Consignment Agreements: Ownership, Liability and VAT Risks in Warehousing

3.5.2026 | ARROWS law firm

In a consignment warehouse, the supplier retains ownership of the goods until the moment the customer actually takes them. It sounds simple, but the legal reality is more complex. Without a properly drafted agreement, misunderstandings often arise, VAT penalties may be imposed, disputes occur over liability for missing goods, or unworkable situations can arise when the relationship is terminated. In this text, we will show you what a consignment agreement must unequivocally contain, what risks are hidden in the details, and how to avoid the most common mistakes.

The illustrative image shows a specialist discussing the topic of a consignment agreement.

Article contents

What a consignment warehouse is and why to take it seriously
Legal framework and ownership rights
Liability for goods and insurance
Tax aspects – VAT and Intrastat
Final summary

What a consignment warehouse is and why to take it seriously

A consignment warehouse is a special type of warehousing arrangement. Typically, when you order goods, they immediately become your property—you then bear all risks, you must store and insure them, and there is a risk you will not sell them.

With a consignment warehouse, it works differently. The supplier physically places the goods in your warehouse or in a storage cage on your premises, but remains the owner. You withdraw the goods gradually, depending on what you currently need, and you pay only for what you have actually taken.

In practice, this may mean a car mechanic who has a consignment stock of spare parts, a healthcare facility that keeps medical supplies on a ward, or a manufacturing company that has a box of fasteners placed next to a workbench—everything is still owned by the supplier, everything is withdrawn gradually, and invoiced based on actual consumption.

It may seem simple, but the attorneys at ARROWS, a Prague-based law firm, know that in practice problems arise precisely where the parties thought they had resolved everything “on paper” or only verbally.

One supplier may have dozens of consignment warehouses at different customers. One customer may suddenly be unsure whether they are actually bound to purchase goods that are physically on their premises, or whether it is merely free storage. And when uncertainty then arises regarding VAT, insurance, loss of goods, or supplier failure, chaos follows.

Legal framework and ownership rights

A consignment warehouse is not specifically regulated in the Czech Republic beyond general commercial and civil law. It is a so-called innominate contract (an unnamed contract) under Section 1746(2) of Act No. 89/2012 Coll., the Civil Code, as amended (the “Civil Code”)—meaning that legislation does not directly regulate it as a specific contract type (e.g., as a purchase agreement or a lease agreement), but the contracting parties define its content themselves. This is why it is crucial to have an agreement that clearly sets out what is being agreed between you.

The main legal question is: When and under what conditions does ownership of the goods transfer from the supplier to the customer? Under the Civil Code, ownership of movable property is generally acquired upon the effectiveness of the purchase agreement and delivery of the item. In a consignment warehouse, this moment of sale and delivery of specific goods takes place gradually—upon each individual withdrawal of goods from the warehouse.

If your agreement is vague, or the parties later refer to it in disputes, the question may arise whether the goods were actually withdrawn, or whether they were merely “moved” within the physical warehouse.

Therefore, the agreement must expressly define the moment of transfer of ownership. In the vast majority of cases, the following setup is used: ownership transfers at the moment the goods are physically removed from the warehouse based on an issue slip or confirmed consignment record (a list of withdrawn goods), thereby concluding a purchase agreement for those specific goods. The invoice is then based on this list.

Please note: in certain sectors—pharmaceuticals, healthcare services, the automotive industry—there may be specific rules arising from obligations imposed on you or on the supplier by special legislation (e.g., batch traceability, specific storage conditions). ARROWS, a Prague-based law firm, takes this into account—it is not only about the general legal framework, but also the specifics of the given industry.

Liability for goods and insurance

One of the most frequently overlooked questions: Who is liable for loss, damage, or theft of goods that are physically in your warehouse but still not your property?

Although the Civil Code provides for general liability for items in possession or safekeeping, in the case of a consignment warehouse it is standard practice for the parties to regulate liability explicitly.

It is commonly agreed that the customer (the warehouse holder) is liable for the goods from the moment the supplier places them in the customer’s warehouse, until the moment ownership transfers or the goods are returned to the supplier. This means that if the goods are lost, damaged, or stolen, the customer will bear liability for such goods—whether in the sense of an obligation to pay for them or to ensure replacement.

This setup has its logic—the customer has access to the warehouse, control over the movement of goods, control over physical access, and oversight of what happens there. The supplier cannot effectively guard its property remotely in someone else’s warehouse. It is crucial that this liability is expressly agreed in the contract—otherwise the parties may argue about the scope and the moment the risk was assumed.

Insurance is key. If you do not agree in the contract who has the obligation to insure the consignment goods, a situation may arise where the goods are lost and both parties believe the other should have insured them.

In practice, it is most often stipulated that the customer (the warehouse owner), who actually manages the goods, has the obligation to arrange insurance for the goods, or alternatively insurance of their liability for damage to the goods. The contract should specify the insured amount and which risks (theft, fire, flood, vandalism, etc.) the goods must be insured against.

An even more crucial detail: when an insured event occurs and the insurer pays out, it is necessary to clearly agree who is entitled to receive the insurance proceeds.

Given that the supplier is the owner of the goods, the standard is that insurance proceeds in the event of total damage or loss are paid for the benefit of the supplier (as the owner of the goods), not the customer. The customer is insured, but only as the party arranging insurance for another person’s property or for their own liability. This must be agreed clearly; otherwise, the insurer and the supplier may be in constant dispute over who the money belongs to.

Invoicing, payments and VAT settlement

Three perspectives come together here: commercial, accounting and tax. All of them must be aligned.

Commercial reality: An invoice is issued for the goods that the customer actually took from the warehouse. Invoicing is ongoing, usually once a month, based on a list (consignment) of the goods taken. The invoice amount then depends on what was actually taken—not on what is merely stored.

Accounting aspect: The supplier records the consignment warehouse as its inventory (goods in stock) until the moment it invoices them. The customer records the goods in its accounts as its inventory only at the moment ownership transfers and payment is made; until then, it may record the received goods as entrusted property, if relevant for internal records.

This means that, from the accounting perspective of both parties, the goods must be “reclassified”—the supplier removes them from its assets once invoiced; the customer recognises them as its inventory. In practice, this is often handled through interconnected information systems where the invoice is generated automatically from the confirmed consignment.

VAT—this is more complex. Domestically (where both the supplier and the customer are VAT-registered in the Czech Republic), VAT is calculated at the moment the taxable supply takes place, i.e., when the goods are supplied.

In a consignment warehouse arrangement, this means at the moment the customer acquires the right to dispose of the goods as owner, which is typically the moment the goods are physically taken from the warehouse (Section 21(1)(a) of Act No. 235/2004 Coll., on Value Added Tax, as amended, hereinafter the “VAT Act”).

However, if the contract—which precisely determines when the invoice is issued and how the consignment is handed over—is not clear, VAT may be calculated incorrectly.

The situation is even more complex if the supplier or the customer is established in another EU Member State. The goods are then moved between states and VAT is governed by the special “call-off stock” regime (warehouse regime), regulated in Section 13a of the VAT Act. In such a case (as applicable in 2026):

If the goods are transferred by the supplier to another Member State for the purpose of supplying them to a specific known customer in that Member State, this transfer is not regarded as an intra-Community supply and acquisition of goods at the moment of the transfer.

Instead, the taxable supply (intra-Community acquisition of goods) occurs only at the moment the customer takes the goods from the warehouse. The customer is then obliged to declare VAT in the Member State where the goods are stored.

If the conditions are not met or the goods are not taken within 12 months (or are supplied to another entity), the warehouse regime is breached and the supplier is obliged to declare an intra-Community supply of goods and register for VAT in the Member State to which it transferred the goods.

Practical risk: Many entrepreneurs assume that once they issue an invoice, everything is settled for VAT purposes. In reality, if they issue the invoice at the wrong time or at the wrong stage, the VAT is not correct—and this is not an accounting issue; it is a breach of the VAT Act. The Financial Administration of the Czech Republic then corrects it, often with a penalty.

The attorneys at ARROWS, a Prague-based law firm, know that consignment warehouses with cross-border supply require special attention. They will help you set up your invoicing and VAT system so that it complies with the law and so that you do not lose your VAT deduction or risk penalties.

Contract drafting considerations: what must be included

When you decide to establish a consignment warehouse with a supplier, the agreement should include at least the following elements:

1. Definition of ownership and transfer of rights: It must be absolutely clear that the supplier remains the owner until the goods are actually taken and ownership is transferred. It should not refer only to a “purchase agreement” or “terms and conditions”—it should be expressly stated directly in the consignment agreement.

2. Conditions for taking goods and the moment ownership transfers: How is “taking” defined? Is it enough for an employee to take it from a cabinet? Or must it be signed for? Or reported in an IT system? The agreement must clearly determine what counts as taking, to avoid later disputes as to whether the goods were actually “received”.

3. Invoicing and payment method: How often is invoicing done (monthly, quarterly)? Within what time period after invoicing must payment be made (most commonly 30 days)? What are the fees for late payment? How are invoices containing errors handled?

4. Liability for the goods: Detailed definition: from when the customer is liable (usually immediately after physical delivery to the warehouse), for which risks (theft, damage, expiry) and what its rights and obligations are when handling an insured event.

5. Insurance and damage: Who insures, for what amount, against which risks, and who is the beneficiary of the insurance proceeds? What is the procedure for reporting an insured event?

6. Replenishment of stock and minimum level: What stock level must the supplier maintain? What happens if the goods run out and the supplier does not replenish them in time? Is there a deadline within which the supplier must replenish the warehouse?

7. Return of unused goods: If the customer finds that it does not need certain goods, can they be returned to the supplier? Under what conditions? Who bears the costs of the return? This is crucial especially for goods with a short shelf life.

8. Expiry dates: For goods with a minimum shelf life (medicines, food, medical supplies), the agreement must include rules for checking and replacing goods approaching expiry. It is usually agreed that the supplier is responsible for not placing goods close to expiry into the warehouse and that it carries out inspections at certain intervals.

9. Obligations and rights of both parties: What is expected from the customer? Regular reporting, access to the warehouse for the supplier, a contact person? What is expected from the supplier? Regular inspections, problem-solving, communication?

10. Termination of the agreement: How is the agreement terminated? Is it for a fixed term or indefinite term? What is the notice period? What happens to untaken goods after termination—does the supplier take them back, or must they be disposed of?

11. Dispute resolution and applicable law: Which court has jurisdiction (e.g., a court with local and subject-matter jurisdiction in the Czech Republic)? Which law applies (e.g., Czech law excluding the United Nations Convention on Contracts for the International Sale of Goods)? Is out-of-court dispute resolution possible (mediation, arbitration)?

Practical mistakes people often make

Verbal agreement without anything in writing. Business is often arranged like: “Sure, we’ll keep goods here, you’ll call when you need them, and I’ll send you an invoice every month.” That is commercially convenient, but legally disastrous. When a tax audit comes and asks when exactly the goods transferred to your side, you have no evidence. “We were sure” does not apply – evidence does. Things that matter (rights, obligations, liability, VAT) must be in the agreement.
Unclear payment and invoicing timelines. Many agreements contain the sentence “invoice payable within 30 days of issue.” But who issues it? When? Based on what? If it is not clear, one party may issue an invoice for a different quantity of goods than what the other party has in its records. Then you deal with complaints, returned invoices, and disputes about what was actually taken. Time is wasted and the relationship deteriorates.
No insurance or unclear insurance terms. The customer often thinks: “They’re just parts in a box, what could happen?” And then a fire, water damage, or theft occurs, and nobody knew it should be insured or for what amount. The insurer then says it does not have to pay because the agreement or policy was not arranged properly. The goods are gone, invoices remain unpaid, and everyone is angry.
No regular reporting. The supplier occasionally comes by and looks at what is left. But nothing systematic. Then it turns out there were, for example, 200 parts, but now there are 80 – and nobody knows when and why 120 went missing. Month after month it accumulates until one day someone counts a million Czech crowns in unexplained loss. The agreement should include the customer’s obligation to report inventory levels regularly so that the supplier is informed and issues are addressed on an ongoing basis.
A silent end without settlement. One party stops delivering, the other stops taking, but nobody addresses anything. Uncollected goods remain, unresolved invoices hang in the air, and when a dispute arises later, it is unclear what was agreed or what the parties’ rights and obligations are. End-of-term settlement must be in the agreement and must be carried out systematically.

Tax aspects – VAT and Intrastat

If the supplier or the customer is established in another EU Member State, the situation becomes more complicated. The goods are “moved” between countries, and this has consequences for VAT and Intrastat reporting.

Domestic VAT: If both parties are registered for VAT in the Czech Republic, it is essentially straightforward – VAT is calculated at the moment the taxable supply takes place (i.e., when the goods are actually taken and ownership transfers). It is important that the agreement clearly defines what this moment means.

VAT in a cross-border situation: If, for example, the supplier is in Austria and the customer is in the Czech Republic, this involves a transfer of goods. A special “call-off stock” regime (warehouse regime) under Section 13a of the Czech VAT Act, in force as of 2026, is often applied here. In such a case:

If the goods are intended for a single known customer who is registered for VAT in the Czech Republic, and the supplier is not established in the Czech Republic, no intra-Community supply of goods takes place at the moment the goods are moved into the warehouse in the Czech Republic.

The customer then accounts for VAT on the intra-Community acquisition of goods in the Czech Republic only at the moment the goods are actually withdrawn from the warehouse, but no later than 12 months from stocking.

To apply this simplification, the supplier must keep detailed records of the goods under the warehouse regime. If these records are not kept properly, other conditions are not met, or the goods are not withdrawn within 12 months, the warehouse regime is breached. In such a case, the transfer of goods is retroactively considered an intra-Community supply of goods by the supplier, who must then register for VAT in the Czech Republic.

Goods are reported in Intrastat at the moment they physically cross borders between Member States – not at the moment of invoicing. Therefore, the transfer to a consignment warehouse in another Member State is reported in Intrastat by the supplier as a dispatch (transaction code 19) and by the customer as an arrival (transaction code 29) in the month when the goods physically move.

Later, when the customer withdraws it from the warehouse and title transfers, this transaction is not reported to Intrastat again – it is already an internal movement within the Member State, which was covered by the previous report.

This setup requires a very careful approach and high-quality invoicing and data records. The attorneys at ARROWS can navigate these situations – they can help you set up procedures so that VAT rules are complied with and Intrastat is reported correctly.

Final summary

A consignment warehouse is an elegant solution for both parties – the supplier secures long-term cooperation and distribution of goods, while the customer saves on warehousing and financing inventory.

However, the legal and tax framework in which this operates is more significant than many parties intuitively assume. Without a high-quality contract, an elegant cooperation quickly turns into legal confusion, which is then resolved through disputes, arbitration, and costly legal proceedings.

Specifically, the point is that the contract should be:

Clear and complete – all key points (title, liability, insurance, invoicing, VAT) must be explicitly defined.
Legally correct – it must comply with the Czech Civil Code, the Czech VAT Act, and, where applicable, other special regulations in force as of 2026.
Practical – it must reflect the reality of your operations and be understandable to everyone who will use it on a daily basis.
Protective – it must protect you against common risks (loss of goods, non-payment, disputes over the scope of liability).

The attorneys at ARROWS know that every consignment arrangement differs in the details – and that a “generic solution” often leads to problems.

If you want to be sure that your consignment warehouse agreement has the correct legal framework under Czech law and protects you against common risks, contact us. We will remedy the contract, set up procedures, and be available if anything becomes complicated.

Book a consultation with the attorneys at ARROWS at office@arws.cz – they will help you prepare or review the agreement so that it is legally robust and commercially effective.

FAQ: Agreement on establishing a consignment warehouse

1. Can the agreement be only verbal, or must it be in writing?
In the Czech Republic, in principle, an agreement can also be concluded orally – but for evidentiary purposes and due to the complexity of a consignment warehouse, it is fundamentally better to have the agreement in writing and signed.
In the event of a dispute or a tax audit, you will need proof of what was agreed – and a verbal statement is not enough. The attorneys at ARROWS can help you prepare a written agreement that will be legally binding and protect both parties.

2. Who is subject to VAT registration in the context of a consignment warehouse?
Domestically, the situation is usually clear – if the supplier and the customer are both registered for VAT in the Czech Republic, there is no issue.
However, if the supplier is foreign (for example, from Austria), the question of VAT registration in the Czech Republic is governed primarily by Section 13a of the Czech VAT Act for the warehouse regime. In this case, the supplier generally does not have to register for VAT in the Czech Republic if all conditions of the warehouse regime are met and the goods are subsequently withdrawn by the customer within the prescribed time limit.
Consult an attorney at ARROWS ( office@arws.cz ) to ensure VAT is handled correctly.

3. How long should a consignment warehouse agreement last?
Agreements are commonly concluded for an indefinite term with a one-month notice period, or for a fixed term (e.g., 2–3 years). It is a matter of the parties’ agreement. If the agreement is for a fixed term, it is usually automatically extended unless one party terminates it within a certain period before the end (e.g., 60 days before expiry). It is important to be clear about how the agreement is terminated and what happens to goods that have not been withdrawn – this must be set out in the text.

4. What if the laws change during the term (for example, VAT)?
Legislation changes over time – and sometimes the way VAT is calculated changes. The agreement should include a clause that if legislation changes, the parties will reasonably adapt their procedure. In practice, this means that if the state introduces a new VAT rule, both parties acknowledge that they will proceed under the new law, but that they will not financially harm each other due to the legislative change. The attorneys at ARROWS can help you set this up.

5. Can the agreement include provisions stating that the parties will not impose penalties on each other for ordinary delays or other minor “infractions”?
It can, but only to a certain extent. The agreement must not be so “soft” that breaches by one party have no consequences – because then it will not be complied with. It is common that the first few days of delay are not an issue (they are normal waiting times), but then fees apply or there is a risk of service suspension. Or that ordinary shortcomings are addressed without penalties, but more serious breaches (non-payment, failure to hand over goods) lead to withdrawal from the agreement. The attorneys at ARROWS can help set up a penalty framework that is fair but also effective.

6. Do we need to have the agreement approved by an insurer, or is it only between us?
This is a matter of concluding an insurance policy, not the consignment agreement itself. If you insure consignment goods, the insurer will want to know the terms – among other reasons, so it knows when your liability begins and when it ends. Typically, the insurer is provided with a copy of the relevant parts of the consignment agreement. The insurance policy itself is not part of the consignment agreement, but their contents are closely related. The attorneys at ARROWS will be happy to assist – they can check whether the insurance is set up consistently with the consignment agreement.

Disclaimer: The information contained in this article is of a general informational nature only and is intended to provide basic guidance on the issue under the legal framework as of 2026. Although we take maximum care to ensure accuracy, legal regulations and their interpretation evolve over time. We are ARROWS, a Prague-based law firm registered with the Czech Bar Association (our supervisory authority), and for maximum client security we are insured for professional liability with a limit of CZK 400,000,000. To verify the current wording of regulations and their application to your specific situation, it is necessary to contact ARROWS directly (office@arws.cz). We accept no liability for any damages arising from the independent use of the information in this article without prior individual legal consultation.

Read also:

Potential issues	How ARROWS helps (office@arws.cz)
Unclear ownership of goods – the agreement does not specify when ownership transfers, and disputes arise as to whether the goods in the warehouse are the property of the customer or the supplier, which complicates accounting, VAT, and insurance.	We will ensure the agreement is drafted with a clear definition of ownership and the moment rights transfer, in line with the Czech Civil Code and tax regulations in force as of 2026. We will set procedures so that ownership transfers only upon the actual withdrawal of the goods.
Liability for damaged or lost goods – it is unclear who is responsible for theft, damage, or expiry of goods, which leads to disputes and financial losses.	We will set a clear liability structure in the agreement, with rules for reporting damage, insurance, and handling insured events, so that everyone is protected and knows where the limits of liability lie.
Incorrect VAT – invoicing is not set up in accordance with the Czech VAT Act, which leads to incorrect deductions or audits by the Czech Financial Administration with the risk of significant penalties.	We will prepare the agreement with a clear definition of the invoicing method and the moment of taxable supply so that VAT is correct, including in the case of cross-border supply (call-off stock regime under Section 13a of the Czech VAT Act).
Loss of control over inventory and a “million-crown shortfall” – there is no regular control of goods movements, unexplained losses occur, and these are only discovered months later.	We will set procedures for regular reporting, physical stocktakes, and monitoring the movement of goods. We will also help you set up an IT system and warehouse operating rules so that risks are identified in time.
Unclear termination conditions – when the parties part ways, they cannot agree on who will take the remaining goods, how invoices will be settled, and what each party may claim.	We will prepare the agreement with a clearly defined termination procedure, including the supplier’s right to take back the remaining goods, the settlement process, and the obligation to reconcile invoices. We will assist you in arbitration or court proceedings if a dispute arises.