Person identified for VAT

Identified Person: An Invisible Status with Visible Risks in International Trade

While a regular VAT payer is registered due to turnover in the Czech Republic and claims tax deductions, an Identified Person (IP) is registered solely for these international transactions. An Identified Person thus has obligations related to declaring and reporting VAT without generally enjoying the main benefit of being a VAT payer, which is the right to deduct input tax. For medium and large companies, it is crucial that the IP status brings with it the administrative duties of a VAT payer, which rapidly increases the risk of errors if there is insufficient expertise in tax processes.

Why VAT Compliance is Critical for Companies

For companies, it is particularly critical that they often deal with cross-border purchases of IT and software licenses, consulting, or goods, which are the main triggers for IP obligations.

The Financial Administration actively monitors cross-border transactions, using international systems like VIES to cross-check data with other EU Member States. Ignoring the obligations of an Identified Person leads to tax assessments, penalties, and sanctions that can reach tens or even hundreds of thousands of Czech crowns.

Our Prague-based lawyers regularly handle this agenda and can help you set up the correct internal guidelines for identifying high-risk transactions. For an immediate solution to your situation, write to us at consultation@arws.cz. 

Triggers for Identified Person Registration: When Registration is Mandatory

The obligation to register as an Identified Person arises if a Czech entrepreneur (a non-VAT payer) provides a service to another taxable person established in another EU Member State. This applies to services where the place of supply is determined according to the basic rule in the recipient's country. The technical term here is Place of Supply.

In practice, this means that if, for example, an IT company based in the Czech Republic invoices a consultation to a client with a German VAT ID, the obligation to register arises. Companies often mistakenly assume that as long as they do not exceed the turnover threshold for VAT registration in the Czech Republic, they have no obligations abroad. It is absolutely essential to monitor the tax identification number (DIČ, VAT ID) of the customer, which is the gateway to the VIES system through which transaction information is exchanged.

The ARROWS law firm will prepare legal opinions for you to determine the correct place of supply in order to prevent incorrect invoicing. Need legal assistance? Contact us at consultation@arws.cz. 

Receiving Services from Abroad (Import of Services)

Another key trigger is the receipt of a service from abroad for which an obligation to declare tax arises domestically. You become an IP the moment you receive a service from a foreign supplier to which the reverse charge principle applies.

Typical examples include purchases of software licenses, cloud services, database access, or marketing services from foreign, often multinational, corporations. This applies to services received from both EU countries and third countries.

It is necessary to realise that determining the Place of Supply has a number of exceptions (e.g., services related to real estate, cultural events, transport). These exceptions make the process much more complex than it seems from the simple rule of "I received a service".

ARROWS deals with this agenda daily, which allows us to significantly shorten the client's time and minimise the risk of errors arising from the incorrect application of exceptions.

Acquisition of Goods from the EU Above the Statutory Limit

The obligation to register as an IP also arises if a company acquires goods from another EU Member State with a total value exceeding CZK 326,000 (excluding VAT) in the current or immediately preceding calendar year.

For CFOs and accountants, a key detail is that the turnover for this limit is calculated based on the date of the taxable supply (e.g., the handover of goods), not the date of payment. Ignoring this rule is a common mistake leading to late registration.

The 2025 amendment to the Czech VAT Act also shortened the statutory deadline for submitting a registration application. It is now only 10 working days from the moment the obligation arises. This short deadline places huge demands on internal control mechanisms and reaction speed.

Basic Obligations of an Identified Person: VAT Return and VIES Recapitulative Statement

Although the status of an Identified Person does not impose most of the obligations of a VAT payer on a company, it does generate the need for regular communication with the Financial Administration.

VAT Return

An Identified Person does not automatically file a VAT return every month. This obligation arises only in the month when a tax liability arose in the Czech Republic (e.g., they received a taxable service from abroad where the reverse charge is applied).

The return must be filed by the 25th day of the following month. Even if it is a "one-off" or occasional filing, it is crucial for the finance department to have reliable processes in place and not to forget this obligation, otherwise it faces the risk of penalties for late filing.

Recapitulative Statement (VIES): A Key Tool for International Control

The most important administrative obligation of an IP is filing the Recapitulative Statement (VIES form). This statement must be filed whenever an IP provides a B2B service to another EU Member State. The technical term Recapitulative Statement (VIES) refers to a key document for the international exchange of information. The statement is filed by the 25th day after the end of the calendar month in which the supply was made.

The Recapitulative Statement is crucial for international control, as foreign tax authorities use it to verify whether their recipient of the supply (your customer) has correctly declared the tax under the reverse charge regime. Failure to file or late filing of the VIES is therefore considered a serious breach of international tax cooperation.

Our lawyers will prepare all legally required documentation for you to ensure correct transaction reporting. Contact us at consultation@arws.cz and get a tailor-made legal solution.

Control Statement: What an IP Does Not File

Unlike regular VAT payers, an Identified Person does not file a Control Statement. This obligation is legally imposed exclusively on VAT payers.

Although this simplifies part of the administration, it does not diminish the seriousness of the obligations associated with the timely filing of the VAT Return and the VIES Recapitulative Statement, which are the primary risk points for an IP.

Risks and Sanctions for Omission: How to Avoid Fines of up to CZK 500,000

If an IP fails to register on time or does not file a VAT Return, they risk a tax assessment for the tax they should have declared (e.g., tax on a service received from abroad), plus penalties.

For a non-filed return (or for its late filing), a penalty of 20% may be imposed if the tax is increased (typically, assessed tax for received services).

The statutory VAT obligation seems straightforward, but its practical application is complex and lengthy. The individual steps, which appear simple, have hidden exceptions, procedural details, links to other regulations, and risks that a layperson cannot see in the real world.

Procedural Penalty for the Recapitulative Statement (VIES)

A serious and often overlooked risk is the penalty for the Recapitulative Statement. Although a penalty may not be automatically imposed for late filing of the VIES, if the IP fails to file the VIES even after a request from the tax administrator, a procedural penalty of up to CZK 500,000 may be imposed.

This sanction is administrative, but its maximum amount is extremely high and represents a direct threat to the company's cash flow. Given the increasing activity of the Financial Administration and the use of automated cross-checks, the real risk of receiving such a request is also growing.

It is therefore safer for the client to have the whole matter professionally handled. ARROWS is insured for damages up to CZK 500,000,000, which represents maximum certainty and security. Do not hesitate to contact our office – consultation@arws.cz. 

2025 Amendment to the VAT Act: Changes in Tax Base Correction

Legal regulations in the field of VAT are dynamic. For example, the 2025 amendment to the Czech VAT Act introduced an adjustment concerning the Correction of the Tax Base. This amendment extended the obligation to perform a correction of the tax base (e.g., in case of a price reduction, granting of a discount) to entities that have ceased to be a VAT payer or an Identified Person.

This change, which reflects the case law of the Court of Justice of the EU, clearly shows that VAT regulations are interconnected with European law and are in constant motion. Even after the termination of IP status, a company may face obligations, which requires long-term and expert legal support and documentation audit.

ARROWS regularly deals with this issue and provides legal consultations that protect against fines, inspections, and prevent the need for a complex Correction of the Tax Base. For an immediate solution to your situation, write to us at consultation@arws.cz. 

More detailed information about this area of legal assistance can be found on our page HERE.

International Reach: ARROWS International as Your Global VAT Support

If a company, as an Identified Person, is also involved in the distance selling of goods to final customers (B2C) in the EU (e.g., e-commerce), the special One Stop Shop (OSS) scheme becomes relevant.

The OSS scheme allows for the simplified payment of VAT on these supplies in all Member States through a single point of contact (the Czech Republic). This simplifies administration but requires a precise determination of which transactions fall under the scheme.

This system is so complex and time-consuming that its implementation and maintenance require specific expertise. It is therefore best to entrust it to the experts at the ARROWS law firm. Our lawyers will provide you with representation before registries and regulators, including the fulfilment of all obligations.

Experience and Network of ARROWS International

For companies that require legal services outside the Czech Republic, international support is key. The ARROWS law firm provides this thanks to the ARROWS International network, built over ten years.

We handle cases with an international element on a near-daily basis, from setting up the correct VAT regime for foreign contracts, through drafting agreements, to resolving disputes before administrative authorities within the EU.

Why Entrust Your VAT Agenda to ARROWS Law Firm: Peace of Mind and Security

Managing the agenda of an Identified Person for VAT requires the precise setup of internal processes – who checks the VAT IDs of foreign partners, who monitors the turnover for purchasing goods from the EU, and how the Place of Supply is handled.

ARROWS will draw up internal guidelines and prepare documentation for you that will protect you from fines and sanctions. By handling this agenda daily, we can significantly shorten the client's time and minimise the risk of errors.

Complete Service and Guarantee of Expertise

We offer comprehensive support, including expert training for employees or management (including a certificate), preparation or review of contracts with VAT clauses, and representation before registries and regulators.

As we have already mentioned, VAT regulations are so complex and time-consuming that it is best to entrust them to experts. ARROWS is insured for damages up to CZK 500,000,000. This insurance guarantee provides the client with maximum security when dealing with complex tax risks.

A Network for Business Opportunities

Long-term cooperation with ARROWS also brings unexpected benefits. If our clients have interesting investment or business opportunities, we can connect them with each other within our broad clientele. We are also happy to listen to interesting entrepreneurial or business ideas and help with their legal anchoring.

Security and Efficiency in Your International Trade

The status of an Identified Person for VAT is necessary for trading in the EU, but it presents a number of procedural and sanction-related risks – from the shortened ten-day registration deadline to the risk of a procedural penalty of CZK 500,000 for omitting the Recapitulative Statement.

Given the increasing activity of financial authorities and the complexity of VAT legislation in the context of EU case law, outsourcing the management of the VAT agenda is an investment in the security and peace of mind of your business.

If you do not want to risk mistakes, damages, or fines, you can safely leave the entire matter to the ARROWS law firm. We will provide you with complete legal support, legal opinions, and handle all registration and notification obligations. Simply contact the office at consultation@arws.cz.