Taxation
Taxpayers in the Czech Republic are subject to the following taxes:
| Tax | Tax Rate |
|---|---|
| Corporate income tax | 20% for tax periods starting in 2009 and 19% for tax periods starting in 2010 and afterwards. |
| Personal income tax | Flat tax rate of 15% for calendar 2009. |
| Value added tax (VAT) | 9% (food, books, special healthcare products) or 19% (most goods and services). |
| Excise tax | Levied on petrol and petrol derivates, alcohol (beer, wine and spirits) and tobacco. |
| Road tax | CZK 1,200 – 4,200 (cars), CZK 1,800 – 50,400 (trucks). |
| Real estate tax | According to type, location and purpose of use of the real estate. |
| Real estate transfer tax* | Flat tax rate of 3%. |
| Inheritance tax & gift tax | Progressive tax rate which ranges from 1% (0.5% for inheritance tax) up to 40% (up to 20% for inheritance tax). |
| Energy tax | Levied on supplies of electricity, natural and other gases, and solid fuels with effect from 1 January 2008. |
Corporate Income Tax and Personal Income Tax
All Czech tax residents are subject to these taxes on their worldwide income, while Czech tax nonresidents are taxed only on their income from Czech sources.
An individual is a Czech tax resident if he/she has his/her permanent address in the Czech Republic (i.e. a place where an individual has his/her home and circumstances indicate his/her intention to dwell there permanently) or has “a usual residence” in the Czech Republic (i.e. the individual’s total number of days spent in the Czech Republic is greater than or equal to 183 days per calendar year). The tax residency of a legal entity is its seat or place of effective management in the Czech Republic.
Corporate Income Tax
Rendering of services in the Czech Republic
A permanent establishment is the taxable presence of a foreign entity that carries out business activities in the Czech Republic. A permanent establishment is not a legal entity; however, it is a taxable entity and therefore it must be registered for tax purposes with the Tax Office.
Generally, a permanent establishment of a foreign company is created when the company’s employee(s) is (are) assigned to the Czech Republic to render services here for more than 6 months (183 days) in any 12 consecutive calendar months. If a company sends a group of employees that are present in the Czech Republic on the same days, the 183-day limit covers all employees, i.e. the presence of more than one employee on any given day is counted as one day of presence. The particular Double Taxation Treaties may further modify the conditions of PE establishment.
Facility located in the Czech Republic
A permanent establishment can also be created when a foreign entity sets up an office, workshop, production facility, sales outlet or other business facility (i.e. a fixed place of business) in the Czech Republic. In such a case, a permanent establishment is created regardless of the 183-day condition.
A permanent establishment is also created in the case that the foreign entity operates in the Czech Republic via a dependent agent.
Personal Income Tax
Generally, income from dependent activities paid by a foreign employer to a Czech tax non-resident is tax-exempt if the time spent on such activities does not exceed 183 days in any 12 consecutive calendar months. This tax exemption shall not apply to income from an activity performed in a permanent establishment.
Taxation of expatriates
Taxable income includes earnings from dependent activities including benefits in-kind (e.g. housing allowances, use of a company car for private purposes, etc.), income from business activities, and income from capital, rent and other sources. In general, taxable income consists of all income regardless of whether it is monetary or non-monetary.
Generally, income is declared and taxed through a personal income-tax return that should be filed with the relevant Tax Office within three months after the end of the tax period (or within six months if a power of attorney for filing the tax return is submitted by a certified tax advisor).
An expatriate who is employed directly by a local (Czech) company or by a branch of a foreign company is subject to tax on his/her income from the dependent activity from the first day of his/her employment. The local company or branch of a foreign company withholds monthly tax pre-payments from his/her salary towards his/her annual tax liability. If the expatriate only has income derived from an employment contract, the employer prepares a year-end tax settlement that is a substitute for the expatriate's tax return.
If a foreign company transfers an expatriate to a Czech company under a service agreement, he/she should be registered as an individual taxpayer with the relevant Tax Office. His/her income is taxed via the annual personal income tax return. Additionally, an expatriate makes semi-annual or quarterly advance payments for his/her personal tax liability in the course of the year. These advance payments are based on the previous year's tax liability.
There is a flat personal income-tax rate of 15% in 2009. The tax base from which the tax liability is calculated, however, is increased, as the 2008 payroll tax is calculated from the so-called “super-gross” salary (salary increased by social security and health insurance contributions). Therefore the effective tax rate is higher than the nominal 15%).
