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As in previous years, our tax experts have prepared a comprehensive overview of taxes in the Czech Republic.
Our guideline provides useful information that shall matter to you when considering doing business in the Czech Republic
The real estate investor can acquire real estate located on the territory of the Czech Republic by way of an asset deal (e.g. direct acquisition of real estate) or a share deal (e.g. acquisition of a corporation owning real estate).
Foreign entities (natural or legal) may directly acquire real estate in the Czech Republic.
As an option, the investment can be done through a resident corporation which directly owns the real estate.
| The form of business | The minimum capital (approx. in EUR) | Corporate Income Tax treatment | Tax rates |
|
| English | Czech | |||
| Unlimited Partnership | Veřejná obchodní společnost (v.o.s.) | N/A | Income tax base is calculated at the level of the partnership and then transferred to partners; tax is levied at the level of the partners. No need to file a tax return. | 15%1) or 19% 2) |
| Limited Partnership | Komanditní společnost (k.s.) | N/A | Income tax base attributable to general partners is transferred to general partners and tax is assessed at the level of general partners. The remaining part of the income tax base is taxed at the level of the entity. | 15%1) or 19% 2) 19% 3) |
| Limited Liability Company | Společnost s ručením omezeným (s.r.o.) | N/A | Non-transparent, fully liable to tax. | 19% |
| Joint Stock Company | Akciová společnost (a.s.) | CZK 2,000,000 (approx. EUR 83,3304)) | Non-transparent, fully liable to tax. | 19% |
| Branch | Organizační složka | N/A | Income tax base attributable to the Czech branch is taxable. | 19% |
| Cooperative | Družstvo | N/A | Non-transparent, fully liable to tax. | 19% |
| Sole entrepreneur | Živnost | N/A | Taxed as part of the overall liability of the individual. | 15% |
1) In the case that the general partners are individuals, personal income tax rate of 15% applies.
2) In the case that the general partners are corporations, the corporate income tax rate of 19% applies.
3) Tax base attributable to limited partners is taxed at the level of the partnership at 19% corporate income tax rate.
4) Exchange rate used – 24.000 CZK/EUR, rounded to the nearest 10.
| Contribution for | Maximum ass. base per year | Employee | Employer | Sole entrepreneur |
| Social security | ||||
| – Pension insurance | CZK 1,935,552 (approx. EUR 80,648) | 6.5% | 21.5% | 28% |
| – Sickness insurance | N/A | 2.1% | 2.1%1) | |
| – Unemployment insurance | N/A | 1.2% | 1.2% | |
| Health insurance | N/A | 4.5% | 9% | 13.5% |
| TOTAL | 11% | 33,8% | 44.8% |
1) The contribution is voluntary.
Social security and health insurance assessment base of an employee is derived from taxable employment income. In case of sole entrepreneur, the assessment base is calculated as the half of the personal income tax base.
The maximum base for social security contributions amounts to CZK 1,935,552 (approx. EUR 80,648) per year/per employer.
If the assessment base exceeds the limit, the amount of income that is above the limit is not subject to social security. When an employee has more than one employer during the year, the limit for social security contributions (24,8%) is applicable for each employer separately.
Residents of the EU are covered by the provisions of EC Regulation 883/2004 regulating social security and health insurance rules in case of cross-border activities. If non-EU residents work in the Czech Republic or Czech nationals work in a third country a bilateral social security agreement may provide for the applicable social security legislation (where such agreement is concluded). Provided that a bilateral social security agreement is not concluded, the local legislative applies only.
| Main features of employment relationship | Applicable law on labour | |
| Contract type |
Labour contract (either for definite or indefinite period) |
|
| Contract must include |
Type of work |
|
| Working time | 40 hours per week | |
| Holiday entitlement per year | 20 days | |
| Other comments | Trial period (max. 3 or 6 months), statutory rules in case of employment termination, notice period (minimum of 2 months) | |
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Corporate income tax is levied at a general rate of 19%.
Corporate income tax rate of 5% applies to basic investment funds. Pension funds are subject to tax rate of 0%.
A company is treated as resident if it has its legal seat or place of effective management in the Czech Republic.
Resident companies are taxable on their worldwide income. The taxable income is calculated on the basis of the accounting profits according to Czech accounting regulations and is adjusted for tax purposes. Non-resident companies are taxed only from Czech source income.
The calendar year or the fiscal year.
The taxpayer has the obligation to calculate the tax due in the corporate income tax return (self-assessment). The time-limit for filing the tax return is generally three months after the end of the tax period. If the CIT return is filed electronically, the time-limit for filing the tax return is four months. If the CIT return is filed by a tax advisor or the taxpayer is subject to a statutory audit, the time-limit for the submission of the CIT return is six months.
Advance payments have to be paid semi-annually, if the last known tax liability is between CZK 30,000 – 150,000 (approx. EUR 1,250 – 6,250). Then the advance payment is 40% of the tax liability.
If the last known tax liability is higher than CZK 150,000 (approx. EUR 6,250), the advance payment is ¼ of the previous tax liability and is paid quarterly.
Generally, expenses incurred in obtaining, ensuring and maintaining taxable income are fully tax deductible, unless they are listed as non-deductible items or items which are deductible only up to a limit set by the law.
Expenses on research and development projects can be deducted from tax base up to 100%, resp. 110% of the expense. In fact, research and development costs are claimed twice, because the cost of research and development project remains in the calculation of the tax base. Deduction can be made for up to 3 years.
Companies can obtain tax deductions in two forms. A deduction for assets acquired for professional education, can be made twice:
1 |
by the depreciation of asset which decreases the tax base |
2 |
by the deduction of up to 110% of value of asset in the year of acquisition |
Companies providing professional education can deduct CZK 200 (approx. EUR 8) per hour of educational activity, which is the second form of deduction.
Tax losses derived after 1993 may be carried forward for 5 tax years.
Starting from July 2020, the tax losses can be carried backwards for 2 tax years. The maximum amount that can be claimed is CZK 30 million (approx. EUR 1,250,000).
The following types of income are tax exempt:
Dividends paid by a subsidiary (CZ or another EU Member State resident) to its parent company (CZ or another EU Member State resident).
Income from sale of participation in a subsidiary (CZ or another EU Member State resident).
Dividends and income from sale of participation in a subsidiary if the subsidiary is a non-EU resident from a “double tax treaty” country and is subject to corporate income tax which is not lower than 12%.
There are several conditions which must be met to be able to claim the exemptions in the situations 1-3 above. The key condition is that the parent company holds at least a 10% share in the subsidiary for at least 12 uninterrupted months. Income under situation 1 above is tax exempt if it is paid to a resident of Switzerland, Norway, Iceland and Liechtenstein as well.
Investment incentives are available to Czech Republic seated entities owned by both Czech and foreign investors for the following supported areas:
Manufacturing industry
Technology centers
Business support services centers – shared-services centers, software-development centers and high-technology repair centers, call centers and data centers
While meeting the conditions, investments incentives can be provided in the following forms:
Dividends paid to residents and non-residents are subject to 15% withholding tax.
However, under the EU parent-subsidiary directive, dividends paid from subsidiary to parent company are exempted from taxation under the following conditions. Dividends paid from a subsidiary (CZ, EU) to its parent company (CZ, EU) are exempted from taxation, if the parent holds at least a 10% share in the subsidiary for at least 12 uninterrupted months. Similar treatment applies also to dividends paid by a CZ subsidiary to a parent company seated in Norway, Iceland, Switzerland and Liechtenstein.
Withholding tax of 35% applies when dividends are paid to other jurisdictions than EU/ EEA states or states with which the Czech Republic did not conclude a double tax treaty.
Interest paid to non-residents is subject to a 15% withholding tax. Exemption can be applied when interest is paid by a Czech resident to a company with permanent residency in the EU, Switzerland, Norway, Iceland or Liechtenstein. Taxpayers from EU/EEA are permitted to file a tax return to deduct costs related to interest payment.
A 35% rate applies when interest is paid to other jurisdiction than EU/ EEA states or states with which the Czech Republic did not conclude double tax treaty.
Royalties paid to non-residents are subject to 15% withholding tax. Royalties can be exempted from taxation when paid from Czech tax resident to company from EU member state, Switzerland, Norway, Iceland or Liechtenstein. Taxpayers from EU/EEA are permitted to file a tax return to deduct costs related to royalties.
A 35% rate applies when royalties are paid to other jurisdiction than EU/ EEA states or state with which the Czech Republic did not conclude double tax treaty.
It is prohibited to deduct interest expenses from loans provided by related parties when the sum of loans during a tax period exceeds six times the equity if the recipient of a loan is a bank or insurance company or exceeds four times the equity for other recipients of loans.
Excessive borrowing costs are tax deductible only up to a predefined limit. The limit is set at 30% of tax profit before taxes, interest, depreciation, respectively CZK 80 million.
At the same time, the Income Tax Act allows the tax base or the difference between income and expenses to be reduced in the following tax periods by amounts that have under the proposed rule increased the tax base or the difference between income and expenses in previous periods. The mentioned reduction of the tax base or the difference between income and expenses is allowed in a tax period in which the taxpayer does not reach the limit of excessive borrowing costs.
In determining its tax base, the controlling company considers the so-called included revenues achieved by the controlled foreign company. Included revenues cover e.g. license fees, dividend income, income from sale of ownership share, income from sale of goods and provision of services from/to affiliates without added value/ with little added value, insurance, banking and other financial services, etc.
The so-called included revenues form part of the tax base of the controlling company in proportion to the share capital of the controlled foreign company. The adjustment of the tax base of the controlling company by the included revenues shall not be done provided that such an adjustment would lead to decrease of the tax base of the controlling company.
The Czech Republic implemented DAC VI EU guideline under which cross-border arrangements the implementation of which can lead to a tax advantage must be reported to tax authorities. The first reporting deadline was set at 31 January 2021.
The Czech Republic implemented DAC VII EU guideline that requires operators of digital platforms in the EU to report information about their providers.
The directive impacts platforms with the following activities:
The first reporting period is scheduled for 2023 and the first reporting deadline is set at 31 January 2024.
The transfer pricing rules apply between related parties (both resident and foreign). Parties are related if one has direct or indirect participation of 25% in capital or voting rights of the other party. Parties can also be related when the same person participates in management or control of both parties.
When prices in transaction between related parties differ from market prices and the difference is not justified, tax base is adjusted by the difference.
Elimination of double taxation (credit or exemption) is available under the relevant double tax treaty. The unused part of foreign tax may be deducted as a tax expense in the following period.
The abolition of the concept of super-gross salary has introduced progressive taxation of individuals with the effect from 2021. The tax rate of 15% is applied to income up to CZK 1,935,552 (approx. EUR 80,648)/monthly employment income up to CZK 161,296 (approx. EUR 6,720) and the tax rate of 23% is applied to income exceeding this amount for 2023.
Certain types of income are not aggregated but are subject to a special final withholding tax of 15% or 35%.
Individuals who have their permanent residence or habitual abode in the Czech Republic are treated as Czech tax residents. An individual has his/her habitual abode in the Czech Republic if he/she is present in the Czech Republic for at least 183 days (in aggregate) in a calendar year (except individuals who stay there for the purposes of studying or receiving medical treatment). All other individuals are treated as Czech tax non-residents. Should an individual be also regarded as a tax resident in another country based on the other country’s domestic law, the double tax treaty determines his/her final tax residency status based on tie breakers stipulated in the respective double tax treaty.
Individuals who are residents for tax purposes in the Czech Republic are taxed on their worldwide income. Czech tax non-residents are taxed only on Czech source income only. Taxable income of an individual is usually calculated by aggregating the separate net results of the following income categories:
Employment income: salaries, wages, bonuses, remuneration of executives and board members
Capital income: interests and dividends (also from foreign sources for Czech tax residents)
Other income: income from the sale of securities, sale of property (if not tax exempt)
Income from the independent activity: income from business activities and professional services
Rental income: income from lease of immovable property
Related expenses can be applied only for the income from the independent activity, rental and other income. Specific exemptions and deductions differ for each income category, for the income from the independent activity and rental income, expenses can be applied as a percentage of income or as actual expenses.
Tax base for the employment income used to be calculated as super-gross salary, i.e. gross income increased by social security contributions and health insurance paid by an employer. From 2021, tax base for the employment income will be taxed directly by the tax rate of 15% or 23%. For 2023, the second tax rate is applied on income exceeding the annual amount of CZK 1,935,552, approx. EUR 80,648 / monthly amount of CZK 161,296, approx. EUR 6,720.
There are several exemptions from taxation stipulated in the Income Tax Act e.g.:
Calendar year.
Tax return must be filed by 1 April of the following year (paper form) or by 1 May electronically via a data mailbox or with an electronic signature. The deadline can be extended until 1 July if the tax return is prepared and filed by a tax advisor or by an attorney based on a power of attorney. An employee, who does not have to file the tax return, may take part in the process of annual tax reconciliation arranged by the employer, the request has to be signed by 15 February.
Tax losses generated from independent activities and rental activities may be set off against all types of income (except of employment income). Losses that cannot be set off may be carried forward or carried back. The standard carry-forward period is 5 years. A taxpayer may also claim the tax loss in 2 preceding tax periods up to the maximum total amount of CZK 30 million via a supplementary tax return.
The following deductions can be applied by an individual:
In 2023, the annual basic personal tax relief can be claimed in the amount of CZK 30,840 (approx. . EUR 1,285).
Allowance of up to 24,840 CZK (approx. EUR 1,035 can be claimed by a resident taxpayer whose spouse does not have annual taxable income higher than CZK 68,000 (approx. EUR 2,830). The basic dependent-spouse relief doubles in case of disability of the spouse.
Taxpayers with disability may apply a relief from CZK 2,520 (approx. EUR 105) to CZK 16,140 (approx. EUR 670), depending on the extent of the disability.
A relief for students is CZK 4,020 (approx. EUR 170) and can be applied up to 26 years of age.
Resident taxpayers are entitled to a tax allowance for each child living in the same household with him. The amount depends on the number of children. Annual tax allowance is CZK 15,204 (approx. EUR 630) for the first child, CZK 22,320 (approx. EUR 930) for the second child and CZK 27,840 (approx. EUR 1,160) for any other child.
All the reliefs and allowances mentioned above are annual and can be applied for any resident of EU/EEC, if the income from the Czech Republic is at least 90% of overall taxpayer’s income.
| The summary of 2023 tax benefits for individuals | |||
| Tax relieves | Amount/year | Conditions | Documents required |
| Taxpayer relief | CZK 30,840 | No conditions – applicable for everyone | No documents needed |
| Spouse relief | CZK 24,840 | Spouse living with the taxpayer in common household | Confirmation from the spouse’s employer or filled in and signed document Spouse Affidavit if the spouse is not employed |
| The income of the spouse did not exceed CZK 68,000 in 2022 (excluding social security benefits, e.g. parental allowance with the exception of financial help in maternity) | |||
| Disability relief | CZK 2,520 | The taxpayer receives disability pension for the first or second degree of disability | General statement about receiving a disability pension* and annual confirmation about payments received |
| CZK 5,040 | The taxpayer receives disability pension for the third degree of disability | ||
| Relief for the holders of Card of person with disabilities (ZTP/P) | CZK 16,140 | Card of person with disabilities (ZTP/P) | Card of person with disabilities (ZTP/P)* which indicates the validity period |
| Student relief | CZK 4,020 | Study at primary school, high school or university until the age of 26 or 28 for PhD students | Confirmation of study for the whole year |
| Relief on placement of child to the nursery school | CZK 17,300 | The child is living with the taxpayer in common household | Confirmation about realized payments to the nursery school for whole year |
| Allowance on 1st dependent child | CZK 15,204 | The child is living with the taxpayer in common household. It covers the taxpayer’s child, a child at alternative care of taxpayer, an adopted child a child of a spouse living with the taxpayer in common household, the grandson/granddaughter living with the taxpayer in common household. If the child is a holder of ZTP, the tax allowances is doubled | Birth certificate of the child* and confirmation from the employer of the other parent that he/she does not apply tax allowance on the child. If the spouse is not employed the document Spouse and child affidavit needs to be filled in and signed. If a child is older than 18 years and is studying confirmation of study for the whole year is needed (student at university up to age of 26, PhD student up to 28 years). If a child is holder of ZTP/P card the copy of this card is needed |
| Allowance on 2nd dependent child | CZK 22,320 | ||
| Allowance on 3rd and next dependent child | CZK 27,840 | ||
| Donation for charitable purposes including blood donation | Max 15% of tax basement CZK 3,000/blood donation |
At least 2% of tax basement, minimum amount is CZK 1,000 (in total) | Confirmation of the gift donated (gift contract, confirmation of a recipient of a gift), confirmation about blood donation |
| Mortgage interests | Max CZK 300,000 / Max CZK 150,000 per a household (for loans concluded from 1 January 2021) | Interest on building savings / mortgage loans or related contracts | Copy of Mortgage contract*, Confirmation of mortgage interests paid in the period, copy of Statement from real estate cadastre* |
| Direct contractor | |||
| Ownership of an apartment, land, building, membership share in a cooperative | |||
| Use for permanent housing | |||
| Life Insurance Contributions ** | Max CZK 24,000 | Payment of insurance benefits after 60 months (5 years) and simultaneously not earlier than on 60 years of age (unless the insured amount is agreed) | Copy of Life Insurance contract*and Confirmation of life insurance paid in the period |
| Pension Insurance Contributions** | Max CZK 24,000 | Payment of insurance benefits after 60 months and at the earliest in the year of reaching the age of 60 years. The tax base deduction is applicable from the amount exceeding CZK 12,000 of the contributions paid (up this amount a state subsidy is applicable) | Copy of Pension Insurance contract* and Confirmation of pension insurance paid in the period |
| Membership fees to the union organisations | 1,5% of taxable income, max CZK 3,000 | Membership fees which were truly paid in the period | Confirmation of membership fees paid |
| Expenses for exams proving results of additional education according to a special law | Max CZK 10,000 | The payment was made by the employee, not included in the employer’s costs, in accordance with the law on the recognition of the results of further education | Confirmation of expenses paid for additional education (limited use) |
*If the contributions were already deducted in the past and the related documents were provided to the Czech tax authorities, we do not require these documents.
**Please note that in case of pension insurance/life insurance contributions paid to insurance company seated outside the Czech Republic, all related documents need to be translated into Czech (if not issued in Czech). As tax deduction can be applied contributions paid to an organization within EU.
Standard rate: 21%.
Reduced rate 15% applies on food and non-alcoholic beverage items, plants, special healthcare products or pharmaceutical products etc.
Reduced rate 10% applies on infant nutrition, drugs, vaccines, books, drinking water, sewer rates, public transportation, hotel accommodation, catering, entry to cultural and sport events, minor repair or hairdressing services etc.
The VAT rules are based on the principles of the Council Directive 2006/112/EC on the Common System of Value Added Tax. The Directive is implemented in the Czech law by Act No. 235/2004 Coll., on Value Added tax.
Legal entities and individuals that carry on an economic activity.
Total consideration charged for the supply, excluding VAT but including any excise duties or other taxes and fees.
Calendar month or quarter, based on turnover for 12 previous consecutive calendar months. Compulsory tax period for newly registered VAT payers is calendar month.
Periodical VAT returns: monthly or quarterly, by the 25th day of the following month.
The amount of VAT liability consists of the VAT due on supply of goods and services carried out by the entrepreneur less input VAT of the same period.
In addition, taxable person carrying out intra-Community supplies or providing services according to the basic rule for “business to business” services has to file an EC Sales List (that shows the VAT identification numbers of his business partners and the total value of all the supplies of goods and services performed by the entrepreneur) on a monthly or quarterly basis depending on the situation.
From 2016, VAT registered persons are also obliged to file a recapitulative statement that contains details of transactions subject to VAT in the Czech Republic as well as of transactions where input VAT deduction is claimed.
Reverse charge applies to the intra-community acquisition of both goods and services. Local reverse charge is applicable in certain cases between two Czech VAT payers.
A permanent reverse charge regime applies, regardless the taxable amount, to supply of gold, supply of intangible property when VAT is included in the price voluntary, supply of construction and installation services and provision of workers who provide construction and installation services and, also to supply of selected goods – mainly scrap.
A temporary reverse charge regime applies, if the total amount of the tax base for the taxable supply exceeds CZK 100,000 to the following commodities:
The threshold for mandatory VAT registration for taxable person with registered office, place of business or fixed establishment in the Czech Republic is the turnover of CZK 2,000,000 (approx. EUR 83,330) for a period of 12 previous consecutive calendar months. Voluntary VAT registration is possible as well.
A foreign taxable person that makes long-distance sales (mail order business) in the Czech Republic to any person that is not registered for VAT in the Czech Republic has to register for VAT in the Czech Republic if the total value of the relevant transactions (distanced sale of goods and provision of telecommunication services, radio and television broadcasting services and electronically provided services to a non-taxable person), did not exceed EUR 10,000 (approx. CZK 240,000) in the relevant and the immediately preceding calendar year. Alternatively, a single EU VAT return submitted in the OSS (One-Stop-Shop) scheme will be an option.
Taxable person must register as an identified person in the following situations:
Several taxable persons who have their seat, place of business or fixed establishment within the territory of the Czech Republic and are connected financially, economically, and organizationally, may be deemed as a single taxable person.
There is no net worth tax in the Czech Republic.
This tax consists of land tax and building and apartment tax. Amount of the real estate tax depends on the purpose of the land, building or apartment and location. The basic rates can be increased by decision of municipality.
Levied on road vehicle of category N2 and N3 and their trailers of category O3 or O4, if they are registered in the register of road vehicles in the Czech Republic.
Excise duties are levied on mineral oil, beer, wine, spirits, electricity, coal, natural gas and tobacco products.
Goods imported from non-EU countries are subject to import customs clearance.
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