Corporate Taxes In The Czech Republic
The corporate tax rate in the Czech Republic is a significant component of a company’s tax burden. Even though corporate taxes in the Czech Republic is significantly lower, a range of other variables also affects the overall tax rate. The total amount of business taxes in the Czech Republic that must be paid, along with any potential penalties, may be
considerably higher than you anticipate because of frequent modifications in legislation and tighter inspection standards by tax authorities. As such, an entrepreneur needs to be aware of the various business taxes in the Czech Republic.
The general corporate tax rate in the Czech Republic is 19%. Entrepreneurs must also pay a number of other business taxes in the Czech Republic, such as the value-added tax, payroll tax, real estate tax, etc.
This article will briefly discuss the different corporate taxes in the Czech Republic that organizations are liable to pay.
Various corporate taxes in the Czech Republic
If you incorporate a business in the Czech Republic, you have to pay the 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 19%. 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, as well as certain investment income is subject to a 5% CIT rate.
2. Value-added tax (VAT)
Czech Republic corporate taxes on the supply of products and services is the value-added tax. 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 taxation of 15%.
- 15% final withholding tax must be withheld from dividends that Czech tax resident corporations pay to Czech residents.
- Dividends given by tax-resident enterprises in the Czech Republic to non-resident Czech entities are subject to a 15% ultimate WHT.
7. Interest & royalty income
Royalties and interest payments made to tax residents are comprised of the regular tax base and therefore are liable to the 19% corporate tax rate in the Czech Republic. If domestic exemptions apply or a DTT specifies otherwise, interest and royalties with a Czech source, that are acquired by non-residents of the Czech Republic are liable to a 15% withholding tax.
Interest and royalties given by tax residents of the Czech Republic to organizations that do not have tax residence in either EU or EEA member nation, nor in a nation with which the Czech Republic has signed a Double Tax Treaty or TIEA, are subject to a higher WHT rate of 35%.
Tax Base and Tax Rates in the Czech Republic
The gap between both revenue and expenditure, as adjusted for taxes, is often the tax base.
The Czech Republic corporate tax rate is 19%. For basic investment funds, a 5% corporate tax rate in the Czech Republic is in effect. The Czech Republic corporate tax rate for a pension insurance organization’s money is zero percent.
Tax Period in the Czech Republic
The calendar year often serves as the tax period. Taxpayers are permitted to designate a financial year that is distinct from the calendar year. 12 consecutive calendar months must make up a financial year.
Deadline for submitting tax returns in the Czech Republic
The deadline for filing an annual tax return is 3 months after the conclusion of the taxable period, or by 1 April in the case of a calendar year.
Tax credits and incentives in the Czech Republic
1. Research & Development
As a special tax credit, the tax base may be used to offset up to 100% of certain Research & Development (R&D) expenditures generated in a particular tax year. As a result, these expenses are deducted twice for taxation reasons: once as a regular tax-deductible expense and another time as a unique tax deduction. If the relevant expenses for the present year are higher than they were for the previous one, a further 10% may be deducted as an allowance.
The following expenditures are eligible for the R&D tax credit:
- Direct expenses, such as the salaries of R&D engineers and the materials they use.
- Tax deductions for fixed assets used in research and development.
- Other operating costs like telecommunications charges, power, water, and gas are closely tied to the implementation of R&D activities.
2. Investment incentives
Only organizations based in the Czech Republic, as well as Czech subsidiaries of international corporations, are eligible for investment incentives. The major incentives involve a CIT exemption, financial assistance for the generation of employment opportunities, cash assistance for staff training or upgrading, cash grant on capital investments, and the transfer of property at a significantly discounted price.
Incentives for investments are offered in the manufacturing sector as well as in the assistance of technology hubs, essential services, etc. Investment incentives allow for a maximum support of 25% of qualifying expenses.
Who pays business taxes in the Czech Republic?
1. Tax Residents– Businesses who have their registered office or their major place of business in the Czech Republic are considered tax residents of the country. The tax residents must pay corporate taxes in the Czech Republic on all of their global profits.
2. Permanent Establishments of International Corporations– A structure, such as a workplace, industry, point of sale, location for the mining of environmental resources, etc., that is situated in the Czech Republic is considered a permanent establishment.
During any 12 calendar months, if a worker of an international organization performs any commercial, management, administrative, or other activities in the Czech Republic for longer than six months, a “deemed” permanent establishment exists in the country.
Foreign corporations’ branches and permanent establishments are typically only subject to Czech-source income taxes.
Conclusion
The above article briefly describes the Czech Republic corporate taxes that have to be incurred by a resident as well as a non-resident firm in the country. The standard Czech Republic corporate tax rate is 19%.
For more queries regarding corporate taxes in the Czech Republic, you can reach our experts at Odint Consulting. Our experts will help you solve your queries.
FAQ’s
The standard Czech Republic corporate tax rate is 19%.
Yes, international businesses have to pay taxes in the Czech Republic on the revenue generated there.
- Research & Development- As a special tax credit, the tax base may be used to offset up to 100% of certain Research & Development expenditures generated in a particular tax year. Direct expenses, tax deductions for fixed assets used in research and development, as well as other operating costs are eligible for the R&D tax credit.
- Investment incentives- Only organizations based in the Czech Republic, as well as Czech subsidiaries of international corporations, are eligible for investment incentives.
Tax Residents- The tax residents must pay corporate taxes in the Czech Republic on all of their global profits.
Permanent Establishments of International Corporations- Foreign corporations’ branches and permanent establishments are typically only subject to Czech-source income taxes.
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%.
