| Czech Republic Income Tax Czech Republic personal income tax rate for 2009 is a flat 15%.
Czech Republic income tax is payable by Czech resident individuals on income derived from worldwide sources. Nonresident individuals are only required to pay tax on Czech sourced income. Residence is determined by reference to domicile or where the individual has spent at least 183 days of the relevant calendar year in the Czech Republic.
Czech Republic income tax is payable on assessable income less expenses and allowable deductions. Assessable income includes business income; employment income; other capital gains; dividends; rental; interest income; annuities and other income. Expenses cannot be claimed for employment income or capital gains (most of which are subject to withholding tax). Employment income cannot be reduced by losses of any other categories of income.
Income from business or rental operations can be reduced by losses deriving from other categories. Income from employment is taxable individually and is reduced for some deductible items and personal allowances in Czech Republic.
Employees hired under an employment contract under Czech law pay social security and medical insurance contributions at the rate of 12.5% withheld by their employers from their gross wages. Social security contributions are also paid by the self-employed.
From 2008, the flat rate of 15% is applied to 'super gross salary'. Super gross salary is a gross wage plus social security and medical insurance contributions paid by employer in the amount of 35% of gross wage.
Tax returns are due on 31 March or on 30 June if prepared by a recognised tax advisor. Provisional tax payments on income from employment are paid monthly. Payments on account of tax on income from business operations, rental income, etc are made half-yearly and quarterly, as for corporations, based on the last known tax liability.
Inheritance and Gift Taxes are progressive and take into account the individual family relationship and the value of the property transferred in Czech Republic.
Real estate tax is paid on land and buildings.
Inheritance and gift taxes are not deductible for income tax purposes but real estate property and property transfer taxes are deductible.
Joint Filing of Tax: Joint tax filing of married couples is abolished as from 2008.
Capital Gains Tax: Capital gains in Czech Republic generally are taxed at 15%; however, gains are exempt if certain conditions are satisfied.
Tax Deductions and Allowances: Tax deductions are granted for mortgage interest in Czech Republic, life and supplementary pension insurance, and gifts. Personal allowances are available for the taxpayer, her/his spouse and children.
Capital Acquisitions Tax in Czech Republic: There's no capital acquisitions tax on individuals in Czech Republic.
Czech Republic Real Estate Tax: A real estate tax is levied on the occupation of real estate property or plots of land, with the rate depending primarily on the size of the land.
Transfer Tax: The only transfer tax in Czech Republic is the real estate transfer tax, which is 3%. The flat tax rate of 3% real estate transfer tax is considered to be abolished from 2010.
If not subject to a tax exemption, real estate transfer tax is charged at a uniform rate of 3% of the sale price of a property or of the usual market price, whichever is higher, and is payable by the seller (the buyer is the guarantor). In certain cases, the tax payer can ask the Financial Directory for a remission of real estate transfer tax.
Net Wealth / Net Worth Tax: There's no wealth tax / net worth tax in Czech Republic.
Inheritance / Gift Tax: Progressive tax rates ranging between 7% - 40%. Certain persons (generally relatives) are exempt from the tax.
Tax Year: Tax year in Czech Republic is the calendar year.
Penalties on Late Payment of Tax: Penalties and interest applies for late payment of tax, failure or late filing or under-declaring income.
Social Security and Health Insurance Contributions: An employee's social security and health insurance contributions are calculated as 11% of gross salary. This is 4.5% health insurance and 6.5% old age / pension. Self employed individuals in Czech Republic contribute a mandatory 42.7% (13.5% health insurance, 28% old age / pension and 1.2% unemployment). From 2008, there is a capped annual base for social security and health insurance payments of employees in the amount of 48 times the average monthly salary, which is CZK 1,130,640 for 2009.
Taxation of Expatriates in Czech Republic: Taxable income includes earnings from dependent activities including benefits in-kind (e.g. housing allowances, use of a company car for private purposes which is subject to car tax, etc.), income from business activities, and income from capital, rent and other sources. In general, taxable income consists of all income regardless of whether it is monetary or non-monetary.
Generally, income is declared and taxed through a personal income-tax return that should be filed with the relevant Tax Office within three months after the end of the tax period (or within six months if a power of attorney for filing the tax return is submitted by a certified tax advisor).
An expatriate who is employed directly by a local (Czech) company or by a branch of a foreign company is subject to tax on his/her income from the dependent activity from the first day of his/her employment. The local company or branch of a foreign company withholds monthly tax pre-payments from his/her salary towards his/her annual tax liability. If the expatriate only has income derived from an employment contract, the employer prepares a year-end tax settlement that is a substitute for the expatriate's tax return.
If a foreign company transfers an expatriate to a Czech company under a service agreement, he/she should be registered as an individual taxpayer with the relevant Tax Office. His/her income is taxed via the annual personal income tax return. Additionally, an expatriate makes semi-annual or quarterly advance payments for his/her personal tax liability in the course of the year. These advance payments are based on the previous year's tax liability.
There is a flat personal income-tax rate of 15% in 2009. The tax base from which the tax liability is calculated, however, is increased, as the 2008 payroll tax is calculated from the so-called "super-gross" salary (salary increased by social security and health insurance contributions). Therefore the effective tax rate is higher than the nominal 15%).
Czech Republic Corporate Income TaxCzech Republic corporate income tax rate is 19% in 2010. Company tax is payable by Czech resident companies on income derived from worldwide sources. Nonresident companies are required to pay the tax on income sourced in the Czech Republic.
Resident companies are those which have their registered office in the Czech Republic.
The company tax rate is 19% for 2010. A 5% tax rate applies for investment funds, pension funds and share funds. The fiscal year is the calendar year, or economic (business) year if agreed with the tax authority.
Tax is due and payable in a single payment if the previous year's tax liability was under CZK 30,000; in six monthly advance payments if the previous tax liability was between CZK 30,000 and 150,000; or in quarterly advance payments if the previous tax liability was over CZK 150,000.
Tax returns of companies for which audited statement of accounts are not required under law are due by 31 March of the following year. For a company to which the 31 March deadline applies, the tax return can be filed on or before 30 June if the company authorizes a tax advisor to prepare his return. In all other cases, the taxpayer is entitled to ask the Tax Administration for the due date to be postponed by up to three months.
The company's taxable income is determined by ascertaining assessable income and then subtracting all allowable expenses. In general, to be tax deductible, all expenses must be related to the gaining or producing of assessable income and are not exempt pursuant to the law on income tax.
Capital Gains Tax in Czech Republic: Capital gains such as dividends, interest from owed securities, deposit accounts and deeds are subject to 15% withholding tax. Since 2004, income from dividends and interest is exempt from withholding tax if paid to a resident of an EU territory in accordance with the EU Parent-Subsidiary Directive No 90/435/EU. From 2008, the following incomes shall be tax-exempt:
(a) income arising from transfer of shareholdings by a parent company in its subsidiaries within the EU
(b) dividend income of resident companies paid out by nonresident subsidiaries
(c) income from the transfer of shareholdings by companies in subsidiaries outside the EU where a relevant double taxation treaty is signed.
The Parent company must have a minimum of a 10% holding in the subsidiary's registered capital for an uninterrupted period of at least 24 months. The subsidiary company must be a joint stock company or limited liability company and subject to a rate of tax in the non-EU country at a minimum of 12%.
Branch Profits Tax: There is no separate branch profits tax in the Czech Republic. The income of a Czech branch of a foreign company is subject to taxation at the generally applicable 20% rate for 2009. Attribution of profits to a branch is determined on the basis of the margins that are generally realized by resident companies undertaking similar activities.
Foreign Tax Relief: Ordinary credits for foreign income tax are available to resident taxpayers under Czech law. This applies where an international double taxation treaty exists. The clearance or exclusion method is available, according to the particular double tax treaty. If there is no tax treaty, the legal entity will include tax paid abroad in its tax expenses for the following period.
Corporate Groups: Profits and losses of holding and subsidiary companies may not be consolidated.
Related Party Transactions: Non-arm's length profit sharing arrangements are covered by transfer pricing provisions which give the tax authority the power to impose a tax on the difference between the customary and actual prices.
Exchange Controls in Czech Republic: The Foreign Exchange Act allows the Czech currency to be used freely to pay for business and other costs, for direct investment and reinvestment, and for purchase of real estate property abroad. Also, the acceptance of financial loans from non-residents is now legal.
Capital transfers have been deregulated but the reporting duty has been retained. Non-residents may use funds deposited in their accounts denominated in Czech or foreign currencies for transfers to and from abroad, providing the reporting duty is observed.
A licence is required for a financial service business. Sales of foreign currency and gold are permitted where one of the parties is an entity holding a licence or foreign currency permit.
Opportunities for non-residents to acquire real estate property in the Czech Republic have remained restricted.
Taxation of Dividends: Dividend distributions between Czech companies are exempt from tax if the parent company maintains a holding of at least 10% of the distributing company for an uninterrupted period of at least 12 months. From 2008, inbound dividends at the level of a Czech parent company are tax exempt if:
(1) paid by a subsidiary in an European Union member state and the parent holds at least 10% distributing company for an uninterrupted period of at least 12 months, or
(2) paid by a subsidiary that is resident in a country outside the European Union that has concluded a tax treaty with the Czech Republic, that has a specific legal form, that fulfills the requirements for the dividend exemption under the EC parent-subsidiary directive and is subject to home country tax similar to Czech income tax at a rate of at least 12%.
Tax Incentives: Investment incentives are available in certain circumstances and include, e.g. 5 year tax relief, job creation grants, grants for retraining employees and property related incentives. Additional tax deductions of R&D costs may also apply.
Withholding Tax on Dividends: Dividends paid to nonresidents are subject to a 15% withholding tax in Czech Republic, unless the tax rate is reduced under an applicable tax treaty. Under the parent-subsidiary directive, dividends paid by Czech companies to parent companies located in other European Union member states are exempt from withholding tax if the parent company maintains a holding of at least 10% of the distributing company for an uninterrupted period of 12 months. As from 2009, the tax exemption also applies to dividends paid to parent companies in Norway, Iceland or Switzerland.
Withholding Tax on Interest: Interest paid to nonresidents is subject to a 15% withholding tax in Czech Republic, unless the tax rate is reduced under a tax treaty or exempt under the EC interest and royalties directive. As from 2009, taxpayers from European Union / EEA member states are allowed to file a tax return after the end of the tax period in which they may charge the relevant expenses against Czech source income.
Withholding Tax on Royalties: In Czech Republic, royalties paid to nonresidents are subject to a 15% withholding tax. The interest and royalties directive will be applicable as from 1 January 2011. As from 1 January 2009, taxpayers from European Union / EEA member states are allowed to file a tax return at year end where it eill be possible to deduct costs related to royalty payments.
Payroll Tax: There's no payroll tax in the Czech Republic.
Social Security Contributions: Employers in the Czech Republic contribute 34% of an employee's gross salary to the state health and social security funds. A cap on the premium is available.
Czech Republic Tax Year: Tax year is the calendar year.
Excise Tax: Excise tax is levied on petrol and petrol derivatives, alcohol (beer, wine and spirits) and tobacco. Excise tax applies to hydrocarbon fuels and lubricants, spirits and distilled liquors, beer, wine and tobacco products that are produced in or imported to the Czech Republic. The tax is calculated as a fixed amount per unit of the product concerned and is levied on the producer (importer). Tax levied on tobacco products is calculated as a combination of a fixed amount and a percentage of the selling price. With effect from 1 January 2008 the use of waste as fuel for engines and heating is subject to excise tax and the tax rate on waste oils rises from CZK 0/1000l to CZK 660/1000l.
Road Tax: Czech Republic road tax is CZK 1,200 - 4,200 (cars), CZK 1,800 - 50,400 (trucks). Road tax is payable on vehicles registered and operated for business purposes in the Czech Republic. The tax is calculated according to engine size for passenger cars or weight and number of axles for other commercial vehicles. Car tax rates range from CZK 1,200 (on vehicles with engines up to 800 cm3) to CZK 50,400 (on heavy-duty vehicles over 36 tonnes) and the tax period is the calendar year. Vehicles for transport up to 12 tonnes with an electric, hybrid engine or use LPG, CNG as a fuel are exempt from the road tax. Taxpayers are required to submit their tax return for the previous tax period (calendar year) by 31 January of the next year.
Real Estate Tax: According to type, location and purpose of use of the real estate.
Real estate tax comprises a tax on land (land tax) and a tax on structures (building tax). Real estate tax is generally payable on an annual basis by the registered owner of the land or building(s), although in very specific cases the user or the leaseholder is the payer. All property owners must file tax returns with the relevant tax authorities by 31 January of the relevant tax period only for the first tax period (calendar year), later only when the conditions relevant to tax assessment change.
Land tax is imposed on plots of land entered in the Land Registry and is payable by the owner or, in special cases, by the lessee or user. Tax on land with building permission is CZK 1 per square meter (subject to adjustments in relation to the size of the municipality where the land is located).
Building tax is calculated according to the registered ground area of the building. The tax rate is CZK 1, 5 or 10 per square meter in the case of business premises and CZK 1, 3 or 4 per square meter for residential buildings. This amount may be increased by CZK 0.75 per square meter for each additional floor.
Both land tax and building tax are multiplied by a coefficient that varies according to the locality, ranging from 1 to 4.5 (the highest coefficient applies to Prague). Municipalities can further determine a local coefficient to increase the taxpayer's tax liability for certain types of real estate.
Inheritance Tax & Gift Tax: Progressive tax rate which ranges from 1% up to 40%. For inheritance tax, the tax rates are from 0.5% up to 20%.
Inheritance tax is payable in the case of receipt of property by an inheritor due to the death of a testator. Property includes immovable assets (land, buildings), movable assets, securities, etc. The receipt of immovable assets located in the Czech Republic is subject to inheritance tax, regardless of the residence of the testator/inheritor. The taxation of inheritance of movable assets depends on the residency status of the testator, i.e. if the testator was a Czech resident with permanent residence in the Czech Republic, all movable assets transferred to the inheritor are subject to inheritance tax in the Czech Republic. It does not matter if the movable assets are located in the Czech Republic or in
a foreign country.
The receipt of assets without consideration is subject to gift tax. If property is given to a Czech individual or legal entity, then the recipient must pay gift tax. The donator is the guarantor of the gift tax. If property is given to a foreigner, the Czech donator must pay the gift tax. There is a possibility of tax exemption on gifts and inheritance when these transactions occurred between persons in Group I and Group II. Group I comprises immediate family members (parents, children) and spouses; Group II comprises siblings, nephews, nieces, aunts, uncles, etc.
Energy Tax: Czech Republic energy tax is levied on supplies of electricity, natural and other gases, and solid fuels with effect from 1 January 2008.
The tax reform with effect from 1 January 2008 introduces a new type of indirect taxes implementing the relevant EU directives in the area of energy taxes. These taxes are levied on supplies of electricity, natural and other gases, and solid fuels ("energy"). The payers of energy tax will be either suppliers of energy in the Czech Republic selling the energy to end-users or operators of distribution or transmission systems. Taxpayers are also entities that use tax-exempt energy for purposes other than those that are exempt or that used untaxed energy.
The tax on electricity is levied at the rate of CZK 28.30 per MWh. The tax on gas is levied at rates varying from CZK 0/MWh to CZK 264.80/MWh, depending on the type of gas, the purpose of its use and the date when the tax liability arises. The tax on solid fuels is levied at the rate of CZK 8.50/GJ.
Czech Republic Local Taxes: No local taxes have been introduced in the Czech Republic to date. Some local fees are levied on the waste produced by companies and also with respect to certain business activities such as those related to spas, accommodation, and use of televisions and radios.
Czech Republic Value Added Tax (VAT)The standard rate of Value added tax is 19%, a reduced rate of 9% also applies.
In Czech Republic, Value added tax (VAT) is imposed on the domestic provision of goods, transfer of real estate, provision of services, including transfer or use of rights, and import of goods.
There are two rates of VAT, 19% and 9%.
The 19% value added tax rate applies generally to supplies of goods and most services with some exceptions while the 9% rate applies to selected services and some goods such as books, foodstuffs and pharmaceutical products.
Goods and services exported from the Czech Republic to non-EU countries are exempt from VAT. The principles of the Sixth Directive - VAT (77/388/EU), have applied since 1 May 2004 to goods and services exported from the Czech Republic to EU countries. Since 2008, a group of related parties may register as a single VAT taxpayer.
Taxable supplies within the Czech Republic include: provision of services, delivery of goods, transfer and use of rights and transfer of real estate, buildings and structures, acquisition of goods from other EU member states, etc.
VAT (Value Added Tax) in Czech Republic is levied on the import of goods from third countries. With effect from 1 January 2005 payment of import VAT is deferred to the VAT return when the goods are imported by entities that are registered VAT payers. Businesses are also obliged to account for VAT upon acquisition of goods from other EU member states. Certain domestic services are VAT exempt without entitlement to reclaim input VAT (e.g., financial services, insurance services, rent paid to entities not registered for VAT purposes, etc). Export of goods is VAT exempt.
Some services (e.g. consultancy, advertising) are not taxable in the Czech Republic if provided to a customer registered as VAT payer customer in another EU member state or to an entity from a third country. There is an entitlement to reclaim input VAT connected with most of these services. On the other hand, businesses are obliged to account for VAT in terms of the "reverse charges" principle once they acquire such a service (e.g., consultancy, advertising) from a provider in another EU member state or third country.
The tax period for entities registered only for the purpose of VAT is a calendar quarter; otherwise, it is a calendar month or a calendar quarter.
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