Czech Tax FAQ
Professional advisors Husovsky & Partners explain the basic principles behind Czech taxation
For an individual, there are two basic conditions indicating Czech tax liability. The first is the amount of time you spend in the Czech Republic; the second is where you make your permanent home.
In the first case, if you spend more than 183 days here, you're treated as a Czech tax resident.
In the second, if you have a permanent home in the Czech Republic, you're also regarded as a Czech tax resident. (This is defined as anywhere that you intend to dwell permanently, regardless of whether you own or rent the property.)
If you fulfill either of these conditions, you are, by definition, a Czech tax resident.
If, however, you're a tax resident in another country - your home country, for instance - and that country has a "double tax treaty" with the Czech Republic, you'd be expected to pay tax in one country only.
As a Czech tax resident your worldwide income will be taxed, regardless of where you earn it. A Czech tax non-resident, on the other hand, is liable to tax on Czech income only. Income from Czech sources can be, for example, employment carried out on Czech territory, or services performed here.
There are a few exceptions to the rules above, where you could be liable to pay tax without fulfilling either of the two conditions mentioned. One of these exceptions is when you're employed by a Czech company or are an executive of one. In such cases, your income would usually be taxed via the payroll, from day one.
Also, in cases where you're employed by a Czech branch of a foreign company, you'll either be taxed via the payroll or via tax returns, regardless of the number of days you spend here, or whether or not you have a permanent residence in the Czech Republic.
When the company is taxable at corporate level, am I also taxable at a personal level?
You're taxable at a personal level only if you receive an income from the company. There are several possibilities. As mentioned above, this income can be considered employment income, with the above-mentioned consequences. But it can also be a dividend that, under Czech law, is taxed via a withholding tax mechanism. This means that the company, when paying the dividend, is obliged to withhold the tax from that income and pay you net. The general rate is 15% but it can be decreased if the Czech Republic has a "double tax treaty" with the country where you're a tax resident.
Is it possible to introduce some form of tax planning when a business is established?
Tax planning techniques can be divided into two categories.
The first one covers the corporate structures of your business – a holding structure reflecting your tax residency, for example, together with long- and short-term interests.
The second category covers specific planning techniques for particular transactions.
Both types of technique can be introduced when your business is up and running, but need to be tailored to the specific details of your business.
What's the deadline for filing tax returns?
For the tax year 2004, the deadline is March 31st, 2005.
Is it possible to extend the deadline?
Yes. One possibility is to write an application for a deadline extension. Please note, however, that the tax authorities will grant a deadline extension only in cases where you have serious reasons for doing so. It's advisable, therefore, to discuss your case with a tax advisor.
The second possibility is to grant a power of attorney to a certified Czech tax advisor. The tax advisor will file this power of attorney with the tax authorities and this will automatically extend the deadline by one calendar month. Please note that once you authorize the tax advisor, he or she then becomes responsible for filing your tax return, and, as a result, will need to review it. A certified tax advisor will, of course, charge for this review, and some will also charge for the extension application.
What else should I know penalties for late filing or late payment?
If you file your tax return late, you'll usually be fined 10% of your tax liability.
In you pay your taxes late, you'll usually be fined 0.1% of your debt per day, until you pay up.
When should a company pay Czech VAT?
A company is obliged to pay Czech VAT when its turnover exceeds 1 million CZK for each of the past 12 months, or if it voluntarily registers to pay.
When are VAT returns due?
Returns are due within 25 days of the end of each payment period. (VAT is paid either every month or every quarter.)
How are capital gains taxed?
Capital gains are taxed via a Czech personal income tax return. Again, the level of taxation depends on where an individual is a tax resident. Please note that various exemptions are available - and that good advanced planning will help you make the most of them.
What are the Czech tax rates?
Corporate income tax rate is 28% for 2004, 26% for 2005 and 24% for 2006.
Personal income tax rates are progressive, depending on the level of an individual’s income:
|TAXABLE INCOME||TAX ON LOWER AMOUNT||RATE ON EXCESS|
|0 CZK||109,200 CZK||0||15%|
|109,200 CZK||218,400 CZK||16,380 CZK||20%|
|218,400 CZK||331,200 CZK||38,220 CZK||25%|
|331,200 CZK||66,420 CZK||32%|
Value added tax – 19% for goods and for most services; 5% for services, subject to various exemptions.
Real Estate tax – imposed on buildings and plots of land, depending on the size, locality and actual area of the plot in square meters.
Real Estate Transfer tax is 3%.
Gift and inheritance tax – progressive rate up to 40%.
Road tax – imposed on vehicles depending on their engine capacity and the number of axles.
This article is for information purposes only. Please seek professional advice before making any major decisions.
Husovsky & Partners
Na Příkopě 15
110 00 Prague 1
Phone: 736 766 878
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