The growing European single market enables companies to organise their business models flexibly and across borders. A particularly interesting model is production in the Czech Republic in combination with a virtual office and a representative business address in Germany. Sales are made directly from the Czech Republic. However, the question is: What are the tax implications of this setup? And how does the situation change if a warehouse is also operated in Germany? In this article, we will shed light on the tax framework, pitfalls and practical solutions for entrepreneurs pursuing such a business model in the EU.
Chapter 1: Tax framework for pure shipping from the Czech Republic
The structure with production and shipping from the Czech Republic, paired with a virtual business address in Germany, is a model with many advantages from a tax perspective, but also hidden risks.
Sham facade or legitimate model? The role of the virtual address
A virtual business address in Germany significantly increases the respectability of a company vis-à-vis German business partners and end customers. As long as no operational activities take place at this address - such as storage, contract conclusions or customer meetings - it is not categorised as a permanent establishment for tax purposes. This is an advantage, as profits in this case are only taxable in the country of domicile, i.e. the Czech Republic. It is important that all operational activities are clearly allocated to the Czech company, including customer communication, contract processing and payment flows.
Intra-Community mail order: When does VAT apply in Germany?
As soon as a company from the Czech Republic regularly supplies products to end customers in Germany, the so-called distance selling regulation applies. This states that VAT must be paid in the respective destination country - i.e. Germany - for annual sales of more than EUR 10,000 to EU private customers. The OSS (One-Stop-Shop) procedure can be used to reduce administrative costs. This central EU procedure enables companies to fulfil their VAT obligations in all EU countries via a single interface - in this case with the Czech tax office.
Legal and economic implications
Companies that do not comply with these regulations not only risk additional tax claims, but also fines. Compliance with VAT regulations is therefore not only a question of legality, but also of crucial economic importance.
Conclusion Chapter 1
As long as there is no permanent establishment in Germany and the OSS procedure is used properly, the tax liability remains largely in the Czech Republic. Nevertheless, professional VAT management is required, especially for continuous B2C transactions in Germany.
Chapter 2: Permanent establishment or not? The legal minefield
Determining whether a permanent establishment exists determines the tax jurisdiction of a country. The actual use of the German address plays a central role here.
When does the tax office speak of a permanent establishment?
According to German tax law, a permanent establishment exists if a fixed business facility is permanently available through which a business activity is carried out in whole or in part. This includes, for example, sales offices, warehouses or workshops. A mere letterbox address, on the other hand - i.e. an address with no staff, no decision-making powers and no operational activities - is not considered a permanent establishment.
Changing administrative opinion & case law
Case law has become much stricter in recent years. Today, tax authorities check very closely whether the virtual address is actually being used as the centre of business activity. Indications of this can be frequent customer visits, regular parcel collections or representatives working on site. With the entry into force of new EU regulations on transparency and tax harmonisation, such situations are increasingly being monitored across borders.
Borderline cases and grey areas
It becomes problematic in so-called mixed forms, for example if the German address is occasionally used for meetings or as a return address. Even such seemingly incidental activities can establish a tax-relevant presence.
Conclusion Chapter 2
Tax recognition as a permanent establishment can have far-reaching consequences. Anyone using a virtual address should never rely on the fact that this will automatically remain tax-neutral. A written utilisation concept and a clear separation between representation and operational activities are essential.
Chapter 3: Stock option in Germany - what will change from a tax perspective?
Although an additional warehouse in Germany improves delivery times and increases customer satisfaction, it also represents a critical element from a tax perspective.
Warehousing and VAT - where is the tax due?
If a warehouse is operated in Germany from which customers are supplied, there is a VAT registration obligation in many cases. This is because the delivery movement from the warehouse is categorised as domestic - with all the consequences in terms of VAT. If the warehouse is operated by a logistics partner (e.g. fulfilment service provider), it must be checked whether the warehouse is permanently available to the company. In such a case, the warehouse can be categorised as a permanent establishment - regardless of where the staff are based.
Staff in the Czech Republic - but still a permanent establishment?
Even if the warehouse logistics are controlled from the Czech Republic, the actual power of disposal over the German warehouse plays a central role. Even the ability to independently distribute goods from the warehouse or accept returns can lead to a taxable permanent establishment.
Other factors: contract design and storage costs
The contractual arrangements with storage service providers and the assumption of storage costs can also be an indication of a permanent facility. Companies should therefore precisely document the extent to which they influence the warehouse - and how it is used operationally.
Conclusion Chapter 3
A warehouse in Germany is a tax game changer. It is only possible to avoid a taxable permanent establishment if there is no power of disposal over the warehouse. A detailed examination prior to the commencement of storage is essential.
Chapter 4: Organisational options and recommendations for action
Well thought-out structuring is the key to tax-optimised international trade.
Using OSS procedures and tax registration correctly
Companies should apply for the OSS procedure at an early stage and keep an eye on all national turnover thresholds. In cases involving warehousing or intensive business activities in Germany, VAT registration may also be required. The reverse charge procedure should also be examined in certain constellations.
Tax optimisation: cooperation with experts
International business models require close cooperation with specialised tax law firms. These not only offer expertise in avoiding double taxation, but also provide support with permanent establishment valuations, contract reviews and communication with foreign tax authorities.
Further recommendations: Contract, logistics and customer management
In addition to tax advice, the organisation of supply chains, return processes and contractual structures with service providers is also crucial. Such a model can only be operated successfully and legally compliant in the long term if all interfaces are well thought out from a tax perspective.
Conclusion Chapter 4
Cross-border business models require holistic planning. With the right mix of tax expertise, precise implementation and clear separation of functions, risks can be significantly minimised and competitive advantages secured.
Conclusion & summary
The combination of production in the Czech Republic and a virtual German business address is an efficient and cost-saving business model with great potential. However, from a tax perspective, it is a sensitive construct that depends on the correct utilisation of virtual structures and the clear separation of operational units. The introduction of a warehouse in Germany increases the complexity, but can - if structured correctly - be mastered from a tax perspective. Entrepreneurs should seek professional support at an early stage and document all tax and legal framework conditions transparently.
Your advantages with Virtual Office
A virtual office in Germany offers tangible strategic and tax advantages for international business models:
- German impression for customers & business partners
- German business address for Google Maps & Imprint
- No additional tax liability if used purely for presentation purposes
- Mail acceptance and forwarding from a single source
- Legally compliant appearance thanks to German telephone number
- Proof of German bank account or commercial register
- Flexibly expandable with telephone service or warehousing
- Cost-effective solution from 50 euros per month
- Ideal addition for cross-border e-commerce concepts
- Attractive for start-ups and SMEs based in other EU countries
Benefit from a virtual business address and start trading across borders with tax security!
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