- Value Added Tax (VAT)
- Consumer taxes ( excise duties )
- Income tax on corporations and individuals
- Tax on immovable property
- Road tax
- Inheritance, gift and immovable property transfer tax
- Environmental protection taxes
VALUE ADDED TAX
- All entrepreneurs whose turnover exceeds 750,000 Czech Crowns (about US$ 27,800) in any consecutive 3-month period must register as VAT payers with the financial authorities.
- There are two VAT rates, 22% for goods and 5% for certain selected goods and services (i.e. specific agricultural produce, essential food, coal and other sources of energy, pharmaceutical products, paper products, books and electric-powered driven vehicles).
- The basic tax rate for services is 5%, with a rate of 22% for some selected services (i.e. restaurants, accommodation services, tourism, trading and intermediary services, repair and maintenance services for machines, vehicles, and tools).
- The VAT is levied on all sales of goods and services rendered in the CR.
- The taxation period is one month or a quarter.
- The same VAT rates are applied to imported goods, goods sent out of the country for processing and then returned, and certain non-regular domestic bus transportation.
- Goods exported from the CR are tax exempt, except when previously released for temporary domestic circulation.
- Services rendered abroad are not taxable in the CR, and certain domestic services are tax-exempt under the new VAT law. These include postal services, radio and television broadcasting, financial services, insurance services, the transfer and leasing of real estate, health services, social welfare services, lotteries, recycling, the sale of enterprises, and non-profit activities.
- This tax applies to hydrocarbon fuels and lubricants, spirits and distilled liquors, beer, wine, and tobacco products that are produced in or imported to the CR; the tax is set as a fixed amount per unit of the product concerned.
CORPORATE INCOME TAX
- The tax is levied on all income of Czech legal entities and on Czech-source income of foreign legal entities. It is payable on the basis of profit reported in the enterprise's financial statements as adjusted for certain deductible and non-deductible items. No distinction is made between ordinary income and capital gains for these purposes.
- The standard rate of corporate tax is 39% in 1996. The corporate income tax rate has been consistently reduced over the last years: it was 45% in 1995, 42% in 1994 and 41% in 1995. It is anticipated it will be 30 % around the year 2000. It applies irrespective of whether the enterprise is subject to Czech or foreign ownership.
- Tax deductible expenditures include: tax depreciation; social security contributions; operating lease payments; financial lease payments under special conditions; immovable property tax; certain expenditures relating to health and safety at work and environmental protection; travel allowances up to statutory limits; value of a receivable from a debtor who cannot go through bankruptcy proceedings due to lack of property; contractual fines and interests on past amounts due; acquisition price of an ownership interest in a business entity in the tax period of its disposal; and gifts to Czech municipalities, legal entities and physical persons for educational, cultural, environmental, charitable or religious purposes (deductions must be more than 2,000 CZK (about $66) and cannot exceed 2% of the payer's tax base).
- Taxpayers can deduct up to 10% of the value of new tangible fixed assets acquired for consideration from their tax base provided they are the first owners of these assets. The 10% deduction does not affect the assets' book value.
- Starting on January 1, 1995, legal entities (with the exception of investment funds) will be allowed to deduct from their tax base one half of the withholding tax deducted from dividends and other paid profit distributions. This was designed to moderate the effect of double taxation on dividends.
- Non-deductible items include: entertainment; travel allowances in excess of the statutory limits; reserves unless specifically permitted by special regulations; directors' fees; tax paid on behalf of another taxpayer; capital items; interests and other yields paid by employers to their employees on deposits exceeding the usual interest rate provided by banks at the same location; interest arising from deferred tax payments; increased tax liability; interest on loans for deferred customs duties; and most fines and penalties.
- Certain types of income -- whether received by Czech or non-resident taxpayer -- are subject to withholding taxes as follows:
- 25% on dividends, directors' fees*, profit shares and other related distributions;
- 15% on bank deposit interest.
*As of January 1, 1994, directors' fees paid to members of statutory and other bodies of legal entities are not subject to a 20% withholding tax as before, but are to be paid net of a 25% tax prepayment. Income from such directors' fees are now included in the personal tax of a director and remain non-deductible for the company.
- Incomes subject to withholding tax are (with some exceptions) deductible for corporate tax purposes.
- Subject to the provisions of relevant double taxation treaties, withholding taxes apply to Czech-source income and payments to non-resident taxpayers as follows :
- 25% on licence payments, royalties, rentals and operating lease payments, copyright payments;
- 1% on financial lease payments;
- 25% on loan interest payments;
- 25% on payments for technical assistance, business consultancy and other related services.
- Certain specified incomes are tax-exempt. These include incomes derived from the operation of small hydro-electric power plants, wind-power plants, solar facilities, facilities for the production of biologically degradable substances, and the Czech National Bank.
- The CR maintains double taxation agreements with 43 countries. Depending on the agreement concerned, such taxes are either paid in the CR or abroad. The complete list of double taxation agreements valid in the CR is available at CzechInvest.
- Treatment of losses: Losses incurred during an accounting period (one calendar year) can be carried forward for a period of seven years.
- Social security contributions: Social security contributions are based on the employee gross salary earnings. The employer payable share is 35% and the employee share is 12.5% of the base. Payments by companies in excess of this statutory amount are regarded as a taxable benefit on the employee.
- Tax concessions are granted to enterprises employing disabled persons.
PERSONAL INCOME TAX
- Czech residents are subject to income tax on their total income while non-residents pay income tax on Czech-source income only. Two criteria are used to determine residence status -- having a permanent home in the CR and/or residing in the CR for at least 183 days within a calendar year.
- All categories of taxable income (including income from employment and private business, rental income and certain capital gains ) are aggregated and taxed at progressive rates from 15 to 40%.
Taxbase Tax amount of the tax base exceeding from CZK to CZK 0 84,000 15% 84,000 168,000 CZK 12,600+20% CZK 84,000 168,000 252,000 CZK 29,400+20% CZK 168,000 252,000 756,000 CZK 50,400+32% CZK 252,000 756,000 and more CZK 211,680+40% CZK 756,000
- Personal allowances are as follows:
- 28,800 CZK annually for each taxpayer
- 14,400 CZK for each child (for a maximum of four children)
- 16,800 CZK for taxpayer's spouse (if the spouse's annual income does not exceed 28,800 CZK)
(6,000, 12,000 or 42,000 CZK for disabled persons according to degree of disability)
- Deductions may be taken for the value of gifts donated to municipalities and persons with a seat in the CR to support science, education, social and health services, environmental and humanitarian activities. The maximum deductible amount is 10% of the tax base.
- Director fees, dividends, interest and related receipts are generally taxed by way of withholding, using the same rates as with corporate tax. Incomes subject to withholding tax are not included in the tax base for individual income tax purposes.
- Withholding taxes on Czech-source income on non-residents (e.g. for license payments; royalties; rentals; copyright payments; interest; technical assistance; business consultancy and other related services; directors' fees; income from independent activities of artists, athletes, lecturers) are subject to double taxation agreements as with corporations.
- All forms of compensation in cash and in kind (generally assessed at market value) are taxable as employment income.
- Social security contributions are deductible from taxable income.
Annual rates range from CZK 1,200 (on vehicles with engines of capacity of up to 800 cubic centimetres) to CZK 50,400 (on heavy-duty vehicles of over 36 tonnes); provided that such vehicles have been issued with Czech plate numbers and are used for business or similar activity in the Czech Republic (exemptions apply e.g. to vehicles operating within specified emission limits). A taxpayer shall be a natural person (an individual) or a legal person (an entity).
Daily rates apply at the border to vehicles with foreign plates which enter the Czech Republic and are used for business or similar activity.
- Road tax is deductible for income tax purposes.
IMMOVABLE PROPERTY TAX
- Property tax is levied on buildings, structures and land in the CR. The taxpayer is the owner or the user (individual or company).
- The basic tax rate for houses and buildings is fixed but this rate varies in accordance with the number of floors and location.
- Tax rates for land reflect the type and quality of land (agricultural, forest, water).
INHERITANCE, GIFT AND IMMOVABLE PROPERTY TRANSFER TAX
- These taxes vary according to individual family relationship of the heir/recipient and value of property.
- The three groups of taxpayers are: direct relatives (ancestors and descendants) with a tax rate of 1-5%, according to tax base; indirect relatives, with a rate of 3-12%; and all unrelated individuals and legal entities, with an inheritance and gift tax of 7-40% and an immovable tax of 5 %.
- Inheritance tax is levied on immovable property in the CR irrespective of the heir's nationality or residence status. Inheritance tax is not levied on immovable property situated abroad.
- Movable property and bank deposits are exempt from inheritance and gift tax when the value concerned does not exceed 1,000 000 CZK (for direct relatives), 60,000 CZK (for indirect relatives) and 20,000 CZK (for all others).
- Taxpayers must calculate their tax liability and submit annual tax returns with payment in the proscribed form. Tax returns for the preceding year must be filed before March 31st of the current year or June 30th when prepared by a authorised tax advisor (Member of the Tax Advisory Chamber). Tax officials examine the tax return and accountancy records and assess any difference between the taxpayer's payment and final tax due. Delinquent taxpayers are penalised 0.1% of the total tax for each day of delay.
- Withholding taxes are to be paid before the 15th day of the second month after payment subject to such tax occurred. Reduced rates due to double taxation agreements are applied automatically and need not be requested.
- Tax legislation and administration is structured in three tiers: the Ministry of Finance is the top body, followed by regional financial authorities, which in turn govern local financial authorities.
DEPRECIATION OF TANGIBLE AND INTANGIBLE ASSETS
- Until 31 December 1995 tangible assets are understood to be separate movable objects whose input price exceeds CZK 10 000,- and whose expected useful life exceeds one year. From January 1996 tangible assets are defined as assets with an input price exceeding CZK 20 000.
- Until the end of 1995 intangible assets are defined as industrial know-how and similar rights, software, and technical or other exploitable knowledge whose cost exceeds CZK 20 000,-. But from January 1996 such industrial and other rights will be regarded as intangible assets only if their input price exceeds CZK 40 000,- and the lifespan of such rights is longer than one year.
- Tangible assets are divided into 5 classes. A company can use either the straight line method of depreciation or the accelerated method for any asset. However, once it has elected to use a method for a particular asset, this method may not be changed during the life of the asset.
- In both cases, depreciation in the first year for tax purposes is at a constant rate and does not depend on the month in which the asset is acquired or bought into use. If a fixed asset is sold, half of the annual depreciation charge can be claimed in the year of sale.
- The straight line method involves depreciation of an asset over the set depreciation period by a constant rate.
There are three relevant rates; one for the first year, one for subsequent years and one to be applied to increases in the cost of the fixed asset as follows:
RATE FOR: Class first year subsequent years increases in value 1 14,2 28,6 25,0 2 6,2 13,4 12,5 3 3,4 6,9 6,7 4 1,4 3,4 3,4 5 1,0 2,25 2,25
The accelerated method allows higher depreciation in the earlier years of an asset's life by the use of coefficients. The annual coefficients for each asset class are as follows:
Coefficient for: Class first year subsequent years increases in value 1 4 5 4 2 8 9 8 3 15 16 15 4 30 31 30 5 45 46 45
a) in the first year, as the input price divided by the coefficient of accelerated depreciation appropriate to the first year of depreciation;
b) in subsequent tax periods, as twice the residual value, divided by the appropriate coefficient of accelerated depreciation, less the number of years for which it has already been depreciated.
Depreciation Category Period of Depreciation 1 4 years 2 8 years 3 15 years 4 30 years 5 45 years
Classification of tangible and intangible assets by depreciation categories is in the Annex to Act No 586/1992 Coll..
For further information contact CzechInvest at Politickych veznu 20, 112 49 Prague 1, Czech Republic Phone (420-2) 2422-1540 Fax: (420-2) 2422-1804
NOTE: Although we have made every effort to ensure the reliability of our sources, CzechInvest does not assume responsibility for its accuracy.