If your company plans to import goods into the European Union, you should carefully consider in which EU Member State your goods will be cleared and released into free circulation. This decision also determines how import VAT will be collected and under what conditions.
Since the European Union has 27 Member States, there are several possible destinations for your imports. However, when making your decision, you should take into account how each particular Member State handles import VAT.
In most EU countries, VAT must be paid at the moment of import and then reclaimed from the locally competent tax office through a VAT return. For this purpose, it is usually necessary to register for VAT in that country, as the system of VAT refunds without prior VAT registration is extremely limited and based on reciprocity — something EU countries generally do not have with third countries.
The Czech Republic, as one of a few EU countries, offers a special tax regime for imports under which the importer declares VAT and simultaneously claims it back. In EU tax terminology, this regime is called the reverse-charge mechanism.
An importer brings goods worth EUR 1,000 into the EU.
In most countries, the importer must pay import VAT at the moment of import — for example 21%, i.e., EUR 210. Afterwards, the importer files a VAT return to claim the VAT back. This process can take several months.
In the Czech Republic, import VAT is not assessed by the customs office at the time of import. Instead, after the end of the month in which the import took place, the importer files a VAT return in which they declare output VAT of EUR 210 and simultaneously claim an input VAT deduction of EUR 210. From a cash-flow perspective, there is no disadvantage — not even temporarily.
Another advantage of the Czech Republic for imports into the EU is that there is no requirement to appoint a fiscal representative to act on behalf of the importer and guarantee payment of the tax. This represents a significant saving, as fiscal representatives typically charge high fees due to the risk they assume — often amounting to several thousand euros.
A further advantage is that tax advisory costs in the Czech Republic are generally much lower than in most other EU Member States, particularly in Western Europe. The same applies to storage and transportation services. The Czech Republic is located in the heart of Europe and is well connected to the European motorway network.
If goods imported into the Czech Republic are intended for another EU Member State, the subsequent intra-EU supply of those goods is exempt from VAT, provided statutory conditions are met. Thus, throughout the entire supply chain, the importer is not negatively affected by VAT from a cash-flow perspective.
A company from the USA decides to import goods into France, Germany, and the Netherlands. It chooses the Czech Republic as its point of entry into the EU. It registers for VAT in the Czech Republic and applies for an EORI number. It then transports the goods to the Czech Republic, clears them through customs, and declares import VAT (using the reverse-charge mechanism described above). Afterwards, it sells the goods to business partners in France, Germany, and the Netherlands. These intra-EU supplies are declared in the Czech Republic as VAT-exempt. In this scenario, the importer does not actually pay import VAT on any transaction — it only has the obligation to declare these transactions in the Czech Republic.
If you would like more information about VAT registration, VAT returns, or import VAT, please do not hesitate to contact us.
