Advertising on Facebook, Google, Instagram: who has to pay VAT and why?

Did you know that you must pay VAT if you use sponsored advertising on Facebook and Instagram as part of your business. You should submit a VAT return and summary report based on the advertising bills. How do I correctly account for social media advertising? How do I fill out tax forms? And when do they need to be sent to the revenue service?

The rule is the same whether you are a single trader or a limited business, whether you pay VAT or not: if you begin Facebook Ads or Instagram Ads and pay for the advertising, you must also pay value-added tax to the Czech revenue service. You also have other responsibilities.

Continue reading for an outline of what you should do when running paid advertising on Facebook, Instagram, LinkedIn, TikTok, Google, Booking, Airbnb, and other platforms. Seznam is another regularly used platform. However, because it is situated in the Czech Republic, the entrepreneur is exempt from paying VAT.

Why VAT matters in your facebook and instagram advertising

Meta, the parent company of Facebook and Instagram, operates from Ireland for its European clientele. Consequently, this operation falls under the reverse charge regime (known as přenesená daňová povinnost in the Czech Republic), shifting the responsibility for VAT declaration and payment from the supplier to the recipient.

This obligation extends beyond Meta and encompasses other services procured from abroad, such as those from Google, LinkedIn, TikTok, Booking, and Airbnb. It also includes transactions like purchasing photos from foreign photo banks or utilizing marketing tools like MailerLite. In these instances, invoices are issued without VAT, but the responsibility to remit VAT lies with the Czech Financial Administration.

Simply put, when you buy advertising on Facebook or Instagram for your business, you’re essentially acquiring a service from abroad, necessitating VAT payment in your home country. To fulfill this requirement, it’s imperative to become a VAT-identified entity.

However, if your company provides a service in another country, you may become an identified person. In this scenario, a summary report listing the services supplied abroad is required.

Reverse taxation applies to Google and Facebook ads. This means that VAT must be paid in the country where the recipient of the service (i.e., you) is situated, at the rate set by that country’s regulations. In the Czech Republic, advertising services are subject to the usual VAT rate of 21%.

Does VAT status affect me?

Your VAT status holds significance, whether you are currently a VAT payer or not.

For non-VAT payers, there’s a shift: you must transition into a VAT-identified person. This categorization entails being a VAT payer exclusively on foreign transactions, while your domestic payments remain exempt.

If you’re already a VAT payer, the status quo remains. Your procedure involves reporting service payments on your routine VAT return and control report. As you retain the right to deduct VAT, the tax office will duly refund this amount in its entirety.

How to enroll as an identified person

If you engage in the purchase or sale of services internationally, enrolling as an identified person becomes a necessity, bringing forth certain responsibilities.

As an individual entrepreneur, you’re required to register with the tax authority within 15 days of the issuance of an invoice for services acquired abroad. This registration process is exclusively electronic.

Furthermore, you are obligated to submit a monthly tax return for each period in which you engaged in advertising on platforms like Facebook or procured other services from overseas. In the absence of any advertising activities during a particular month, there’s no requirement to file an income tax return.

Submitting your VAT return

The VAT return is exclusively accepted through electronic means, requiring completion by the 25th day of the subsequent month. This electronic submission can be accomplished via an electronic data box or by utilizing a recognized electronic signature. To illustrate, if you’re reporting for the month of September, the deadline for submission and payment is no later than October 25.

On your tax return, you detail the value of the invoices and the associated 21% tax.

To complete the submission, two essential documents must be attached to the declaration: the advertising invoice issued by Meta and a receipt for the invoice, conveniently downloadable from the Internet bank.

Submission of a summary report

In addition to other obligations related to paid advertising on Facebook and Instagram, the filing of a summary report is a crucial requirement.

Exclusively available through electronic means, the summary report outlines the costs of services rendered in Czech Crowns (CZK).

Each calendar month necessitates the submission of a summary report within 25 days following the conclusion of the respective month in which the foreign sale occurred. In cases where the taxpayer exclusively offers services, the summary report is submitted concurrently with the tax return, adhering to the deadline for tax return filing.

Locating a Facebook invoice

Accessing a Facebook invoice is a straightforward process, achievable through both the Ads Manager and the Business Manager. The invoice provides comprehensive information on your payment, payment method, and specifics of your advertisements, including ad set names, results, and expenditure.

To input your payment particulars—such as your name, address, identification number, and VAT number—you can navigate to the Advertising account settings and locate the Payment settings section.

How to avoid VAT on advertisement

Paying VAT on advertising is not a problem if you are a private individual who uses Facebook or Instagram advertising for personal reasons. You do not need to become an individual entrepreneur if you use it to publish advertisements for the sale of a baby stroller or old furniture.

What if I do not use advertising for commercial purposes

If you don’t already have an ID number and use advertising to spread the news about your initiative and collect contacts, you don’t have to pay VAT individually. Set the “Do not use advertising for commercial purposes” option in Ads Manager if the primary goal of advertising is not enrichment (raising profits or assets).

You don’t have to worry about anything else because Facebook will compute the Irish VAT on top of the ad cost. Actually, you will still be charged VAT, but it will be included in the final ad price. You are no longer obligated to the authorities.

What if I utilize advertising for commercial purposes

While employing advertising for commercial endeavors, it becomes necessary to configure your Ads Manager settings accordingly. Once engaged in commercial activities, you’ll receive VAT-excluded invoices, resulting in a reduced price. However, you are then required to settle a 21% VAT within the Czech Republic as part of your tax return.

Commercial purposes encompass various activities, such as selling items on websites like Fler.cz, Vinted.cz, or Bazos.cz. This includes the ongoing sale of products like bracelets, printed T-shirts, or other items that may not yield substantial income individually but constitute a continuous, monthly selling and advertising effort.

Entrepreneurial activity, especially for commercial purposes, denotes a sustained effort aimed at generating profits.

You always pay VAT on advertising

VAT on advertising is an obligatory component, applicable across the board. For non-business individuals, the Facebook invoice already incorporates the VAT. Conversely, if you operate a business, the VAT is not integrated into the invoice and is due for payment upon the submission of your tax return.

What are the risks of non-compliance with VAT filing and payment?

Choosing not to file a VAT return or neglecting VAT payments can lead to significant consequences. If you assume that your oversight will go unnoticed, think again. Late filing or failure to submit the VAT return incurs a fine of 20% of the unpaid VAT, with a maximum penalty of CZK 500,000. For recurrent non-compliance, the penalty escalates to CZK 1,000,000. Interest on late payments begins accumulating on the first day of delay.

At its most severe, evading VAT on advertising could be classified as tax evasion or fraud. Legally, this constitutes a criminal offense, carrying penalties ranging from imprisonment for up to 10 years to activity bans or property confiscation, depending on the unpaid tax amount.

Furthermore, tax authorities reserve the right to retroactively impose additional VAT. Coupled with fines and penalties, this could significantly escalate the financial impact. The statute of limitations for such cases is three years.

It’s crucial to note that if you haven’t utilized the service and, therefore, haven’t made any payments for specific months, you are exempt from filing a tax return for those periods. If an oversight occurs, ensure to include the omitted amount in the subsequent month’s declaration.

In conclusion

This article and all the information provided are solely for educational purposes and should not be considered as a recommendation or advice. For inquiries regarding accounting and taxation, please consult with a qualified accountant and/or tax consultant.

https://www.jakpodnikat.cz/adwords-dph.php

https://www.finance.cz/541688-reklamy-na-socialnich-sitich-a-dph/

https://www.zapecova.cz/faktury-googlu-a-facebooku-kde-je-najit-a-jak-na-ne/

https://www.martindomes.cz/proc-neplatci-dph-odvadeji-dph-z-reklamy-na-facebooku-a-googlu/