The tax rate applicable for income derived in 2016 is 15%.
Moreover, an additional tax of 7% is to be paid from the income from independent
activity and employment, if the total income (in case of employment) or tax base (in case of self-employment) exceeds CZK 1,296,288 (approx. EUR 47,379). The tax is paid only from the excess.
Certain types of income are not aggregated, but are subject to a final withholding tax of 15% or 35%.
Personal income tax general information
Individuals who have their permanent
residence or habitual abode in
the Czech Republic are treated as Czech tax residents. An individual has his 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.
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. Taxable
income of an individual is usually
calculated by aggregating the separate net results of the following income categories:
- employment income;
- income from the independent activity;
- capital income;
- rental income;
- other income.
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 is increased by social security contributions and health insurance paid by an employer. It is usually 34% of the income (the percentage rate can vary due to maximum base on social security).
Exemption from the taxation
income from a sale of house or flat is exempted from taxation, if the seller has a permanent residence for at least 2 years before the sale. Income from a sale of immovable asset is exempted from taxation, when the period of ownership of the asset exceed 5 years before the sale. Income from sale of movable property is also tax exempted (some exceptions apply).
Income from a sale of a share in a limited liability company entity is exempted from taxation if the share was held for at least 5 years before the sale. Income from sale of securities is exempted if they are held for at least 3 years before the sale or if the total income does not exceed CZK 100,000 (approx. EUR 3,650).
Social transfers are exempted from taxation
Pensions are exempted up to
CZK 331,200 (approx. EUR 12,100).
Tax period - Calendar year.
Tax return must be filed by 1 April of the following year. The deadline can be extended until 1 July if the tax return is prepared and filed by a tax advisor.
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. The standard carry-forward period is 5 years.
The following deductions can be applied by an individual:
minimum of 2% of personal income tax base or CZK 1,000 (approx. EUR 36), maximum of 15% of personal income tax base
Interests from a loan from building society,
paid during tax period
maximum of CZK 300,000 (approx. EUR 10,960)
Private pension insurance
except for first CZK 12,000 (approx. EUR 440), maximum of CZK 12,000 (approx. EUR 440)
Private life insurance
maximum of CZK 12,000 (approx. EUR 440)
Basic personal allowances
In 2016, the annual basic personal allowance can be claimed in the amount of CZK 24,840 (approx. EUR 910).
Dependent spouse allowance
Allowance of up to 24,840 CZK (approx. EUR 910) can be claimed by a resident taxpayer whose spouse does not have annual taxable income higher than CZK 68,000 (approx. EUR 2,490). The basic dependent-spouse allowance doubles in case of disability of the spouse.
Taxpayers with disability may apply an allowance from CZK 2,520 (approx. EUR 90) to CZK 16,140 (approx. EUR 590), depending on the extent of the disability.
An allowance for students is CZK 4,020 (approx. EUR 150) and can be applied up to 26 years of age.
Resident taxpayers are entitled to a tax credit for each child living in the same household with him. The amount depends on the number of children. Annual tax credit is CZK 13,404 (approx. EUR 490) for the first, CZK 15,804 (approx. EUR 580) for the second and CZK 17,004 (approx. EUR 620)1 for any other.
All the allowances and credits 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 taxpayers income.
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 %.
Corporate income tax general information
A company is treated as resident if it has its legal
seat or place of
effective management in the Czech Republic.
Taxable income - 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 several items for tax purposes as described in the tax law. Non-resident companies are taxed only from Czech source income.
The calendar year or the fiscal year.
Tax returns and assessment
The taxpayer has the obligation to calculate the tax due in the corporate income tax return (self-assessment). The time-limit for filing the return is generally three 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 1,100 5,480).
Then the advance payment is 40% of the tax liability. If the last known tax liability is higher than CZK 150,000 (approx. EUR 5,480), the advance payment is of the previous tax liability and is paid quarterly.
As a general rule, 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.
Deductions on research and development
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.
Education tax deduction
Companies can obtain tax deductions in two forms.
A deduction for assets acquired for professional education, can be made twice -
first by the depreciation of asset which decreases the tax base, second 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 7.30) per hour of educational activity, which is the second form of deduction.
Carry forward of losses
Tax losses derived after 1993 may be carried forward for 5 tax years.
Investment incentives are available to both Czech and foreign investors for the following supported areas:
- 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:
- Income tax relief for up to 10 years
- Financial support for creation of new jobs
- Financial support for training and retraining new employees
- Financial support in the case of strategic investments in manufacturing or in technology centres
- Transfer of public land at a favourable price
- Real estate tax exemption for up to 5 years
21% Reduced rate 15% applies on food, beverage, medical treatments etc. Reduced rate 10% applies on books, infant nutrition etc.
Value added tax general information
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.
- the supply of goods and services in relation with an economic activity within the territory of the Czech Republic ;
- the intra-Community acquisition of goods for consideration within the territory of the Czech Republic from another EU Member State; and
- the importation of goods into the Czech Republic
Total consideration charged for the supply, excluding VAT but including any excise duties or other taxes and fees.
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 supplying 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
Czech Republic Income Tax Rate for Individual Tax Payers
The Czech income tax rate for individual's income in 2014 is flat, a 15% rate.
A tax rate of 22% applies to income exceeding 48 times the average salary.
An individual pays tax on his income as a wage earner or as a self-employed person. Tax for an individual who meets the criteria of a "permanent resident" of the Czech Republic is calculated on his income earned inside the Republic and abroad. A foreign resident who is employed in the Czech Republic pays tax only on income earned in the Republic.
An employer is bound to deduct, immediately on a monthly basis, the requisite tax from employees salaries. A self-employed person must prepay taxes that will be offset on making an annual tax return. The advances are determined on the basis of the previous year's tax return. In the case of a new business, the prepayments are calculated on the basis of estimates made by the owner of the business.
Certain payments are deductible from taxable income as will be
Corporate Tax Rates in Czech Republic
Corporate tax in 2014 is 19%. Pension and investment funds pay 5% corporate tax. The rate of corporation tax is reduced constantly to encourage economic activity, so that for instance, the rate of corporation tax in 1992 was 45% as compared to the present rate of 19%.
Czech Republic Corporate tax in 2014 is 19%.
A tax of 15% is imposed on dividends paid by Czech corporations.
Dividend paid between 2 Czech companies is tax exempt subject to certain terms.
Income from interest is deemed ordinary income and as such is
taxed at 19%.
Capital Gains Tax in Czech Republic
In general, capital gains in the Czech Republic are taxed as income for companies. Individuals pay generally 15% on their capital gains.
Capital gains from sale of shares by a company owning 10% or more is entitled to participation exemption under certain terms.
For an individual, gain from sale of main private dwelling, held for at least 2 years is tax exempt. Or, when not used as main residence, if held for more than 5 years.
Czech Republic Social Security
Mandatory social and health insurance payments are:
Employer - 34%.
Employee - 11%.
Self employed pay mandatory 42.7% for social security and health insurance.
Tax is deducted at source from the following payments to
Technical Fees 15%/35%.
Note -Payment of dividend between EU companies, subject to conditions, is exempt from withholding tax.
In the Czech Republic losses can be carried forward for 5 years.
There is no carry back of losses.
Consolidated tax returns are not allowed in the Czech Republic
Financial expenses related to loans from related parties are not tax deductible when the loan to equity ratio exceeds 4:1 (6:1 for banks and insurance companies).
The tax year in the Czech Republic is the calendar year ending on December 31.
If your income is derived solely from a salary, you are not bound to file a yearly return. In all other cases, the annual return must be submitted by March 31 (3 months after the end of the tax year).
If you are represented by an authorized Czech tax advisor, you may make an application to submit the return by June 30.
A delay in submitting an annual return will entail fines, in most cases, of 10% of the tax payable. Fines are imposed even after tax has been prepaid.