period when the correction was made). On the other hand, in the case of a correction of the amount and rate of tax, a distinction must be made as to whether the correct application of VAT would result in a reduction of the originally reported tax liability (in this case we are talking about the possibility of a correction) or an increase (here we are talking about the obligation of a correction), and this change must be reflected in the additional tax return for the tax period affected by the change.

The corrective tax document includes, among other things, the reference number of both the corrective and the original tax document, as well as the reason of correction. The difference between the corrected and original tax base and the VAT must also be quantified.

When issuing a corrective tax document, the taxpayer is obliged to make every effort to ensure that the document is in the possession of the recipient within 15 days.

Lastly, we would also like to add that if the tax documents are issued in foreign currency, it is necessary to apply the exchange rate applied to the original taxable supply to convert the foreign currency into Czech currency.

Reverse-charge

In the case of tax documents for purposes of VAT, we may also encounter the concept of reverse-charge. This is a regime where the obligation to declare and pay tax is transferred to the recipient of the supply. In such a case, the tax document must contain the information that the tax will be paid by the recipient.

Deadlines and location of document storage

The law also regulates the obligations concerning the period for which tax documents must be kept and the location of document storage. The tax documents must be archived for 10 years from the end of the tax year in which the supply took place. The custodian shall be:

  • the person who issued the tax document (or on whose behalf it is issued) in case of rendering a taxable supply,
  • the person having its seat or establishment in the country who is a VAT payer or an identified person in case of receipt of supply.

A custodian with its seat or establishment in the Czech Republic is also obliged to keep the documents in the Czech Republic (the obligation does not apply to the remote access method). In other cases, the tax subject is obliged to notify the tax administrator in advance that the location of storage of documents is elsewhere. For further information, you can click here and read our earlier article.

In the case of tax documents in foreign language, the custodian is obliged to provide translation into Czech at the request of the tax administrator.

We hope that our today´s article has been helpful to you, and if you would still like to confirm the correctness of the rules for issuing tax documents in your company or checking those documents you receive from your suppliers, please do not hesitate to contact us.

Contact our expert

Andrea Kleinov√°
Andrea Kleinová
Certified Tax Advisor
Crowe