Double Taxation Treaties in Czech Republic
Double Taxation Treaties in Czech RepublicUpdated on Friday 31st March 2023
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Double taxation treaties are signed between two states in order to prevent the double taxation of income for multinational companies and other types of entities. As a general rule, the income of an individual or a company is taxed in the state in which the above mentioned are tax residents. Until now, the Czech Republic has signed approximately 80 double taxation treaties in which are specified the main regulations applicable to the income of companies carrying operations in the contracting states; our team of Czech lawyers can provide you with information on the double treaties signed so far by the Czech Republic.
Avoidance of double taxation in Czech Republic
The treaties signed for the avoidance of double taxation specify the method applied by both contracting states in order to eliminate the double taxation of income for multinational companies; the agreements also specify the way in which a company can be taxed (what types of incomes fall under the interest of both contracting states) and the place of taxation; our lawyers in Prague can present to you further information on this matter.
What are the methods for the avoidance of double taxation in the Czech Republic?
Among the legal strategies adopted for the avoidance of paying taxes twice, the following are the most important ones and can be entirely explained by our Czech team of lawyers:
- exemption on incomes with progression (a method applied usually for double avoidance agreements signed before the '80s) - income of a company from abroad is excluded from the tax base imposed by the Czech legislation and, as such, only the income carried on the Czech territory is taxed;
- ordinary tax credit – at the moment, the ordinary tax credit is applied in most of the double taxation treaties signed by the Czech Republic; the method compares the taxable income of a company in both contracting states. If the taxes on income in the other state are lower than in the Czech Republic, the Czech legislation will require that the foreign company with the main business operations located in the other country to pay the difference in Czech Republic. In the situation in which the taxes are higher in the source state, the company is no longer required to pay a tax on income on the Czech territory.
Double taxation agreements signed by the Czech Republic
Foreign investors interested in opening a company here should know that the Czech Republic has signed treaties for the avoidance of double taxation with the following countries: Albania, Armenia, Australia, Austria, Azerbaijan, Bahrain, Barbados, Belarus, Belgium, Brazil, Bosnia and Herzegovia, Bulgaria, Canada, China, Croatia, Cyprus, Denmark, Egypt, Estonia, Ethiopia, Finland, France, Georgia, Germany, Greece, Hong Kong, Hungary, Iceland, India, Indonesia, Ireland, Israel, Italy, Japan, Jordan, Kazakhstan, Korea, Kuwait, Latvia, Lebanon, Lithuania, Luxembourg, Macedonia, Malaysia, Malta, Mexico, Moldova, Mongolia, Montenegro, Morocco, the Netherlands, New Zealand, Nigeria, Norway, North Korea, Phillipines, Poland, Portugal, Romania, Russia, Saudi Arabia, Serbia, Slovakia, Slovenia, Republic of South Africa, Singapore, South Korea, Spain, Sri Lanka, Sweden, Switzerland, Syria, Tadjikistan, Thailand, Tunisia, Turkey, Ukraine, United Arab Emirates, United Kingdom, United States of America, Uzbekistan, Venezuela, Vietnam.
What are the taxes covered by DTTs signed by Czech Republic?
The double taxation agreements signed by the Czech Republic cover the taxes enforced on the total income, and on gains derived from immovable or movable properties in this state. Also, the same conventions protect the taxes imposed for legal persons and natural persons in the Czech Republic.
Who can benefit from double tax treaties in Czech Republic?
All companies from abroad with establishments in the Czech Republic like offices, subsidiaries, branches, factories or any place of management can benefit from the provisions of double taxation arrangements signed by the Czech Republic. For in-depth information about how companies can be registered in this state, please address your inquiries to our team of lawyers.
The incomes protected by the double tax treaties signed by Czech Republic
The double tax treaties signed by Czech Republic stipulate a series of advantages related to companies, businesses, and individuals living in this state. We mention the following incomes that are protected by such agreements:
- the incomes with provenience from immovable properties are protected by the double tax treaties signed by Czech Republic;
- the taxes on interests, royalties, and dividends are stipulated by the DTTs;
- the taxes on royalties and the fees for technical services are also protected by such agreements;
- the pensions and related revenues are also protected from double taxation.
The DTT signed with Australia
Australia is an important business partner for the Czech Republic for many years, therefore, signing a double taxation agreement came naturally in 1995. The double taxation treaty applies to the income tax in the Czech Republic, meaning that such a tax will only be paid in the country where the business generates profits. The same thing is available for Australia, the other party in the agreement, with the mention that the income tax imposed on the rental of natural resources, exploration, and exploitation is stipulated by the convention signed with the Czech Republic for the avoidance of paying the taxes twice. It is good to know that the income tax imposed on immovable property, interests, dividends, royalties, capital gains and all business profits generated by companies with activities in air and sea transportation is protected by the double taxation agreement signed by the Czech Republic with Australia. Please talk to our Czech lawyers and find out more about this important convention and the ways it applies.
The DTT signed with Austria
Just like in the case of Australia, Austria is another significant business partner of the Czech Republic, for which a double taxation agreement was imperative to sign. The two countries have signed a convention in 2007 for the prevention of fiscal evasion, applicable to companies and natural persons. The land tax, the corporate tax, the tax on forestry enterprises and agriculture, and the income tax are protected in Austria thanks to the double taxation treaty signed with Czech Republic. Similar taxes are covered by the treaty and the two countries signed an agreement soliciting cooperation in the case of law changes or important modifications. In the case of Austrian residents in the Czech Republic, the treaty mentions that the taxes on their personal incomes will be levied only in the Czech Republic where they are registered as employees. Capital gains, total income, and capital appreciation are protected by the DTT signed between the Czech Republic and Austria.
The DTT signed with Belgium
The prevention of fiscal evasion stands at the base of an important double taxation agreement between the Czech Republic with Belgium and it covers the company profits, personal income, and the immovable property. In the case of Belgium, the double taxation treaty refers to the income tax of companies with establishments in the Czech Republic, to the corporate tax and to the individual income tax imposed only in the country where the profits are registered. In the case of Czech companies with establishments in Belgium, the taxation is made only in this country, as agreed by the double taxation treaty signed in this direction. There are also cases of expenses deduction which are normally handled in the country where the business is registered, whether in the Czech Republic or Belgium. If you would like to know more about taxation regime in the Czech Republic, as a business person from Belgium, we kindly invite you to get in touch with our team of advisors at any time you wish.
The DTT signed with Brazil
Having cross-border business collaborators and an elaborate economy among powerful countries worldwide was for many years in the attention of the Czech authorities who signed a series of double taxation treaties with the Latin countries from America. It is also the case of Brazil, a very much appreciated business partner with which a double tax treaty was signed in 1991. The agreement is quite strict when it comes to the taxation of incomes, meaning that in the case of Brazil, the DTT covers the federal income tax. As for the Czech Republic, the double taxation convention protects the wage tax, the taxes on profits, the real estate property tax, the agricultural tax, capital gains and taxes imposed on other sources of profits. More than that, just like in the case of other signed treaties, the profits generated by companies operating in air and sea transportation will be levied only in the country where the incomes are registered. It is good to know that with this important convention, the two economic partners promised to announce any kind of modification in terms of taxation or any relevant changes. We remind that the Czech Republic signed more than 80 double taxation agreements with countries worldwide, with the purpose of avoiding the taxation of profits twice. If you are a business person with origins in the above-mentioned countries, you should ask for legal advice and information in matters of taxation of companies and businesses.
The income tax in Czech Republic
The corporate income tax in Czech Republic is set at a 10% rate at it is one of the lowest in Europe. This kind of tax applies to the worldwide incomes of companies established in this country. This kind of tax is mentioned by the double taxation treaties signed by the Czech Republic with countries all over the world. One should note that non-residents are levied only on the income generated in the Czech Republic. Also, the corporate income tax of 19% rate is applicable to capital gains, yet exemptions apply for capital gains of the share sale. If you need further information about the corporate income tax in the Czech Republic, you can discuss it with one of our Czech lawyers who will gladly help you on this matter. We have a dedicated team of specialists with experience in taxation matters, so if you need support, feel free to talk to us at any time. The registration of a business in the Czech Republic and the formalities implicated in the process can be handled by our team.
Short facts about VAT in the Czech Republic
The standard VAT rate in the Czech Republic is set at 21% and it applies to most of the goods and services available for sale purposes. There are lower VAT rates too:
- A VAT rate of 15% applies to medical equipment for disabled persons, non-alcoholic beverages, cleaning services, amusement parks, shows, domestic waste collection, etc.
- A VAT rate of 10% applies to the book industry, pharmaceutical products, food products for children, etc.
The registration for VAT in the Czech Republic is mandatory at the time the company is incorporated. In this matter, you can rely on the support of our Czech lawyers who know the legislation and who can take care of all the formalities.
Are tax minimization methods available in the Czech Republic?
Yes, company owners in the Czech Republic can think of reducing the amount of taxes to pay in the firm by adopting a series of tax minimization methods. Besides charitable donations, one can reduce the expenses for equipment in the firm, pay the credits in advance or deduct the taxes for office supplies, gifts for employees, travel expenses, and more. Tax minimization methods represent relief for companies with activities in the Czech Republic and especially for entrepreneurs who can focus on future investments in the firm after a tax minimization method is applied. Plus, the support of the double taxation agreements signed by the Czech Republic will prove extremely helpful in this direction. You can discuss all the aspects related to tax minimization with one of our Czech attorneys.
Choosing our tax specialists in the Czech Republic
The tax regime in Czech Republic might seem quite complex to a foreigner found for the first time with business in this country. A company must be registered for taxation, so here comes the legal support and guidance of a specialist in this field. Our law firm in the Czech Republic offers tax advice and planning for foreign and local entrepreneurs who want to start a business in this country. We have a dedicated team of specialists with experience in the tax field and we work closely with our clients in order to discover and propose the optimal solutions in matters of taxation. It is quite recommended to have the support of an experienced team of lawyers, especially if you are for the first time with business in Czech Republic and need to understand the taxation regime. You can rely on professionalism, proficiency, experience, transparency, and competence when choosing our legal services.
Making investments in Czech Republic
The Czech Republic attracts a large number of investors each year and that because the business climate is appealing and competitive. The food industry, engineering, manufacturing, biotechnology, tourism, and healthcare are quite prolific in the Czech Republic and the ones that sustain the country’s GDP in a large percent. International entrepreneurs can rely on a multilingual and experienced workforce, great infrastructure and transportation, plus an appealing tax regime. Here are some interesting facts and figures that highlight the economy in the Czech Republic:
- Nearly USD 171 billion represented the total FDI stock for the Czech Republic in 2019.
- 2020 Doing Business report ranks the country 41st out of 190 economies in the world.
- The Netherlands is the main investor in the Czech Republic.
- Most of the FDIs in the Czech Republic comes from the European Union.
If you need further information on the double taxation treaties signed by the Czech Republic, please contact our Czech law firm.