Avoiding Double VAT in EU Chain Transactions: Place of Supply and Exemptions

6.3.2026 | ARROWS law firm

If you export goods to EU countries or purchase from foreign suppliers in a multi-party supply chain, you risk paying VAT multiple times. This article explains how to correctly determine the place of supply in complex transactions under Czech VAT rules, how to avoid penalties related to the Czech VAT Control Statement (Kontrolní hlášení), and how to properly apply the VAT exemption regime.

The illustrative image shows a lawyer consulting on the correct determination of the place of supply for VAT purposes.

Article contents

Basic VAT principles in international transactions
Chain transactions in the EU
Determining the place of supply in practice
Reverse charge and transfer of the tax liability
One Stop Shop (OSS) scheme
Practical examples
Common mistakes made by businesses

Quick summary

The place where VAT is taxed is not always where the goods are physically located. For chain transactions, special rules apply for allocating the transport to one specific supply. If you do not determine this correctly under the Czech VAT Act, you risk additional tax assessments and penalties.
When goods move from the Czech Republic via a German intermediary to Austria, it is crucial whether the German intermediary acts under its German VAT ID, or uses a VAT ID allocated in the Czech Republic. This changes which supply the transport is allocated to and whether you can apply a VAT exemption.
The attorneys at ARROWS advokátní kancelář handle cases where businesses made an error in the Czech VAT Control Statement (kontrolní hlášení) – resulting in automatic fines from CZK 1,000 to CZK 50,000, and in extreme cases of serious obstruction of tax administration up to CZK 500,000, plus late-payment interest on the tax itself.
The reverse-charge mechanism does not apply automatically. If you apply it where it should not be used, or omit it where it should have been used, you risk an additional tax assessment.

Basic VAT principles in international transactions

To be clear about what we will be discussing, it is necessary to understand one fundamental principle of the harmonised EU VAT system. VAT is a consumption tax, which means the tax should be collected in the Member State where the final consumption of the goods or services takes place. This sounds simple, but in practice situations where goods move through multiple countries and multiple sellers are quite complex.

The place of supply is a legal concept defining the country where, under the law, the tax is reported and paid. If you determine it incorrectly, the tax authority may assess additional tax including penalties and late-payment interest, while you have paid it in the wrong country and then must go through a complex refund process.

In international trade, several key situations are distinguished. First, there is the supply of goods to another EU Member State, where the rules for VAT exemption with the right to deduct input VAT apply. Second, there is the cross-border provision of services, where in B2B relationships the liability is typically shifted to the recipient. Third, there are so-called chain transactions, where the goods are subject to multiple successive sales.

Businesses often fail to capture the legal structure of their transaction correctly and end up owing tax to a country where they are not registered—an area where the attorneys at ARROWS advokátní kancelář regularly assist.

The difference between a domestic supply and a supply to another country

While domestic sales of goods are usually subject to Czech VAT (standard rate 21%), the situation changes once the goods are dispatched or transported to another EU Member State. In such a case, the supply in the Czech Republic may be exempt from tax (Section 64 of the Czech VAT Act), and the tax is accounted for in the country of destination as an intra-Community acquisition of goods.

The VAT exemption for the supply of goods to another EU Member State is a legal mechanism that allows the supplier to invoice without VAT provided that the goods are supplied to a person registered for VAT in another Member State and the goods actually leave the Czech Republic. If the business does not meet the burden of proof regarding the transport or the customer’s status, it loses the exemption and must pay the VAT itself.

When the VAT exemption applies

The VAT exemption for the supply of goods to another Member State under Section 64 of the Czech VAT Act is not automatic. You must meet three cumulative conditions:

The goods are supplied to a person registered for VAT in another Member State (the customer has a valid VAT ID from another EU country).
The goods are physically dispatched or transported from the Czech Republic to another Member State.
You report the transaction in the EC Sales List (recapitulative statement).

In practice, it is necessary to verify that the buyer’s VAT ID is valid in the VIES system and to secure sufficient evidence of transport. Legislative changes (the so-called Quick Fixes) tightened the requirements for transport evidence and introduced the obligation to report the customer in the EC Sales List as a substantive condition for the exemption.

Chain transactions in the EU

Chain transactions are situations where the same goods are the subject of multiple successive sales, while the goods are transported directly from the first seller to the final buyer. The key rule (Section 7(3) of the Czech VAT Act) states that the transport can be allocated to only one supply in the chain.

Only this “moving” supply can be exempt from VAT, while the other supplies are treated as supplies without transport.

Consider a situation where a Czech manufacturer (A) sells goods to a German distributor (B), who then sells them to an Austrian customer (C), while the goods move directly from the Czech Republic to Austria and the transport is arranged by the German distributor. Under the Czech VAT Act (Section 7(3) and (4)), a rebuttable presumption applies that the transport is allocated to the first supply (A–B).

The transport is allocated to the first supply if the intermediary does not act under a VAT ID of the country of dispatch, meaning the first supply is exempt from VAT.

However, there is an exception where the intermediary (B) provides the supplier (A) with its Czech VAT ID because it is registered for VAT in the Czech Republic. In that case, the transport is allocated to the B–C supply, meaning the first sale is carried out with Czech VAT as a domestic supply.

In such situations, ARROWS advokátní kancelář first analyses who organises the transport and under which VAT IDs the parties act.

Triangular transactions and triangulation

A triangular transaction is a simplification regime for a specific type of chain transaction (Section 17 of the Czech VAT Act). The conditions include the participation of three persons registered for VAT in three different Member States, the transport of goods from the first state directly to the third, and the transport being arranged by the first supplier or the intermediary. The intermediary must not be registered for VAT in the country of destination.

If the conditions are met and the intermediary states on the invoice that it is a triangular transaction, the intermediary does not need to register in the country of destination. The VAT is declared and paid by the final customer (the third person), and the intermediary reports the transaction in the EC Sales List under code 2.

Transfer of goods under the warehouse regime

The call-off stock regime (Section 18 of the Czech VAT Act) addresses a situation where a supplier transfers goods to a warehouse in another country, from which a pre-identified customer will later take the goods. At the moment of transport, no supply or acquisition of goods occurs for VAT purposes.

The taxable supply occurs only at the moment when the customer takes the goods from the warehouse and acquires title.

This regime has strict conditions, including the requirement that the goods be taken within 12 months and that detailed records be kept for VAT purposes. The transfer must also be reported in the EC Sales List.

If the conditions are not met, the regime falls away and the supplier must register for VAT in the country where the warehouse is located immediately upon stocking the goods.

Determining the place of supply in practice

The basic rule (Section 7(2) of the Czech VAT Act) is that the place of supply for a supply of goods with transport is where the goods are located at the time the dispatch or transport begins. This applies to standard B2B transactions as well as to certain B2C situations outside distance sales of goods.

Special rule for distance sales of goods

If you sell goods to end consumers in other EU Member States and you dispatch the goods, the EUR 10,000 threshold applies (approx. CZK 253,000). This threshold is calculated for all EU Member States combined within a calendar year. Up to this threshold, you may invoice with Czech VAT; above it, the place of supply is the customer’s Member State. For this purpose, the OSS (One Stop Shop) scheme is used so that you do not have to register separately in each country.

Rule for the provision of services

For B2B services (to businesses), the place of supply is the recipient’s seat (Section 9(1)) and the reverse charge mechanism applies. For B2C services (to consumers), the basic rule is the supplier’s seat (Section 9(2)), but there are many exceptions, for example for services related to immovable property or electronically supplied services.

Reverse charge and transfer of the tax liability

Under the reverse charge mechanism, the supplier does not pay the tax; the customer does. The supplier issues an invoice without VAT stating “tax to be accounted for by the customer”. Typical use includes cross-border services between businesses, supplies of goods with installation, or domestic reverse charge for selected commodities in the Czech Republic.

If you invoice without VAT and reverse charge should not have applied, you are the one who owes the tax.

If you apply the regime incorrectly, the customer cannot claim input VAT deduction and you must correct the tax document. Commodities covered by the domestic reverse charge in the Czech Republic include, for example, construction and installation works, scrap, emission allowances and—once the CZK 100,000 threshold is exceeded—also selected electronics.

VAT Control Statement and Recapitulative Statements

The VAT Control Statement primarily serves to match domestic invoices in the Czech Republic. Penalties for non-compliance are set as fixed amounts, from CZK 1,000 for late filing without a prior notice up to CZK 50,000 for failure to file upon request. In cases of serious obstruction of tax administration, the fine may reach up to CZK 500,000.

Recapitulative Statement

This statement is used to monitor cross-border transactions within the EU. You report supplies of goods within the EU (code 0), services (code 3) or triangulation transactions (code 2). Any discrepancy between the data in the Recapitulative Statement and what the counterparty declares in another Member State triggers an international investigation.

One Stop Shop (OSS) scheme

OSS allows you to pay VAT on distance sales and certain services to end consumers in the EU through a single portal in the Czech Republic. Instead of registering in 27 countries, you register for OSS in the Czech Republic, file one quarterly return in euros and make one payment to the Czech tax authority. The import scheme (IOSS) is used for importing low-value goods up to EUR 150 from non-EU countries.

Risks and penalties	How ARROWS helps (office@arws.cz)
Incorrect determination of the place of supply in a chain transaction: Tax paid in the wrong country, risk of additional tax assessment + penalty + late-payment interest.	Legal analysis of the chain: We determine to which link the transport is attributed under Section 7 of the Czech VAT Act.
Penalties related to the VAT Control Statement: Fines of CZK 10,000 to CZK 50,000 (fixed rates) are common when a notice in the data box is overlooked.	Monitoring and administration: Legal assistance in responding to requests from the tax administrator and applications for remission of fines.
Loss of entitlement to exemption: Lack of evidence of transport or an invalid customer VAT ID means an additional assessment of Czech VAT at 21%.	Setting up due diligence: Review of contracts and transport documents.
Error in reverse charge: Applying the regime where it should not apply, or vice versa.	Tax assessment: Verification of the goods code (nomenclature) and the type of service for correct application of Section 92a et seq. of the Czech VAT Act.

Practical examples

Below are typical situations we encounter that often lead to additional tax assessments.

Unverified VAT ID and loss of exemption

A Czech company supplied goods to a Slovak customer and stated on the invoice a VAT ID provided by the customer. During an audit, it was found that the VAT ID was invalid at the time of supply, and because a condition for exemption is a supply to a person registered for tax, the Czech tax authority did not recognise the exemption. The solution is to always verify the VAT ID in the VIES system before each transaction.

Three-party transaction and use of a Czech VAT ID

A German trader purchased goods in the Czech Republic for an Austrian client and the goods went directly from the Czech Republic to Austria. However, the German trader used its Czech VAT ID, which meant the transport was attributed only to the second supply. As a result, the Czech supplier could not invoice without VAT and had to invoice with 21% Czech VAT.

Service related to immovable property

A Czech architect designed a holiday cottage in Austria for a Czech client and invoiced with Czech VAT. However, for services related to immovable property, the place of supply is where the property is located. The tax should have been paid in Austria, most likely under the local reverse charge regime or by the architect registering in Austria.

Common mistakes made by entrepreneurs

Among the most common misconceptions is automatically invoicing without tax for foreign customers, which is a mistake especially for services provided to non-business customers or for specific types of services. Another mistake is ignoring the thresholds for distance sales, where e-shops continue invoicing with Czech VAT even after exceeding the EUR 10,000 threshold. Confusion between the VAT Control Statement and the Recapitulative Statement is also common, with businesses unaware that sales within the EU belong in the Recapitulative Statement.

Conclusion

International chain transactions involving VAT are one of the most complex chapters of tax law. The rules for determining the place of supply are strict, and lack of knowledge is no excuse under Czech legislation. An error in setting up logistics and invoicing may result in you paying tax to a country that is not entitled to it, while another country will pursue you for the tax, including penalties.

Attorneys from ARROWS, a Prague-based law firm, specialise in tax law and international trade. We can help you set up contractual relationships and invoicing flows so that they are tax-compliant under Czech legislation. Contact us at office@arws.cz.

FAQ – Most common legal questions

1. Can I sell goods without VAT to all foreign companies?
No. The exemption can only be applied to a supply to another EU Member State to a person registered for VAT, provided the goods leave the Czech Republic. If you sell to a company that is not a VAT payer (e.g., a small entrepreneur abroad), or the goods do not leave the Czech Republic, you generally must charge Czech VAT.

2. What wording must an invoice with reverse charge contain?
The invoice must include the sentence: “Tax to be accounted for by the customer” (under Section 29(2)(c) of the Czech VAT Act).

3. What is the penalty for failing to submit a recapitulative statement?
Unlike the VAT control statement, fixed rates do not apply here. Since the statement does not include an assessed amount of tax, the standard penalty for late tax reporting cannot be imposed. However, if you fail to submit it upon request, the Czech Financial Office may impose a procedural fine for failure to fulfil a non-monetary obligation of up to CZK 500,000.

4. Where can I find VAT rates for OSS?
The database of VAT rates in EU Member States is maintained by the European Commission (the “Taxes in Europe” database). It is the seller’s responsibility to apply the correct rate applicable in the consumer’s country.

Notice: The information contained in this article is of a general informational nature only and is intended for basic guidance based on the legal situation in 2026. Although we take the utmost care to ensure accuracy, legal regulations and their interpretation evolve over time. To verify the current wording of the regulations and their application to your specific situation, it is therefore necessary to contact ARROWS, a Prague-based law firm, directly (office@arws.cz). We accept no liability for any damages or complications arising from the independent use of the information in this article without our prior individual legal consultation and professional assessment. Each case requires a tailored solution, so please do not hesitate to contact us.

Read also: