Answer ... Czech source income of non-resident corporate entities is subject to either withholding tax or corporate income tax, in accordance with the same rules as apply to corporate income of tax residents. In the latter case the corporate income tax is imposed on the tax base of the permanent establishment.
The tax base is established based on either accounting results (i.e., accrued revenue and expenditure) or - in the case of a deemed permanent establishment that has been established in connection with the provision of services in the territory of the Czech Republic, mostly before 1 January 2014 - as the difference between revenue and expenditure for a particular tax period. Further adjustments are performed in accordance with the general rules stipulated by the Income Tax Act.
In a limited number of situations, foreign corporate entities must submit a Czech corporate income tax return. This obligation may arise, for example, in the absence of a tax treaty or if the tax treaty allocates taxation rights concerning capital gains to the Czech Republic and the sale of the shares does not qualify for the parent-subsidiary exemption, upon the sale of shares in a Czech real property-rich company between two non-resident corporations.
Answer ... Withholding taxes apply to interest, dividends, royalties and payments for the lease of real property or movable assets in the absence of income tax treaties or multilateral treaties on the exchange of tax information, or if the taxpayer does not qualify for treaty benefits that would otherwise be available. The withholding tax rate is 35% of the gross interest, dividend, royalty or lease income. Under similar circumstances, payments for the lease of real property or movable assets attract a 5% withholding tax. A 15% withholding tax also applies to revenue from services rendered in the territory of the Czech Republic if the permanent establishment is not duly recognised.
Excise duties do not apply to payments for excise goods acquired from Czech tax non-residents. However, excise duties are applied based on the volume of excise goods delivered to the Czech Republic - that is, the excise tax base is calculated based on the volume of excise goods in litres, hectolitres, kilograms or similar. Excise goods are beer, wine and wine intermediate products, other products containing alcohol, tobacco products and mineral oils (including fuels), and tax rates are set separately for each type. Unless excise goods are delivered under a duty suspension arrangement (only within the European Union and based on a special exemption certificate), the excise duty must be claimed and paid by the taxpayer which receives the excise goods in the Czech Republic.
Answer ... International treaties on the prevention of double taxation override the domestic taxation rules. Consequently, the applicable withholding tax rates on income of tax residents of treaty states thus do not exceed 15%.
Evidence of beneficial ownership and tax residence certification are key requirements for the Czech tax authorities to provide access to tax treaty benefits. The recipient of the income may also be required to document other facts and circumstances.
Moreover, general and specific tax anti-avoidance rules enable the Czech tax authorities to deny treaty benefits to conduit entities and in other ‘treaty-shopping’ situations.
Answer ... No unilateral relief or credits for foreign taxes are available in the absence of an applicable treaty for the prevention of double taxation.
Answer ... Pursuant to the currently applicable Income Tax Act, there is no step-up in the asset basis for tax purposes.
The original asset value, based on the acquisition costs (net of any valuation adjustments) decreased by tax depreciation, is applied outside the Czech Republic until the transfer of assets to the Czech Republic is converted into Czech koruna based on the applicable Czech National Bank exchange rate. The tax depreciation then continues based on the straight-line depreciation method applied in accordance with the Income Tax Act.
This rule will change upon the introduction of new rules on the taxation of transfers of business assets among EU member states (exit taxation), when the asset basis will be adjusted to the market price.
Answer ... In accordance with the Income Tax Act in force, no exit taxes are payable at present. However, exit taxation has been included in a new tax bill and should apply from 1 January 2020. The rules represent a transposition of the EU Anti-Tax Avoidance Directive (2016/1164). The objective of the draft law is to tax the economic value of any capital gain created in the territory of the Czech Republic.
The exit tax shall cover:
- the transfer of assets from the head office or a permanent establishment located in the Czech Republic to a permanent establishment located in another state;
- the transfer of tax residence from the Czech Republic to another state; and
- the transfer of business of a permanent establishment located in the Czech Republic to another state (including corporate reorganisations).
The draft provides for deferral of the tax payment for up to five years. However, the deferral will be immediately revoked if, for example, the business’s transferred assets are sold or transferred to a third country.