Corporate tax in Czech Republic

Summary

Corporate Income Tax Rate (%) 19 (a)
Capital Gains Tax Rate (%) 0 / 19 (b)
Branch Tax Rate (%) 19
Withholding Tax (%)
Dividends 0 / 15 / 35 (c) (d) (e)
Interest 0 / 15 / 35 (c) (e) (f) (g)
Royalties 0 / 15 / 35 (c) (e) (g) (h)
Rental Income from Leases 5 / 15 / 35 (c) (e) (g) (.i)
Net Operating Losses (years)
Carryback 0
Carryforward 5

a) Basic investment funds (see Section B) are subject to tax at a rate of 5%. The preferential treatment will be available for Liechtenstein residents as of the effective date of the Czech Republic-Liechtenstein tax treaty. A 0% rate applies to pension funds.

b) Capital gains derived by Czech or European Union (EU)/European Economic Area (EEA) parent companies on transfers of shares in their subsidiaries are exempt from tax if certain conditions are satisfied (see Section B).

c) The rates may be reduced by applicable tax treaties.

d) Dividends are subject to a final withholding tax at a rate of 15%. Under the principles of the EU Parent-Subsidiary Directive (No. 90/435/EEC), divi­dends paid by Czech companies to parent companies (as defined in the direc­tive) located in EU/European Free Trade Association (EFTA) countries 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 at least one year (further conditions apply). Dividend distributions between two Czech companies or between foreign subsidiaries and their Czech parents are exempt from tax under similar conditions. The tax exemption does not apply if any of the following circumstances exists:

  • The parent company or the subsidiary is exempt from corporate income tax or similar tax applicable in its jurisdiction.
  • The parent or subsidiary may opt for an exemption from corporate income tax or similar tax applicable in its jurisdiction.
  • The parent or subsidiary is subject to zero corporate income tax or similar tax applicable in its jurisdiction.

It is expected that as of 2016, a new condition will be introduced. The new condition will be that the tax exemption for dividends will not apply if the subsidiary treats the dividend payments as tax deductible.

e) The 35% withholding tax generally applies to Czech-source income arising to Czech tax nonresidents from countries outside the EU/EEA that have not entered into a double tax treaty with the Czech Republic or a bilateral or multilateral tax information exchange agreement that is binding on both the Czech Republic and the respective foreign country. The 35% withholding tax rate also applies if the Czech income payer is unable to prove the tax resi­dency status of the respective beneficial income owner. If applicable, the 35% rate affects all types of income subject to withholding tax (for example, divi­dends, interest, royalties or rental income). It does not affect rental income from financial leases if the 5% withholding tax rate applies (see footnote [i]).

f) Interest payments to nonresidents are subject to withholding tax at a rate of 15%. Under the principles of the EU Directive 2003/49/EC, interest paid by Czech companies to related companies (as defined in the directive) located in EU/EFTA countries is exempt from withholding tax if certain additional con­ditions are met.

g) For certain types of income, EU/EEA tax residents may choose to include the income in their tax return and have it taxed at the standard corporate income tax rate after deduction of associated expenses (while claiming a credit for the withholding tax paid against tax liability stated in the tax return) or they may choose to treat the withholding tax as a final tax on the income.

h) This withholding tax applies to nonresidents. Under the principles of EU Directive 2003/49/EC, royalties paid by Czech companies to companies locat­ed in EU/EFTA countries are exempt from tax if certain additional conditions are met.

i) A 5% withholding tax is imposed on gross rent if the lease contract stipulates that the lessee takes over the ownership of the leased asset (tangible asset only) for a purchase price or for free at the end of the lease term or if the lease contract stipulates such a right or option for the lessee (further conditions may apply). Other rental payments are subject to a 15% withholding tax. Some rental payments may be considered royalties for Czech tax purposes.

Taxes on corporate income and gains

Corporate income tax. Resident enterprises are subject to tax on their worldwide income. An enterprise is considered to be a resi­dent enterprise if it is incorporated in the Czech Republic or if its management is located there. Nonresident enterprises are subject to income tax on their Czech-source income only.

Rates of corporate tax. The standard corporate income tax rate for Czech enterprises and branches of foreign enterprises is 19%. Basic investment funds are subject to a preferential tax rate of 5%. Under the Czech Income Taxes Act, the following are considered basic investment funds:

  • An investment fund whose shares are accepted for trading on a European regulated market
  • Mutual fund (see below)
  • Investment fund and subfund of a joint stock company with variable registered capital if it invests (in line with its prospec­tus) more than 90% of its assets in prescribed instruments (for example, certain securities, money market instruments, finan­cial derivatives, receivables and loans)
  • A foreign investment fund comparable to funds as described in the above three bullets if it satisfies all of the following condi­tions:

— Its home country is an EU/EEA member state.

— It can prove that it is administered or managed based on an authorization comparable to the authorization issued by the Czech National Bank and its administrator or manager is subject to supervision comparable to the Czech National Bank’s supervision.

— It has statutes or a document comparable to a prospectus based on which it can be determined whether the fund is comparable to a fund described in the above three bullets.

— It can prove that according to the laws of its home country none of its income is attributable to other persons (meaning it is not tax transparent).

Under an amendment to the Czech Income Taxes Act that is cur­rently in parliament, both open-end and closed-end mutual funds would be considered basic investment funds. If the amendment is rejected, only open-end mutual funds would remain basic invest­ment funds.

A preferential corporate income tax rate of 0% applies to pension funds.

No differences exist between the taxation of 100% Czech-owned enterprises and those with foreign investment.

Investment incentives. Investment incentives are available to in­vestors launching or expanding the following:

  • Manufacturing production
  • Technology centers
  • Business support services centers, which are shared-services centers, software-development centers, high-technology repair centers, data centers and call centers

Investment incentives can be obtained in the following forms:

  • Corporate income tax relief for 10 years
  • Job-creation grants
  • Grants for training and retraining of employees
  • Cash grants on capital expenditures for strategic investments
  • Real estate tax exemption

The total value of the incentives can be as much as 25% of total eligible costs. No incentives are provided in Prague. The cap is increased by 10% for midsized enterprises and 20% for small enterprises. The cap applies to the total of tax relief, job-creation grants, cash grants on capital expenditures and real estate tax exemption. Training and retraining grants are provided on top of this cap.

For investments in manufacturing industry, eligible costs equal the value of long-term tangible and intangible assets. For investments in technology centers and business support services centers, eli­gible costs can be either the value of long-term tangible and intan­gible assets or the value of employment costs for two years.

Corporate income tax relief and cash grants on capital expendi­tures are offered throughout the entire Czech Republic with the exception of Prague. Job-creation grants, training and retrain­ing grants are offered only in regions with high unemployment. Job-creation grants are also available in special industrial zones. Real estate tax exemption is offered only in special industrial zones. The special industrial zones are Holešov, Most-Joseph and Ostrava-Mošnov.

Further details regarding the incentives are provided below.

Manufacturing industry. The following are general qualification conditions for the incentives for manufacturing industry:

  • The investor must invest at least CZK100 million in long-term tangible and intangible assets. The CZK100 million require­ment may be reduced to CZK50 million in selected regions.
  • The investment must be in a manufacturing sector, and at least 50% of the total investment must be invested in qualifying pro­duction machinery. Machinery must be acquired for an arm’s-length price. It must have been produced no more than two years before the acquisition and must not have been previously sub­ject to tax depreciation.
  • Intangible assets must be acquired from unrelated third parties for arm’s-length prices.
  • The proposed production must meet Czech environmental stan­dards.
  • At least 20 new jobs must be created.
  • All requirements must be met within three years after the date of granting the incentives.
  • The investment project may not begin until the filing of an application with CzechInvest (the Czech governmental agency collecting, reviewing and processing investment incentives applications).
  • Acquired assets and created jobs must be maintained for the duration of the incentives-utilization period (10 years) and for at least 5 years from the completion of the investment project or creation of the first job.

Technology centers. The following are general qualification con­ditions for the incentives for technology centers:

  • The investor must invest at least CZK10 million in long-term tangible and intangible assets.
  • At least 50% of the total investment must be invested in quali­fying machinery. Machinery must be acquired for an arm’s-length price, must be produced no more than two years before the acquisition and must not have been previously subject to tax depreciation.
  • At least 20 new jobs must be created.
  • The proposed investment must meet Czech environmental stan­dards.
  • All requirements must be met within three years after the date of granting the incentives.
  • The investment project may not begin until the filing of an application with CzechInvest.
  • Acquired assets and created jobs must be maintained for the duration of the incentives-utilization period (10 years) and for at least 5 years from the completion of the investment project or creation of the first job.

Business support services centers. The following are general qualification conditions for the incentives for business support services centers:

  • The minimum number of newly created jobs is 20 for software-development centers and data centers, 70 for shared-services centers and high-technology repair centers, and 500 for call centers.
  • The proposed investment must meet Czech environmental stan­dards.
  • All requirements must be met within three years after the date of granting the incentives.
  • The investment project may not begin until the filing of an application with CzechInvest.
  • Acquired assets and created jobs must be maintained for the duration of the incentives-utilization period (10 years) and for at least 5 years from the completion of the investment project or creation of the first job.

Strategic investment. Cash grants on capital expenditures for stra­tegic investments can be provided for up to 10% of eligible costs. Strategic investment can be either investment in manufacturing industry or technology centers meeting specific conditions.

For investments in manufacturing industry and technology centers that are carried out simultaneously, cash grants on capital expen­ditures can be provided for up to 12.5% of the eligible costs.

Strategic investment in manufacturing industry must meet the fol­lowing conditions:

  • The investor must invest at least CZK500 million in long-term tangible and intangible assets.
  • At least CZK250 million of the total investment must be in­vested in qualifying production machinery.
  • At least 500 new jobs must be created.

Strategic investment in the area of technology centers must meet the following conditions:

  • The investor must invest at least CZK200 million in long-term tangible and intangible assets.
  • At least CZK100 million of the total investment must be in­vested in qualifying machinery.
  • At least 100 new jobs must be created.

Special conditions. In addition to the general conditions listed above, investors claiming the income tax relief must satisfy cer­tain special conditions, including, among others, the following:

  • They must reduce their tax base by claiming maximum tax depreciation, deducting all available tax-effective bad debt pro­visions and using all available tax losses carried forward, in accordance with the tax law.
  • They must be the first user of tangible assets (excluding real estate) that are acquired for the purposes of the investment in the Czech Republic.
  • They may not cease to exist, terminate their activities or declare bankruptcy.
  • They may not increase their tax base through related-party trans­actions that are not at arm’s length.

Mergers are allowed to some extent; that is, tax relief claimed before the merger is not lost, but investors are not able to claim tax relief in subsequent tax periods.

Specific conditions apply to job-creation, retraining and training grants and to grants on capital expenditures for strategic invest­ments.

The incentives are provided based on the Investment Incentives Act. In practice, the government grants the incentives if the condi­tions are satisfied.

Capital gains. In the Czech Republic, realized and unrealized capi­tal gains are recognized.

Capital gains realized by a Czech or another EU/EEA parent company (also, see below) on the transfer of shares in a subsidiary established in the Czech Republic or another EU/EEA country are exempt from tax if the parent company maintains a holding of at least 10% of the subsidiary for an uninterrupted period of at least one year (further conditions apply). The condition mentioned in the preceding sentence may be fulfilled subsequent to the date of the transfer.

Capital gains realized by a Czech or EU/EEA parent company on the transfer of shares in a subsidiary in a contracting country (that is, a third country that has entered into a tax treaty with the Czech Republic) are also exempt from tax if the following conditions are satisfied:

  • The subsidiary has a legal form comparable to a Czech joint-stock company (akciova spolecnost, or a.s.), a limited liability company (spolecnost s rucenim omezenim, or s.r.o.) or a coop­erative (druzstvo).
  • The parent company has held an ownership interest of at least 10% in the subsidiary for at least one year (this condition may be fulfilled subsequent to the date of the transfer).
  • The subsidiary is liable to a tax similar to corporate income tax at a rate of at least 12% in the tax period in which the parent company accounts for the respective capital gain and in the pre­ceding tax period.

The exemption for capital gains does not apply if any of the fol­lowing circumstances exists:

  • The subsidiary entered liquidation proceedings.
  • The shares in the subsidiary were acquired through the acquisi­tion of a going concern.
  • The parent company or the subsidiary is exempt from corporate income tax or similar tax applicable in its jurisdiction.
  • The parent company or the subsidiary may opt for an exemp­tion from corporate income tax or similar tax applicable in its jurisdiction.
  • The parent company or the subsidiary is subject to zero corpo­rate income tax or similar tax applicable in its jurisdiction.

Other realized capital gains are included with other taxable in­come and taxed at the regular corporate income tax rate. Capital losses on certain assets may be deducted from ordinary income, while capital losses on other assets (including capital losses on assets that qualify for exemption) are not deductible, even from other capital gains.

Unrealized capital gains and losses, which result from revaluation to fair value, are taxable or deductible only with respect to certain assets. Unrealized gains on shares that qualify for exemption are not taxable and unrealized losses on such assets are nondeductible for tax purposes.

Capital gains realized by nonresidents on the following are con­sidered Czech-source income and are consequently generally taxable:

  • Sales of rights registered in the Czech Republic or investment instruments to Czech taxpayers or Czech permanent establish­ments
  • Sales of shares (securities or share interests) in Czech compa­nies, regardless of the tax residence of the purchaser

However, capital gains realized by EU/EEA parent companies on sales of shares may be exempt from tax (see above).

Administration. Companies may select a calendar year or a fiscal year as its tax year. If a company uses a tax year other than the calendar year, it must file a notification with the tax authorities.

Tax returns must be filed within three months after the end of the tax year. On application of the company, an extension of three months to file a tax return may be granted at the discretion of the tax authorities. Companies that are subject to a statutory audit are automatically granted the three-month extension.

A company with tax liability of more than CZK150,000 for the preceding year must make quarterly advance payments of tax, each equal to 25% of the preceding year’s tax liability. The pay­ments must be made by the 15th day of the third, sixth, ninth and twelfth month of their tax year. Any balance of tax due must be paid by the due date for filing the tax return.

If a company’s liability for the preceding year exceeded CZK30,000, but did not exceed CZK150,000, installments that are each equal to 40% of the tax liability for the preceding year must be paid by the 15th day of the sixth and twelfth months of their tax year. If the preceding year’s tax liability was CZK30,000 or less, only a single payment is required on filing the annual return.

Late payments and late filings incur penalty charges at a rate established by law. Overpayments are refunded within 30 days of the taxpayer’s application.

Dividends. Dividends are subject to a final withholding tax at a rate of 15%. The tax rate is increased to 35%, effective from 2013, for dividends paid to Czech tax nonresidents from coun­tries outside the EU/EEA that have not entered into a double tax treaty with the Czech Republic or a bilateral or multilateral tax information exchange agreement that is binding on both the Czech Republic and the respective foreign country.

Under the principles of the EU Parent-Subsidiary Directive (No. 90/435/EEC), dividends paid by Czech companies to parent com­panies (as defined in the directive) that are located in EU/EFTA countries (also, see below) 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 at least one year (further conditions apply). The condition described in the preceding sentence may be fulfilled subsequent to the date of distribution of the dividend. Dividend distributions between two Czech companies and between foreign subsidiaries and their Czech parents are exempt from tax under similar conditions.

In addition, dividends distributed by subsidiaries in a contracting country are also exempt from taxation under rules similar to those applicable to capital gains (see Capital gains).

The tax exemption for dividends does not apply if any of the fol­lowing circumstances exists (also, see below):

  • The parent company or the subsidiary is exempt from corporate income tax or similar tax applicable in its jurisdiction.
  • The parent or subsidiary may opt for an exemption from corpo­rate income tax or similar tax applicable in its jurisdiction.
  • The parent or subsidiary is subject to zero corporate income tax or similar tax applicable in its jurisdiction.

It is expected that as of 2016, a new condition will be introduced. The new condition will be that the tax exemption for dividends will not apply if the subsidiary has an option to treat the dividend payments as tax deductible.

Foreign tax relief. Foreign tax relief (through credit or exemption) is available only under tax treaties. If foreign tax relief is not avail­able under a treaty, the income tax paid abroad may be deducted as an expense in the following year if it is imposed on income in cluded in taxable income in the Czech Republic.

Determination of trading income

General. Taxable income is calculated according to Czech account­ing regulations, with adjustments for tax purposes.

All expenses incurred to generate, assure and maintain taxable income that relate to the given period are generally deductible, subject to the limits specified in the corporate income tax and related laws, if documented by the taxpayer. The following are some of the expenses that may be deducted:

  • Depreciation of tangible and intangible assets (see Depreciation).
  • Cost of insurance if related to taxable income (except for insur­ance paid on behalf of an executive or member of the board of directors for damage caused by the performance of his or her functions).
  • Membership contributions paid to selected chambers and asso­ciations under certain conditions.
  • Damages resulting from natural disasters. The amount of the damage must be documented by evidence submitted by an ex­pert from an insurance company. Damages caused by unknown perpetrators can be tax deductible if confirmed by the police.
  • Real estate tax and road tax paid in accordance with the Czech law and selected other taxes and fees (subject to exceptions), if related to activities that generate taxable income.
  • Specified expenses related to the provision of proper working, social and health care conditions of the employees.
  • Payments on leases, including financial leases, under certain conditions.
  • Travel expenses related to work in the Czech Republic and abroad.
  • Donations valued at CZK2,000 or more for various social and charitable purposes. In general, the maximum amount of this deduction is 10% of the tax base.

In general, taxpayers must increase their tax base by the amount of any overdue liability accounted for in their books that repre­sented a tax-deductible expense and that remains unsettled for 36 months (30 months for liabilities due in 2015 or later; grand-fathering rules apply).

Inventory. Inventory is valued at acquisition or production cost. Costs include all costs necessary to convert the inventory to its current condition and to transport it to its current location. No de­duction is allowed for inventory provisions or for other decreases in inventory value. Under certain circumstances, the liquidation of inventory may be deductible for tax purposes.

Provisions. Provisions are not deductible unless a special tax law permits their creation for tax purposes.

Tax relief is provided with respect to overdue trading debts (as defined in the law). A special regime applies to unpaid receivables that were due before 31 December 1994.

Rules applicable as of 1 January 2014. Taxpayers may generally create the following tax-deductible provisions for overdue debts (with certain limitations):

  • 50% of the unpaid book value of the debt if more than 18 months have elapsed since the agreed due date
  • 100% of the unpaid book value of the debt if more than 30 months have elapsed since the agreed due date

For overdue debts exceeding CZK200,000 that were purchas ed from the previous creditor, deduction of the above provisions is allowed only if a court or arbitration proceeding was initiated and the taxpayer (creditor) participates in the proceeding.

Rules applicable until 31 December 2013 (for receivables with a due date before 2014). For overdue debts not exceeding CZK200,000 that were due after 31 December 1994, if between 6 and 12 months had elapsed since the agreed due date for the debt, 20% of the book value of the debt was deductible (grandfa-thering rules apply). This deduction was allowed regardless of whether court or arbitration proceedings had commenced against the debtor. If the debt was more than 12 months overdue, a court or arbitration proceedings needed to be commenced by the credi­tor against the debtor to claim a larger tax deduction for the debt. The deduction was calculated by applying the following specified percentages to the book value of the debt.

Months elapsed since agreed due date   Deductible percentage of book value
Exceeding Not exceeding %
12 18 33
18 24 50
24 30 66
30 36 80
36 100

For debts exceeding CZK200,000 that were overdue more than six months, the rules described above applied if the creditor had commenced court or arbitration proceedings against the debtor.

The above deductions (under the rules applicable until 31 Decem­ber 2013 and the rules applicable after that date) must be record­ed in the accounting books. The deductions may not be claimed for debts from related parties and other specified debts.

A 100% provision can be created for receivables up to CZK30,000, subject to certain conditions. A 100% provision for overdue re­ceivables may also be created if insolvency proceedings have been initiated with respect to the debtor’s property and if the creditor makes a timely claim for such receivables against the debtor in the respective court. This deduction may not be claimed for debts from related parties.

Reserves. Taxpayers may create tax-deductible reserves for the repair of tangible assets included in Categories 2 through 6 for tax depreciation purposes (see Depreciation). The reserves must be created for a minimum of two tax periods and for the maximum number of tax periods specified for each asset category.

Reserves for repairs of tangible assets may be created tax-effectively only if cash equal to the amount of the reserve created is deposited in a specific bank account. This measure applies to reserves that are created after 2008.

Depreciation. The corporate income tax law includes specific pro visions concerning the depreciation of tangible and intangible assets. Depre ciable tangible assets are divided into six categories, each of which specifies a period (a specified number of years) over which all assets in the category are depreciated.

The following are the six categories of depreciation, the time peri­ods for depreciation of assets in each category and representative assets included in each category.

Category Asset Years
1 Office machines and some light machinery 3
2 Passenger cars, buses, airplanes, tractors, lorries, furniture and specified production machinery 5
3 Heavy machinery 10
4 Wooden buildings, pipelines, buildings for the production of energy, and buildings and halls built near mines 20
5 Buildings 30
6 Specified buildings 50*

* This category includes hotels, stores and office buildings.

Assets other than buildings that cannot be classified in any of the above categories are considered to be in Category 2. Category 5 covers buildings that are not covered by Categories 4 or 6.

Taxpayers may elect to depreciate assets using the straight-line or the accelerated method. The method chosen, however, does not affect the period of depreciation. Under the accelerated method, depreciation for the first year is calculated by dividing the cost of the asset by the applicable coefficient (see table below). For sub­sequent years, accelerated depreciation is calculated by multiply­ing the residual tax value of the asset by two and then dividing by the applicable coefficient, which is reduced by the number of years for which the asset has already been depreciated.

The following are the depreciation rates and coefficients for the six categories under the straight-line and accelerated methods.

Category Rate Straight-line Accelerated-depreciation coefficient
1 20% for first year, 40% for subsequent years 3 for first year, 4 for subsequent years
2 11% for first year, 22.25% for subsequent years 5 for first year, 6 for subsequent years
3 5.5% for first year, 10.5% for subsequent years 10 for first year, 11 for subsequent years
4 2.15% for first year, 5.15% for subsequent years 20 for first year, 21 for subsequent years
5 1.4% for first year, 3.4% for subsequent years 30 for first year, 31 for subsequent years
6 1.02% for first year, 2.02% for subsequent years 50 for first year, 51 for subsequent years

Taxpayers may elect to use lower than the maximum straight-line depreciation rates. Additional rules apply to assets that were tech­nically improved.

An initial depreciation acceleration (additional 10% to 20% of input price; in general, the input price is the acquisition cost, in­cluding related costs) is granted in the year of acquisition for certain tangible assets if other conditions are met.

Effective from 2010, the component depreciation of assets method may be used for accounting purposes. For tax purposes, the ac­counting result is adjusted as if this method was not used.

Specified tangible assets used in solar energy production are depreciated proportionally for a period of 240 months.

Depreciable intangible assets are divided into two categories — intangible assets that may be used for a definite time period and those that may be used for an indefinite time period. Intangible assets that may be used for a definite period are depreciated pro­portionally during such period. If the period for use is indefinite,

the intangible asset is depreciated proportionally over the follow­ing periods.

Category Period (months)
Audiovisual works 18
Software 36
Foundation expenses 60
Other intangible assets 72

Relief for losses. Losses may be carried forward for five years. The carryforward may be lost if a “substantive change” in persons participating in the equity or control of the taxpayer occurs and if the same activity test is not met. A “substantive change” is consid­ered to be one of the following:

  • A change in more than 25% equity ownership
  • A change resulting in a shareholder receiving decisive influence

The same activity test is met if 80% of the revenues generated in the period in which the substantive change occurs and in the fol­lowing tax-loss utilization periods is from the same activities that were performed in the period in which the tax loss was generated.

Groups of companies. Czech tax law does not provide for consoli­dated tax returns or other types of group relief.

Other significant taxes

The following table summarizes other significant taxes.

 

Nature of tax Rate (%)
Value-added tax (VAT), levied on all
taxable supplies (goods and services),
acquisitions of goods from other EU
member states and imports of goods;
certain supplies are exempt
Standard rate; applicable to most goods
And services
21.00%
Reduced rate applicable to specified
goods and services (for example, food
Products and public transport)
15.00%
Reduced rate applicable to books,
Pharmaceuticals and baby food
10.00%
Social security and health insurance
contributions; the social security
contributions are paid only up to the
Maximum assessment base
Health insurance
Employer 9.00%
Employee 4.50%
(No maximum assessment base applies)
Old-age pension
Employer 21.50%
Employee 6.50%
(The maximum assessment base is
CZK1,296,288 in 2016.)
Sickness
Employer 2.30%
Employee 0.00%
(The maximum assessment base is
CZK1,296,288 in 2016.)
Unemployment
Employer 1.20%
Employee 0.00%
(The maximum assessment base is
CZK1,296,288 in 2016.)
Real estate transfer tax; levied on the
Acquisition of real estate
4.00%
Excise tax, imposed on entities that produce
or import certain goods, including hydrocarbon
fuels and lubricants, alcohol and spirits, beer,
wine and tobacco products; tax based on the
quantity of goods expressed in specific units;
Tax may be levied only once on a particular good
Various
Road tax, imposed on entities that use
vehicles; based on engine capacity
And number of axles
Various
Environmental tax; imposed on electricity,
natural gas and solid fuel when delivered
to final consumers; tax is based on the
quantity of goods expressed in specific
units; tax is administered and paid by the
distributor which charges it to the final
Customer as a price increase
Various
Tax stamps for the use of highways
Small vehicles (up to 3.5 tons;
Annual stamp)
CZK1,500
Large vehicles Electronic road tolls

Miscellaneous matters

Foreign-exchange controls. The only legal tender valid in the Czech Republic is the Czech crown (CZK). Other currencies may be used for domestic transactions, but the use of the Czech crown is prevalent.

The Czech crown is fully convertible. Several financial transac­tions, such as direct investments or acceptance of credit from abroad, are subject to a reporting requirement.

Anti-avoidance legislation. In applying the tax law, the tax author­ities may consider the substance of a transaction if the form of the transaction conceals the actual facts. In addition, the Czech courts have developed the abuse-of-law concept. The concept is similar to the one developed by the European Court of Justice (for example, Halifax [No. C-255/02]).

Transfer pricing. If prices in a transaction involving related parties vary from the current market prices and if the difference cannot be justified, the market prices are used for tax purposes. Related parties include companies related through capital (that is, the same legal or natural persons directly or indirectly manage, control or own more than 25%) and companies related in a different man­ner. In addition, related parties are persons who establish a busi­ness relationship for the principal purpose of decreasing taxable income or increasing a tax loss.

Binding rulings. Taxpayers may apply to the tax authorities for advance pricing agreements and for binding opinions on transfer prices, technical improvements of long-term assets, the allocation

of expenses to taxable and non-taxable income, expenses in­curred on research and development projects, expenses incurred on buildings that are also used for private purposes, and the ap­plication of VAT rates.

Financing expenses. The tax deductibility of financing expenses (interest and associated expenses) with respect to related-party loans (including back-to-back loans) is limited by a debt-equity ratio of 4:1 (6:1 for banks and insurance companies). In addition, financing expenses with respect to profit-participating loans are nondeductible for tax purposes.

Foreign investment. Similar rules apply to both Czech investors and foreign investors.

Treaty withholding tax rates

The Czech Republic honors bilateral tax treaties of Czecho slo-vakia. It has also entered into tax treaties with many other juris­dictions. The following table lists the withholding rates under the bilateral treaties currently honored by the Czech Republic.

  Dividends

%

Interest

%

Royalties

%

Albania 5/15 (b) 0/5 (g) 10
Armenia 10 0/5/10 (g) 5/10 (a)
Australia 5/15 (e) 10 10
Austria 0/10 (c)(s) 0 (t) 0/5 (a)(q)
Azerbaijan 8 0/5/10 (g) 10
Bahrain 5 0 10
Barbados 5/15 (b) 0/5 (g) 5/10 (a)
Belarus 5/10 (b) 0/5 (g) 5
Belgium 5/15 (b)(s) 0/10 (g)(t) 0/5/10 (q)(aa)
       
Bosnia and Herzegovina 5 0 0/10 (a)
Brazil 15 0/10/15 (g)(i) 15/25 (v)
Bulgaria 10 (s) 0/10 (g)(t) 10 (q)
Canada 5/15 (c) 0/10 (g) 10
China 5/10 (b) 0/7.5 (g) 10
Colombia 5/15/25 (b) 0/10 (g) 10
Croatia 5 0 10
Cyprus 0/5 (c)(s) 0 (t) 0/10 (a)(q)
Denmark 0/15 (c)(s) 0 (t) 0/10 (a)(q)
Egypt 5/15 (b) 0/15 (g) 15
Estonia 5/15 (b)(s) 0/10 (g)(t) 10 (q)
Ethiopia 10 0/10 (g) 10
Finland 5/15 (b)(s) 0 (t) 0/1/5/10 (m)(q)
France 0/10 (b)(s) 0 (t) 0/5/10 (q)(u)
Georgia 5/10 (b) 0/8 (g) 0/5/10 (u)
Germany 5/15 (b)(s) 0 (t) 5 (q)
Greece 15 (s) 0/10 (g)(t) 0/10 (a)(q)
Hong Kong SAR 5 0 10
Hungary 5/15 (b)(s) 0 (t) 10 (q)
Iceland 5/15 (b)(s) 0 (t) 10 (q)
India 10 0/10 (g) 10
Indonesia 10/15 (e) 0/12.5 (g) 12.5
Ireland 5/15 (b)(s) 0 (t) 10 (q)
Israel 5/15 (f) 0/10 (g) 5
Italy 15 (s) 0 (t) 0/5 (a)(q)
Japan 10/15 (b) 0/10 (g) 0/10 (a)

 

Dividends

%

Interest

%

Royalties

%

Jordan 10 0/10 (g) 10
Kazakhstan 10 0/10 (g) 10
Korea (North) 10 0/10 (g) 10
Korea (South) 5/10 (b) 0/10 (g) 0/10 (a)
Kuwait 0/5 (k) 0 10
Latvia 5/15 (b)(s) 0/10 (g)(t) 10 (q)
Lebanon 5 0 5/10 (w)
Liechtenstein 0/15 (c)(s) 0 (t) 0/10 (a)(q)
Lithuania 5/15 (b)(s) 0/10 (g)(t) 10 (q)
Luxembourg 0/10 (c)(s) 0 (t) 0/10 (a)(q)
Macedonia 5/15 (b) 0 10
Malaysia 0/10 (l) 0/12 (g) 12
Malta 5 (s) 0 (t) 5 (q)
Mexico 10 0/10 (g) 10
Moldova 5/15 (b) 5 10
Mongolia 10 0/10 (g) 10
Montenegro 10 0/10 (g) 5/10 (a)
Morocco 10 0/10 (g) 10
Netherlands 0/10 (b)(s) 0 (t) 5 (q)
New Zealand 15 0/10 (g) 10
Nigeria 12.5/15 (c) 0/15 (g) 15
Norway 0/15 (c)(s) 0 (t) 0/5/10 (u)(q)
Pakistan 5/15 (b) 0/10 (g) 10
Panama 5/10 (y) 0/5/10 (g)(z) 10
Philippines 10/15 (c) 0/10 (g) 10/15 (r)
Poland 5 (s) 0/5 (g)(t) 10 (q)
Portugal 10/15 (j)(s) 0/10 (g)(t) 10 (q)
Romania 10 (s) 0/7 (g)(t) 10 (q)
       
Russian Federation 10 0 10
Saudi Arabia 5 0 10
Serbia 10 0/10 (g) 5/10 (a)
Singapore 5 0 10
Slovak Republic 5/15 (c)(s) 0 (t) 0/10 (a)(q)
Slovenia 5/15 (b)(s) 0/5 (g)(t) 10 (q)
South Africa 5/15 (b) 0 10
Spain 5/15 (b)(s) 0 (t) 0/5 (n)(q)
Sri Lanka 6/15 (o) 0/10 (g) 0/10 (a)
Sweden 0/10 (b)(s) 0 (t) 0/5 (a)(q)
Switzerland 0/15 (c)(s) 0 (t) 5/10 (p)(q)
Syria 10 0/10 (g) 12
Tajikistan 5 0/7 (g) 10
Thailand 10 0/10/15 (g) 5/10/15 (h)
Tunisia 10/15 (b) 12 5/15 (a)
Turkey 10 0/10 (g) 10
Ukraine 5/15 (b) 0/5 (g) 10
       
United Arab Emirates 0/5 (k) 0 10
United Kingdom 5/15 (b)(s) 0 (t) 0/10 (a)(q)
United States 5/15 (c) 0 0/10 (a)
Uzbekistan 5/10 (b) 0/5 (g) 10
Venezuela 5/10 (f) 0/10 (g) 12
Vietnam 10 0/10 (g) 10
Non-treaty countries 15/35 (x) 0/15/35 (d)(x) 15/35 (x)

a) The lower rate applies to royalties paid for copyrights. The higher rate applies to royalties paid for patents, trademarks, designs or models, plans, secret for­mulas or processes, or industrial, commercial or scientific equipment or information.

b) The lower rate applies if the receiving company (other than a partnership) owns at least 25% of the capital of the payer. Under the Belgium treaty, divi­dends paid to partnerships may also qualify for the lower rate. Under the United Kingdom treaty, the lower rate applies if the receiving company con­trols at least 25% of shares with voting rights of the payer. Under the Japan treaty, the lower rate applies if the receiving company holds at least 25% of shares with voting rights of the payer for at least six months preceding the payment of dividend. Under the Colombia treaty, the 25% rate applies to dividends paid by a Colombian resident that are derived from profits that were not under the law subject to Colombian tax, and the 15% rate applies to dividends not subject to the 5% or 25% rates.

c) The lower rate applies if the receiving company (other than a partnership) owns at least 10% of the capital of the payer. Under the Canada and Nigeria treaties, the lower rate applies if the receiving company controls at least 10% of the voting rights of the payer (except for dividends paid by a Canadian investment corporation). Under the United States treaty, the lower rate applies if the receiving company owns at least 10% of the shares with voting rights of the payer (exceptions applies to dividends paid by investments companies and real estate investment trusts located in the United States). Under the Norway treaty, the 0% rate also applies to dividends paid to the government or speci­fied institutions. Under the Cyprus, Liechtenstein, Luxembourg and Switzer­land treaties, the 0% rate applies if at least 10% of share capital of the payer is held by an entity (other than a partnership) for at least one year. Under the Denmark treaty, the 0% rate applies if the recipient of the dividends is a pen­sion fund. Under the Switzerland treaty, the 0% rate also applies if the recipi­ent of the dividends is a central bank or a pension fund.

d) Interest on mutual deposits with banks in the interbank market is exempt from tax for recipients from non-treaty countries (subject to reciprocal treatment). For all Czech tax nonresidents (that is, recipients from treaty and non-treaty countries), interest on bonds issued by Czech taxpayers or the Czech Republic outside the Czech Republic is exempt from tax. The 15% rate applies to other interest but see also footnote (x).

e) The lower rate applies if the receiving company (other than a partnership) owns at least 20% of the capital of the payer. Under the Australia treaty, the lower rate applies to dividends paid from the Czech Republic to Australia if the receiving company owns at least 20% of the capital of the payer and to dividends paid from Australia to the Czech Republic if special requirements are met.

f) The 5% rate applies if the receiving company (other than a partnership) owns more than 15% of the capital of the payer.

g) The 0% rate applies to interest paid to (or by) the government (or specified institutions), subject to further conditions. Under the Albania treaty, the 0% rate also applies to interest paid to an agency, including banks and financial institutions, wholly owned by the contracting state. Under the Georgia treaty, the 0% rate also applies to interest on loans and credits guaranteed by govern­ments or related to sales of industrial equipment that are financed by loans. Under the Armenia and Azerbaijan treaties, the 5% rate applies to interest on bank loans. Under the Ethiopia treaty, the 0% rate also applies to, among other items, interest paid to institutions owned or controlled by the govern­ment whose sole purpose is the promotion of export or foreign investment. Under the Thailand treaty, the 10% rate applies to interest paid to financial institutions or insurance companies; otherwise, the rate of the source country applies. Under the Pakistan and Syria treaties, the 0% rate also applies to interest paid to the central bank or any financial institution wholly owned by the government and to interest on loans and credits guaranteed by the govern­ment or specified institutions. Under the China treaty, the 0% rate also applies if the interest paid to selected government agencies or the central bank or if the receivable is financed, guaranteed or pledged by the government, the central bank or a selected government agency. Under the Barbados, Colombia, Tajikistan and Uzbekistan treaties, the 0% rate also applies to interest from the sale on credit of merchandise or equipment or from a loan or credit granted by a bank or guaranteed by the government (or specified institutions). Under the Belarus treaty, the 0% rate also applies to interest on bank loans. Under the Poland treaty, the 0% rate also applies to interest from a loan or credit granted by a bank or guaranteed by the government (or specified institutions). Under the Belgium treaty, the 0% rate applies to interest from suspended pay­ments for goods and services, loans guaranteed by public institutions aimed to support the export and bank loans and deposits (except in the form of securities). Under the Brazil treaty, interest from securities, bonds and promis­sory notes issued by the government (or specified institutions) is subject to tax in the state of residence of the issuer. Under the Bulgaria and Panama treaties, the 0% rate also applies to interest from suspended payments for equipment or goods or from certain loans guaranteed by public institutions. Under the Canada treaty, the 0% rate also applies to, among other items, interest paid to institutions established to manage and pay out benefits from pension, retire­ment or employee schemes (other limitations apply). Under the Korea (South) treaty, the 0% rate also applies to interest paid in connection with sales on credit of industrial, commercial or scientific equipment or in connection with sales on credit of goods between commercial entities. Under the Malaysia treaty, the 0% rate also applies to interest from approved loans if the beneficial owner of the interest is a Czech tax resident.

h) The 5% rate applies to royalties for copyrights. The 10% rate applies to royal­ties for patents, trademarks, designs or models, plans, secret formulas and processes. The 15% rate applies to other royalties.

i) The 10% rate applies to loans and credits granted by a bank for a period of at least 10 years in connection with the following:

  • Sales of industrial equipment or studies
  • Installation or furnishing of industrial or scientific units
  • Public works

j) The 10% rate applies if the receiving company owns at least 25% of the payer for at least two years preceding the payment of the dividend.

k) The 0% rate applies to a dividend paid to the government of a contracting state (or a government institution) or to a company that is at least 25% owned by the government of the contracting state.

l) The 0% rate applies to a dividend paid by a tax resident of Malaysia to a Czech tax resident who is the beneficial owner of the dividends.

m) The 0% rate applies to royalties paid for copyrights. The 1% rate applies to royalties paid for finance leases of equipment. The 5% rate applies to royal­ties paid for operating leases of equipment and for the use of, or right to use, software. The 10% rate applies to other royalties.

n) The lower rate applies to royalties for copyrights, with the exception of royal­ties for cinematographic films and films or tapes for television broadcasting. The higher rate applies to other royalties.

o) The lower rate applies to dividends paid by a tax resident of Sri Lanka to a Czech tax resident (except with respect to investments made after the effec­tive date of the treaty).

p) The treaty provides for a rate of 10%, but a protocol to the treaty provides for a rate of 5% until Swiss domestic law imposes a withholding tax on royalties.

q) In addition to treaty protection, royalties paid by Czech companies or perma­nent establishments of companies from EU member states to related-party companies located in other EU/EEA member states or Switzerland is exempt from tax if the conditions stated in provisions implementing EU Directive 2003/49/EC, as amended, are satisfied and if an advance ruling is issued by the Czech tax authority. If a Czech withholding tax applies to outbound royal­ties, EU/EEA tax residents may choose for each item of income to include the income in their tax return and have it taxed at the standard corporate income tax rate after deduction of associated expenses (while claiming a credit for the withholding tax paid against tax liability stated in the tax return), or to treat the withholding tax as a final tax on the income.

r) The 10% rate applies to royalties paid for patents, trademarks and industrial, commercial, or scientific equipment or information. The 15% rate applies to royalties paid for films.

s) In addition to treaty protection, dividends paid by Czech companies to parent companies (as defined in the EU Parent-Subsidiary Directive 90/435/EEC) that are located in other EU member states, or in Iceland, Liechtenstein, Norway or Switzer land, 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 at least one year (this condition may be met subse­quently). Further conditions apply.

t) In addition to treaty protection, interest from qualified instruments paid by Czech companies or permanent establishments of companies from EU mem­ber states to related-party companies (as defined in EU Directive 2003/49/EC) located in other EU/EEA member states is exempt from withholding tax if the conditions stated in the provisions implementing EU Directive 2003/49/EC, as amended, in the Czech tax law are satisfied and if an advance ruling is issued by the Czech tax authority. In addition, if Czech withholding tax applies to outbound interest, EU/EEA tax residents may choose for each item of income to include the income in their tax return and have it taxed at the standard corporate income tax rate after deduction of associated expenses (while claim­ing a credit for the withholding tax paid against tax liability stated in the tax return), or to treat the withholding tax as a final tax on the income.

u) The 0% rate applies to royalties paid for copyrights. The 5% rate applies to payments for industrial, commercial or scientific equipment. The 10% rate applies to royalties paid for patents, trademarks, designs or models, plans, secret patterns or production procedures and software, as well as for informa­tion relating to experience acquired in the areas of industry, commerce or science.

v) The 25% rate applies to royalties paid for trademarks. The 15% rate applies to other royalties.

w) The 5% rate applies to royalties paid for industrial, commercial or scientific equipment. The 10% rate applies to royalties paid for copyrights, software, patents, trademarks, designs or models, plans, secret formulas or processes, or information concerning industrial, commercial or scientific experience.

x) A 35% tax rate applies to payments to tax res1idents in countries with which the Czech Republic has not entered into a double tax treaty or a treaty on exchange of information in tax matters. For further details, see footnote (e) in Section A.

y) The 5% rate applies to business profits after taxation transferred by a perma­nent establishment in one contracting state to its head office in the other contracting state.

z) The 5% rate applies to interest paid to banks.

(aa) The 0% rate applies to copyright royalties paid from the Czech Republic to Belgium. The 5% rate applies to royalties paid for use of industrial, com­mercial or scientific equipment.

New tax treaties or protocols to existing tax treaties that affect withholding rates with Chile, Iran, Kazakhstan and Kosovo are in the ratification process.