Taxation in Czech Republic - We Assist International Investors
Taxation in Czech RepublicUpdated on Friday 31st March 2023
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Persons interested in relocating to the 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 with the EU’s tax Directives. Our Czech lawyers can provide you with assistance on the taxation and tax exemptions applicable to foreign companies here, and about everything you need to know about the Czech tax. 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.
The VAT in Czech Republic
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, and 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 and pharmaceutical products and books; our lawyers in Czech Republic can offer you more details on the new VAT rate.
Besides the above-mentioned facts about the VAT in Czech Republic, foreign entrepreneurs should pay attention to the VAT registration process in this country. As such, companies established in Czech Republic and exceeding CZK 1 million in turnover in a year must register for VAT with the Czech tax authorities. Foreign companies dealing with the supply of goods from the Czech Republic to other European Union countries are subject to the VAT registration in this country. The formalities are straightforward and can be supervised by one of our Czech lawyers who can help entrepreneurs create the necessary documents referring to the Czech tax. If you intend to do business in Czech Republic, feel free to discuss all the details with our Czech attorneys. They can offer complete legal advice, about the Czech Republic tax 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 lawyers in Prague 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.
Customs duties and other taxes
Being a state member of the EU, Czech Republic aligns with the regulations referring to the customs duties that apply. One should also note that the excise tax is imposed on the production of tobacco products, alcohol, spirits, wines, and semi-products related, mineral oils, and fuel. Such a tax is normally included in the final price. Besides that, company owners transporting or storing a high volume of products as the ones mentioned above must observe the excise tax rules applicable. If you would like to know more about the taxation in Czech Republic, you should talk to our specialists. Also, you might want to pay attention to the following Czech taxes:
- Energy tax – it is imposed on certain types of gas and fuel, plus electricity. This is paid by the final consumer.
- Real estate tax – property or landowners must pay an annual fee based on the location, area, and uses of such assets.
- Real estate transfer tax – 4% is the real estate transfer tax in Czech Republic and it is calculated based on the greater price of the property involved in the transaction. Our team can tell you more about the Czech tax.
- Social security & health insurance – employers in Czech Republic must pay social contributions of 34% of the gross salary of an employee.
- Payroll taxes – the personal income tax and the solidarity surcharge are paid by employers in Czech Republic.
- Road tax – this must be paid each year by vehicle owners, including companies with car fleet. Talk to our team about the taxes in Czech Republic.
These are among the taxes to consider in Czech Republic, whether as a foreign entrepreneur or as a natural person. Feel free to talk to our Czech attorneys and solicit complete information about the taxes in Czech Republic. The Czech tax must be observed by foreign entrepreneurs before starting the activities.
Are investment funds levied in Czech Republic?
Yes, the tax of a 5% rate is applicable to investment funds in Czech Republic, if listed on a stock exchange in the European Union market. Otherwise, entrepreneurs from abroad might be exempt from taxation for their investment funds, under specific conditions. You can find out all the details you need from our advisors, as they can tell you more about the Czech Republic tax rate.
Conditions for taxation for foreigners
A foreign citizen in Czech Republic must provide information about the residence in the country, for the purposes of taxation. If foreigners stay at least 183 days in Czech Republic, this means that they must register for tax matters. The de-registration for taxation is made with the same tax authorities in the Czech Republic. If you intend to relocate to Czech Republic and need to know more about the Czech Republic tax rate, you can rely on the legal support provided by our Czech lawyers. The taxation in Czech Republic must be attentively measured before starting a business.
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.
Is the Czech Republic a tax haven?
The Czech Republic is considered a tax haven due to the benefits of the implemented system. Many entrepreneurs from abroad are finding in this country countless opportunities and protection in terms of taxable profits. In 2020, more than 11,000 foreign companies were registered in the Czech Republic, despite the health crisis that affected the global economy. Due to the advantageous taxation system, the Czech Republic is considered a tax haven and continues to attract large foreign investors every year.
If you are also interested in business opportunities in this country, do not hesitate to discuss all legal issues with our team of Czech lawyers. We are at your disposal with all the necessary support for company registration, opening investment funds, and much more.
Payment of taxes in the Czech Republic
Cash payments, internet banking, and payment orders are some of the ways to pay taxes in the Czech Republic. Both companies and individuals can choose various methods of paying taxes, either directly in the accounts, with the help of the payment order, or using the internet banking platforms offered by the respective financial institutions. If you need additional information on how to pay taxes in the Czech Republic, do not hesitate to talk to our specialists.
International tax payment, in complete safety
International tax payments can be made without risks with the help of the IBAN code (International Bank Account Number). Interbank transfers are not difficult, and those interested can choose to pay the taxes at the bank counter or with the help of platforms offered by the bank and other institutions. However, it is important to consider the necessary codes and other formalities in order to be able to pay securely.
FAQ about taxation in Czech Republic
1. What is the corporate income tax in Czech Republic?
The corporate income tax in Czech Republic is set at a 19% rate. Yet, lower rates apply under specific conditions.
2. What is the VAT rate in Czech Republic?
21% is the standard VAT in Czech Republic applicable to most goods and services on the market. The reduced VAT rate of 15% applies to basic food products & more.
3. How many double tax treaties are signed by Czech Republic?
There are around 80 double taxation agreements signed by Czech Republic with countries worldwide with the purpose of avoiding the extra taxation on incomes.
4. How much tax do you pay in Czech Republic?
Natural persons are subject to a 15% tax rate imposed on personal incomes generated in the Czech Republic.
5. How do I file taxes in the Czech Republic?
31st of March is the due date for filing the taxes in Czech Republic. One can talk to our Czech lawyers for legal advice and complete information about the Czech Republic tax rate.
6. When does a foreign resident need to pay taxes in the Czech Republic?
Foreigners who have lived in this country for more than 183 days must consider paying taxes. Relocation to the Czech Republic is relatively easy, but it is recommended that you have an idea of what kind of taxes you have to pay.
7. What tax applies to investment funds in the Czech Republic?
Investment funds listed on the European Union stock exchange are taxed at a rate of 5%, but there are exceptions to this rule if certain conditions are met. More details about taxes in Czech Republic can be provided by our lawyers in the Czech Republic.
8. What is the social security and health insurance tax in the Czech Republic?
34% represent social contributions and health insurance, which must be paid by the employer. This tax is calculated on the gross salary.
9. What is the real estate transfer tax in the Czech Republic?
Taxes in the Czech Republic include a 4% real estate transfer tax, calculated from the price of the property. This fee is paid upon payment of the property.
10. Can a company benefit from tax minimization tools in the Czech Republic?
Of course, there are various tools, with which business owners can pay fewer taxes. These tools and methods can be leisurely explained by our experienced tax and finance attorneys. More about taxation in Czech Republic can be discussed with us.
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 189 billion represented the total FDI stock in the Czech Republic in 2019.
- According to the “2020 Doing Business Report”, the Czech Republic ranked 41st out of 190 worldwide economies.
- Foreign direct investments in the form of Greenfield Investments in the Czech Republic summed up around USD 2,1 billion.
- Income tax reliefs for up to 10 years are available for entrepreneurs creating manufacturing companies or investing in the ones already established.
How our tax specialists can help you
Foreign investors know how important a country's tax system is, so they can get an idea before setting up a business. As the legislation may seem difficult and different from the country of origin, it is recommended to resort to specialized help offered by a team of lawyers with experience in the field, such as our company.
We emphasize that we can provide the necessary legal support to both local and foreign investors in terms of registration and payment of specific fees. Professionalism, efficiency, transparency, and communication are among the attributes of our experts in the field, and the collaboration is sugessted right from the very beginning. We pay attention to every detail in order to offer the optimal solutions to those interested in our legal services as it is important to work together since the registration of the company, in order to allow the start of activities in a relatively short time.
Therefore, if you want to register a company in the Czech Republic and you want to know more about the tax system, legislation, and other obligations, do not hesitate to get in touch with us by email or phone and find out details about the services offered and their prices.
If you need further information on the taxation in Czech Republic, please contact our team of Czech lawyers.