Corporate Taxes In The Czech Republic: Complete Guide

If you incorporate a business in the Czech Republic, you have to pay various business taxes. A corporate must pay the following corporate taxes in the Czech Republic in order to conduct business operations there:

1. Corporate Income Tax (CIT)

Organizations with headquarters in the Czech Republic must pay corporate income tax (CIT) on earnings from global sources. Organizations that are not citizens of the country must pay corporate taxes in the Czech Republic on money generated there. 

All company profits, particularly capital gains from the transfer of stocks, are subject to the Czech corporate tax rate of 21%. Dividends received by tax-resident companies in the Czech Republic from non-resident companies are subject to a special CIT rate of 15%.

Pension schemes are exempt from CIT, and certain investment income is subject to a 5% CIT rate.

2. Value-Added Tax (VAT)

The Czech Republic imposes a value-added tax on the supply of products and services. VAT is typically imposed at a rate of 21%. Certain suppliers are subject to a 15% tax rate, and some commodities are subject to a further lowered rate of 10%. 

VAT is typically waived for exports with a credit. Certain goods and services are exempted without credit, such as real estate leasing, banking, and insurance activities, as well as goods and services related to education, healthcare, and charity.

3. Real Estate Tax

The proprietor of real estate is obligated to contribute real estate tax every year. The size, region, and intended use of the property or structures all affect the tax’s value. Paved spaces used for commercial reasons are subject to taxation, as such, taxpayers must self-assess the tax.

4. Stamp Duty

The Czech Republic doesn’t have any stamp duties. A notarial fee is charged for certain organizational processes where a notary is required to participate by operation of law.

5. Payroll Tax

In the Czech Republic, employers are required to provide monthly withholdings and yearly reconciling for their workers. Personal income tax, as well as mandated social security and medical insurance, are included in the withholdings.

6. Dividend Income

If not exempted under the participation exemption system:

• Dividends earned by Czech tax resident firms from non-resident organizations are subjected to a special rate of 15%.
• Dividends paid to Czech residents are subject to a 15% withholding tax.
• Dividends paid by Czech tax-resident enterprises to non-resident entities are subject to a 15% withholding tax.

7. Interest & Royalty Income

Royalties and interest payments made to tax residents are liable to the 19% corporate tax rate. Interest and royalties acquired by non-residents from a Czech source are subject to a 15% withholding tax unless exemptions or double tax treaties apply. 

If the recipient resides in a non-EU/EEA nation or one without a tax treaty, a 35% withholding tax applies.

Tax Base and Tax Rates in the Czech Republic

The tax base is the difference between revenue and expenditure, adjusted for tax purposes. The corporate tax rate in the Czech Republic is 19%, with specific rates for investment funds (5%) and pension insurance organizations (0%).

Tax Period in the Czech Republic

The tax period is typically the calendar year, but businesses may designate a financial year consisting of 12 consecutive calendar months.

Deadline for Submitting Tax Returns in the Czech Republic

Annual tax returns must be filed within 3 months of the end of the taxable period, typically by 1 April for calendar year taxpayers.

Tax Credits and Incentives in the Czech Republic

1. Research & Development (R&D)

R&D expenses may qualify for a tax credit, allowing businesses to deduct up to 100% of qualifying R&D costs from their tax base. Additional deductions may apply if current-year expenses exceed those of the prior year.

2. Investment Incentives

Investment incentives are available for companies in the manufacturing sector and technology hubs. Incentives include CIT exemptions, financial aid for job creation and training, capital investment grants, and discounted property transfers.

Who Pays Business Taxes in the Czech Republic?

• Tax Residents: Companies with a registered office or main place of business in the Czech Republic must pay corporate taxes on global profits.
• Permanent Establishments of International Corporations: Foreign companies with a permanent establishment in the Czech Republic pay taxes on income sourced from the country.

Conclusion

This article provides an overview of corporate taxes in the Czech Republic, including the standard 19% tax rate. For further inquiries on corporate taxes, you can consult our experts at OnDemand International for personalized assistance.