The Czech Republic has a flat corporate income tax rate of 19% applied on a general tax base. Basically, the tax base is represented by an accounting profit or loss modified by certain increasing and decreasing items. The tax base may be deducted by tax losses to be carried forward within five subsequent taxable periods. The Czech Republic applies thin capitalization rules to loans provided by related parties (generally 4:1).
|Transfer pricing in Czech Republic|
|Arm’s lenght principle||since 1993|
|Documentation liability||since 2006 (scope of Documentation is only recommended)|
|Country-by-Country liability||from FY 2016|
|Master file-local file (OECD BEPS 13) applicable||the recommended scope of the TP documentation in the Czech Republic corresponds to the general principles included in the OECD Guidelines and the Code of Conduct on Transfer Pricing Documentation for Associated Enterprises in the EU.|
|Lack of documentation|
|Tax shortage||20% on tax underpayment + late payment interest|
|Related parties||25% <||direct or indirect control or personally related|
|Safe harbours||Low value added services: 3-7% mark-up|
Level of attention paid by Tax Authority:
The Czech Republic provides tax exemption for holding structures: dividends and capital gains are tax exempted, provided certain conditions are fulfilled. Moreover, under certain specific conditions, an exemption may also be granted to royalties or interest from credit and loans. A withholding tax of 15% applies to dividends, royalties, interest and generally to income received in the Czech Republic, if the conditions for tax exemptions are not fulfilled and a relevant double tax treaty states otherwise. The Czech Republic has a wide international treaty network with more than 80 double tax treaties concluded. If the payments are realized to third countries without a double tax treaty (or a valid international agreement on exchange of information on tax matters), the withholding tax amounts to 35%.
Road motor vehicles used in connection with business, as well as trucks with a maximum gross weight exceeding 3.5 tonnes regardless of their use, are subject to a road tax if registered in the Czech Republic. A real estate tax is to be applied in relation to land and buildings, with tax rates generally depending on the type of the property, while the final amount of tax may also be influenced by local ratios (as applied by local authorities). A real estate transfer tax is to be applied at a rate of 4%. Inheritance tax and gift tax are incorporated into the income tax, with the application of standard income tax rates (15% for individuals, 19% for legal persons). Gratuitous income from inheritance is fully exempt. Gratuitous income from giving is exempt in a limited extent (e.g. gifts within family).
For 2019, the standard VAT rate is 21 %, while the reduced rates are 15 % (applicable, for example, on foodstuff, non-alcoholic beverage, heat, cold, accommodation and selected medical / sanitary goods and food-serving services) and 10 % (applicable, for example, on baby formula and children’s food, certain pharmaceuticals, certain printed books, children’s picture books, newspapers, magazines, music sheets and food for gluten-intolerant persons and since February 2019 also on public transport). Significant change in VAT rates is will highly probably come into effect in the second half of 2019. The 10% VAT rate (instead of 15%) will be newly applied on e.g. catering services including non-alcoholic beverages and draft beer, water supply and sewage and certain crafts and professional services, including the services of hairdressers, repairs of bicycles, shoes and textile for households and housekeeping services. VAT-exempt services include financial and insurance services, the transfer of buildings/flats/non-residential premises (after 5 years following the building approval), rent of real estate, post services, radio and TV services, education services and medical and social care services.
VAT payers are obliged to submit VAT returns, EC Sales Lists and Control Statements (evidence which reports detail on the selected transactions). All reports may be submitted on monthly or quarterly basis (depends on the subject who submits the report).
The following options/limits based on the EU Directive are presented within VAT legislation:
|VAT Options in Czech Republic||Applicable / limits|
|Distance selling||approx. EUR 44,300 / year|
|VAT group registration*|
|Import VAT deferment|
|Local reverse charge||supply of construction works, waste, gold and intermediary service related to supply of gold, supply of emission permits, selected cereals and industrial crops, mobile phones, integrated circuits, portable devices for the automated processing of data (e.g. notebooks and tablets), videogame consoles, real estate (when VAT payer voluntarily applies VAT on the sale which should be generally VAT exempt), supply of gas, electricity to trader, provision of telecommunication services to trader, outplacement of construction and assembly workers, supply of immovable property in forced insolvency sale, supply of goods originally provided as guarantee, supply of goods after assignment of reservation of ownership|
|Option for taxation|
|- letting of real estate**|
|- supply of used real estate***|
|VAT registration threshold****||approx. EUR 38,900 / year|
* related parties, only for Czech legal entities
** only when let to VAT payer for perfoming of his economic activity
*** 5 years time test
**** only for Czech based legal entities
Other indirect taxes include excise duties (on mineral oils, spirits, beer, wine and tobacco) and an energy taxes (on gas, electricity or solid fuels). A ‘contribution’ from electricity produced via solar facilities applies to such electricity producers.
Local taxes consist of different categories of taxes
Personal income tax is applied at a flat rate of 15% on active (employment, self-employment) and passive income (e.g. capital gains, dividends, interests). The employees’ tax base is increased by health insurance/social security contributions paid by the employer, thus the effective tax rate amounts to approximately 20%. A “solidarity” increase of tax at the rate of 7% is applied for the part of the gross income from an employment/tax base from self-employment exceeding 48 times the amount of the average wage (for 2019 it is CZK 1,569,552. Income from employment and self-employment is subject to social security and health insurance contributions. In case of employment, the employee’s contribution amounts to 6.5% (social security) and 4.5% (health insurance). For the employer, these amount to 25% and 9% respectively. The social security contributions are not paid on the income exceeding the maximum assessment base (for 2019 it is CZK 1,569,552.). The maximum assessment base for the health insurance contributions has been cancelled as of 2013. The example below shows the employer’s and the employee’s costs in case of minimum wage and average wage in the private sector.
|Wage related taxes in Czech Republic||Minimum wage||Average wage in private sector|
|Exchange rate CZK/EUR 25,725||in EUR||in CZK||in EUR||in CZK|
|519||13 350||1 225||31 516|
|TOTAL WAGE COST ("SUPER GROSS" SALARY)||695||134,00%||1 642||134,00%|
|Social security contribution - employer||130||25,00%||306||25,00%|
|Health insurance - employer||47||9,00%||110||9,00%|
|GROSS SALARY||519||100,00%||1 225||100,00%|
|Calculated personal income tax without standard tax deduction*||104||15.00%||246||15,00%|
|Personal income tax after standard tax deduction**||24||166|
* 15% tax rate is applied on "super gross" salary, the effective tax rate is approximately 20 %
** Each individual is entitled to deduct a lump sum of CZK 2,070 (app. EUR 80) per month from his tax liability (called "standard tax deduction")