We cooperate with many international companies who trade across the world and use Incoterms EXW or FCA. We face questions and situations which need a proper help, understanding of relationship between VAT law, business operations and Incoterms.
Where is place of supply, can we use a VAT free delivery, what Incoterms
Place of supply connected to delivery of goods, with no mention of transportation in the invoice, is where the transportation begins. For example: if you supply goods to purchaser with no transportation, Czech Republic is the place of supply.
If you sell goods and transportation is included in the transaction, the place of the supply is where the transportation begins.
These two cases are seemingly the same as in both cases the place of delivery of goods is where the transportation starts. So in both cases you must charge Czech VAT.
You must prove that goods left Czech republic and in this case it is possible to invoice VAT free delivery.
How to invoice VAT free delivery of goods
If you mention no incoterms EXW or FCA, it may be that goods stayed in the Czech Republic and Czech VAT must be charged. You can check the range of Incoterms here.
If you mention Incoterms, you must consider several aspects.
Incoterms EXW or FCA
EXW – that would mean that purchaser must manage all the transportation as all the rights to the goods has the purchaser in the moment when purchaser gets the goods in the CZ factory. You do need to handle any transportation (you do not take care of any export). You can make VAT free delivery but you must have all the documents related to the shipment that it left Czech Republic, otherwise CZ VAT should be charged.
It can be a bit risky as purchaser says goods will leave CZ, seller invoices with no CZ VAT, but then purchaser keeps goods in Czech and does not ship them to other EU country.
In this case – seller has a problem as goods did not leave CZ and seller does not have documents proving that VAT free delivery correct.
What about FCA
FCA – there should be set a place where seller delivers the goods and purchaser gets the rights to the goods so at that place seller does not own goods any longer. It is quite similar to EXW in case that FCA would be a city in the Czech Republic, so it is a problem for seller if goods do not leave Czech. If FCA is a city in Germany – seller knows that goods left Czech (as seller knows about transport to Germany) and it is a VAT free delivery.
In both cases Incoterms EXW or FCA– if you want to invoice VAT free delivery from Czech and charge no CZ VAT, you must prove the transport and be possible to present at least these documents:
- all transport documentation (CMR)
- emails and orders related to transport
- Payment documents for transport
- Transport insurance
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