When does entitlement to VAT deduction arise on provision of export insurance?
The Coordination Committee of the General Financial Directorate and the Chamber of Tax Advisors have discussed the entitlement to VAT deduction on insurance provided in connection with the export of goods to a third country. A few situations that may occur have been outlined, as well as their solutions.
Insurance services are generally exempt from VAT without the entitlement to deduction. However, it is possible to claim VAT deduction in respect of insurance and certain financial services where the place of supply is located in a third (non-EU) country or where the supply directly relates to the export of goods. The paper submitted to the Coordination Committee discusses situations in which the VAT Act allows to claim the entitlement to VAT deduction on insurance services directly related to the export of goods to a third country.
Insurance provided by an insurance company to a Czech manufacturer (e.g., against the recipient’s failure to pay for the goods received or against a risk of loss or destruction of goods) who is simultaneously an exporter of goods to a third country is exempt from VAT with an entitlement to VAT deduction. In other words, the insurance company may deduct VAT on received taxable supplies associated with the provided insurance if the insurance service is directly provided to the exporter of goods.
If the insurance company were to settle an insurance claim directly for the Czech exporter of goods, this supply is also exempt from VAT with the entitlement to VAT deduction if the claim settlement can be directly allocated to the export insurance. Under these conditions, the claim settlement is subject to the same tax regime as the insurance itself. The insurance company is therefore entitled to deduct VAT on the received taxable supply that is then used to settle the claim.
In contrast, where insurance is provided to a person other than the exporter, the entitlement to VAT deduction may not generally be claimed. These mainly involve situations where the insured and the policyholder is a person other than the exporter (e.g. a bank).