Taxation in Czech Republic
Taxation in Czech RepublicUpdated on Tuesday 27th August 2019
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Persons interested in relocating in Czech Republic or foreign investors who are seeking to extend their business here should know the level of taxation applied by the local authorities. Czech Republic is a member state of the European Union (EU) and, as such, in terms of taxation, it complies to the EU’s tax Directives. Our Czech lawyers can provide you with assistance on the taxation and tax exemptions applicable to foreign companies here. Also, you can benefit from the legal support of our consultants if you want to start a business in the Czech Republic.
The main taxes in Czech Republic
The main taxes applied by local authorities are the following:
- • corporate income tax;
- • personal income tax;
- • value added tax (VAT);
- • consumption tax.
The corporate income tax is applied at a rate of 19%, but the Czech government has also introduced a reduced corporate tax, applicable at the rate of 5% for investment and pension funds. The personal income tax is applied at the rate of 15%, while the consumption tax is enforced for companies related to several fields of activity, such as trade of alcohol, tobacco or hydrocarbon fuels. At the moment, Czech Republic operates under three types of VAT, as follows:
- • standard VAT – applied at the rate of 21% to most of services and goods sold on the Czech market;
- • reduced VAT – applied at the rate of 15% for basic food products, pharmaceutical products, social housing or medical equipment;
- • reduced VAT of 10% - it was introduced from the 1st of January 2015 and it is applicable to products related to child nutrition or pharmaceutical products and books; our lawyers in Czech Republic can offer you more details on the new VAT rate.
Taxation of companies in Czech Republic
A foreign business will be considered a tax resident in Czech Republic if the company will be registered or managed from the Czech territory. The dividends of a company set up as a subsidiary in Czech Republic will not be taxed if the parent company has holding rights in the subsidiary. The capital gains are usually taxed with the standard corporate rate of 19%.
Double tax treaties signed by Czech Republic
The double taxation agreements signed by Czech Republic with counties worldwide are meant to protect international companies from paying the taxes twice on incomes. Approximately 80 countries signed double tax treaties with the Czech Republic, and among these, China, Egypt, Belgium, Australia, Croatia, Estonia, Bulgaria, Nigeria, Latvia, Romania, Spain, Portugal, Greece, Serbia, Lithuania, Denmark, Poland, Sri Lanka, Ethiopia, Malta, Austria, Albania, South Africa, Ireland, Singapore, Mexico, Sweden, USA, Thailand, Slovakia, Lebanon, Iceland, Cyprus, Korea, Tunisia, Ukraine, UK, Germany, New Zealand, France, Syria, the UAE, Israel, Japan, Luxembourg, Bahrain, the Netherlands, Macedonia, Philippines, Hungary, Slovenia, Mongolia, Moldova and many more. Branches, subsidiaries and any forms of businesses established in the Czech Republic can benefit from the provisions of the double tax treaties signed with countries worldwide. The royalties, the dividends, the capital gains and other types of incomes are covered by the double tax treaties signed by the Czech Republic, whether generated by international companies established in this country or by natural persons working in the Czech Republic. The ordinary tax credit is one of the methods used for the avoidance of double taxation on incomes and it is the most used method, stipulated by the provisions of the double taxation agreements signed by the Czech Republic. Also, the exemption on incomes with progression is another method mentioned by the DTTs signed with countries worldwide. If you need extra details about the double taxation treaties signed by the Czech Republic, we recommend you get in touch with our Czech lawyers and ask for legal advice.
Social contributions in the Czech Republic
Employers in the Czech Republic are obliged to pay the social security and the health insurance contributions of 34% rate divided into 24% for the social security and 9% rate for the health insurance of employees in the firm.
Exemptions from personal taxation in the Czech Republic
Taxation for natural persons living and working in the Czech Republic is not applicable, for instance, to the sale of personal assets like houses, apartments, condominiums, etc., if they own such assets for at least 2 years. The sale of movable properties is also subject to tax exemptions under specific rules which can be explained by one of our Czech attorneys. As for the taxation of personal income, a flat rate of 15% applies to “super gross income”. Also, in the case of high-earning individuals, a solidarity tax of 7% is imposed on the gross income that exceeds the annual social security cap, as stated by the Tax Code in the Czech Republic.
Are tax minimization methods available in the Czech Republic?
Yes, those interested in optimizing the taxes in the Czech Republic might be interested in varied tax minimization methods available in the country. The costs for company equipment can be deducted under specific rules, and if company owners with credits decide on paying in advance, they can benefit from tax reductions. Also, charitable donations in the Czech Republic are seen as useful tax minimization methods that can be easily implemented. It is good to know that the VAT exemption applies to companies having trading activities in the export sector, a benefit which can be considered a solid and appreciated tax minimization method. Tax minimization tools are at the disposal of both local and international entrepreneurs with companies in the Czech Republic, even if the tax structure of this country is extremely appealing. More details in this matter can be provided by our Czech lawyers who can offer complete legal advice in tax matters.
Why invest in the Czech Republic
The Czech Republic is for many years a solid recipient for foreign investments and the ideal destination for generating huge incomes in varied industries. The legislation of foreign investments in the Czech Republic offers equality in terms of business rules for both local and foreign investors. The appealing tax system and the labor force are also in the attention of international investors looking for a business in the Czech Republic. You might also find interesting the following statistics and information about companies and investments in this country:
- Around USD 9,479 million represented the FDI flow in the Czech Republic last year.
- According to the “2019 Doing Business Report”, the Czech Republic ranks 35th out of 190 worldwide economies.
- Foreign direct investments in the form of Greenfield Investments have been directed in the Czech Republic in 2018 in a total of 132 projects.
- Income tax reliefs for up to 10 years are available for entrepreneurs creating manufacturing companies or investing in the ones already established.
If you need further information on the taxation in Czech Republic, please contact our team of Czech lawyers.