Rates of corporate tax. The standard corporate income tax rate for Czech enterprises and branches of foreign enterprises is 21%. Basic investment funds are subject to a preferential tax rate of 5%.
Under the Czech Income Taxes Act, the following are considered basic investment funds:
• An investment fund whose shares are accepted for trading on a European regulated market if it satisfies both of the following conditions:
No corporate income taxpayer (other than the state, the central bank or specified international institutions) owns shares representing 10% or more of the share capital of the investment fund. Shares owned by related parties are considered shares owned by a single taxpayer for purposes of this condition.
The investment fund does not have a trade license based on the Czech Act on Trades.
• Mutual fund
• Investment funds and subfunds of a joint stock company with variable registered capital if it invests (in line with its prospectus) more than 90% of its assets in prescribed instruments (for example, selected securities, money market instruments, financial derivatives, receivables and loans)
• A foreign investment fund comparable to funds as described in the above three bullets if it satisfies all of the following conditions:
— Its home country is an EU/EEA Member State.
— It can prove that it is administered or managed based on an authorization comparable to the authorization issued by the Czech National Bank and its administrator or manager is subject to supervision comparable to the Czech National Bank’s supervision.
— It has statutes or a document comparable to a prospectus based on which it can be determined whether the fund is comparable to a fund described in the above three bullets.
— It can prove that according to the laws of its home country none of its income is attributable to other persons (meaning it is not tax transparent).
A preferential corporate income tax rate of 0% applies to pension funds.
No differences exist between the taxation of 100% Czech-owned enterprises and those with foreign investment.
Investment incentives. Investment incentives are available to investors launching or expanding the following:
• Manufacturing
• Technology centers
• Business support services centers, including shared-services, software-development, high-technology repair and data centers
Several amendments were made to the Investment Incentives Act and related regulation. A recent amendment to the Investment Incentives Act eliminates the requirement to submit a majority of applications for an investment incentive to the government for consideration. As a result, the Ministry of Industry and Trade will decide on granting the incentives for most of the applications based on the opinions of the ministries concerned. The investment project must pass a cost-benefit test (the benefit of the investment
must exceed the value of the support provided by the state). The governmental approval is required in case of cash grants on capital expenditures for strategic investment. The European Commission must be notified of projects with qualifying expenses exceeding EUR110 million.
Manufacturing industry. The following are general qualification conditions for the incentives for the manufacturing industry:
• In less underdeveloped regions, only investments in new economic activity (that is, not expansion projects) will be eligible for new support for large enterprises. Investment in tangible and intangible assets to set up a new establishment or to extend the range of activities of an establishment will be considered a new economic activity, provided the new activity is not the same as or similar to that previously carried out in the establishment. The same or similar activity will be assessed according to the four-digit classification of economic activities code (CZ-NACE codes; “CZ-NACE” is an abbreviation used for classification of economic activities [for the French term “nomenclature statistique des activités économiques dans la Communauté européenne”]).
• An investment at least CZK80 million must be in long-term tangible and intangible assets. The CZK80 million requirement may be reduced to CZK40 million in selected regions.
• The investment must be in a manufacturing sector, and at least 50% of the total investment must be invested in qualifying production machinery. Machinery must be acquired at an arm’s-length price. It must have been produced no more than two years before the acquisition and must not have been previously subject to tax depreciation.
• Qualifying intangible assets must be acquired from unrelated third parties for arm’s-length prices.
• The investment must be realized in the Czech Republic outside Prague.
• The investment must meet higher value-added criteria. To satisfy this requirement for investment in manufacturing, the average wage of employees working in the site of the investment must reach at least the average wage in the given region, and one of the following conditions must also be met:
— At least 10% of employees must be university-educated, and a contract for research and development (R&D) cooperation must have been executed with a research organization or university with a value of at least 2% of the total eligible costs.
— At least 3% of employees must be working in R&D.
— The acquisition of machinery and equipment used in R&D on top of eligible costs should represent at least 10% of the total eligible costs (machinery and equipment used in R&D cannot be included in eligible costs).
The higher value-added criteria do not apply in regions with high unemployment and for manufacturing projects related to products with strategic importance for protection of the life and health of citizens or products designed to produce or store energy from renewable sources, to increase energy efficiency or to reduce the energy consumption of buildings.
new machinery, must be made. In addition, at least 100 new jobs must be created.
Special conditions. In addition to the general conditions listed above, investors claiming the income tax relief must satisfy certain special conditions, including, among others, the following:
• They must reduce their tax base by claiming maximum tax depreciation, deducting all available tax-effective bad debt provisions and using all available tax losses carried forward, in accordance with the tax law.
• They must be the first user of tangible assets (excluding real estate) that are acquired for the purposes of the investment in the Czech Republic.
• They may not cease to exist, terminate their activities or declare bankruptcy.
• They may not increase their tax base through related-party transactions that are not at arm’s length.
Mergers are allowed to some extent; tax relief claimed before the merger is not lost, but investors are not able to claim tax relief in subsequent tax periods.
Specific conditions apply to job-creation, retraining and training grants and to grants on capital expenditures for strategic investments.
The incentives are provided based on the Investment Incentives Act and related EU directive.
Capital gains. In the Czech Republic, realized and unrealized capital gains are recognized.
Capital gains realized by a Czech or another EU/EEA parent company (also, see below) on the transfer of shares in a subsidiary established in the Czech Republic or another EU/EEA country are exempt from tax if the parent company maintains a holding of at least 10% of the subsidiary for an uninterrupted period of at least one year (further conditions apply).
Capital gains realized by a Czech or EU/EEA parent company on the transfer of shares in a subsidiary in a contracting country (that is, a third country that has entered into a tax treaty with the Czech Republic) are also exempt from tax if the following conditions are satisfied:
• The subsidiary has a legal form comparable to Czech legal forms listed in the Czech tax law.
• The parent company has held an ownership interest of at least 10% in the subsidiary for at least one year (this condition may be fulfilled subsequent to the date of the transfer).
• The subsidiary is liable to a tax similar to corporate income tax at a rate of at least 12% in the tax period in which the parent company accounts for the respective capital gain and in the preceding tax period.
The exemption for capital gains does not apply if any of the following circumstances exists:
• The subsidiary entered liquidation proceedings.
• The shares in the subsidiary were acquired through the acquisition of a going concern.
• The parent company or the subsidiary is exempt from corporate income tax or similar tax applicable in its jurisdiction.
• The parent company or the subsidiary may opt for an exemption (or a similar relief) from corporate income tax or similar tax applicable in its jurisdiction.
• The parent company or the subsidiary is subject to zero corporate income tax or similar tax applicable in its jurisdiction.
Other realized capital gains are included with other taxable income and taxed at the regular corporate income tax rate. Capital losses on certain assets may be deducted from ordinary income, while capital losses on other assets (including capital losses on assets that qualify for exemption) are not deductible, even from other capital gains.
Unrealized capital gains and losses, which result from revaluation to fair value, are taxable or deductible only with respect to certain assets. Unrealized gains on shares that qualify for exemption are not taxable and unrealized losses on such assets are nondeductible for tax purposes.
Capital gains realized by nonresidents on the following are considered Czech-source income and are consequently generally taxable:
• Sales of rights registered in the Czech Republic or investment instruments to Czech taxpayers or Czech permanent establishments
• Sales of shares (securities or share interests) in Czech companies, regardless of the tax residence of the purchaser
However, capital gains realized by EU/EEA parent companies on sales of shares may be exempt from tax (see above).
Administration. Companies may select a calendar year or a fiscal year as its tax year. If a company uses a tax year other than the calendar year, it must file a notification with the tax authorities.
Tax returns must be filed within three months after the end of the tax year. If a company does not file the tax return by the standard three-month deadline, the deadline is automatically extended to the following:
• To four months after the end of the tax year if the tax return is filed electronically
• To six months after the end of the tax year if the tax return is filed by an appointed advisor (tax advisor or attorney-at-law)
Companies that are subject to a statutory audit are automatically granted a three-month (to six months after the end of the tax year) extension. In addition, on application of the company, an extension of three months to file a tax return may be granted at the discretion of the tax authorities.
A company with tax liability of more than CZK150,000 for the preceding year must make quarterly advance payments of tax, each equal to 25% of the preceding year’s tax liability. The payments must be made by the 15th day of the third, sixth, ninth and twelfth month of their tax year. Any balance of tax due must be paid by the due date for filing the tax return.
If a company’s liability for the preceding year exceeded CZK30,000, but did not exceed CZK150,000, installments that are each equal to 40% of the tax liability for the preceding year must be paid by the 15th day of the sixth and twelfth months of their tax year. If the
decreases in inventory value. Under certain circumstances, the liquidation of inventory may be deductible for tax purposes.
Provisions. Provisions are not deductible unless a special tax law permits their creation for tax purposes.
Tax relief is provided with respect to overdue trading debts (as defined in the law).
Taxpayers may generally create the following tax-deductible provisions for debts that are overdue and not lapsed (with certain limitations):
• 50% of the unpaid book value of the debt if more than 18 months have elapsed since the agreed due date
• 100% of the unpaid book value of the debt if more than 30 months have elapsed since the agreed due date
For overdue debts exceeding CZK200,000 that were acquired from the previous creditor, deduction of the above provisions is allowed only if a court or arbitration proceeding was initiated and the taxpayer (creditor) participates in the proceeding.
The above deductions must generally be recorded in the accounting books. The deductions may not be claimed for debts from related parties and other specified debts.
A 100% provision can be created for receivables up to CZK30,000, subject to certain conditions. A 100% provision for overdue receivables may also be created if insolvency proceedings have been initiated with respect to the debtor’s property and if the creditor makes a timely claim for such receivables against the debtor in the respective court. This deduction may not be claimed for debts from related parties.
Reserves. Taxpayers may create tax-deductible reserves for the repair of tangible assets included in Categories 2 through 6 for tax depreciation purposes (see Depreciation). The reserves must be created for a minimum of two tax periods and for the maximum number of tax periods specified for each asset category.
Reserves for repairs of tangible assets may be created taxeffectively only if cash equal to the amount of the reserve created is deposited in a specific bank account.
Depreciation. The corporate income tax law includes specific provisions concerning the depreciation of tangible and intangible assets. Depreciable tangible assets are divided into six categories, each of which specifies a period (a specified number of years) over which all assets in the category are depreciated.
The following are the six categories of depreciation, the time periods for depreciation of assets in each category and representative assets included in each category.
* This category includes hotels, stores and office buildings.
Assets other than buildings that cannot be classified in any of the above categories are considered to be in Category 2. Category 5 covers buildings that are not covered by Categories 4 or 6.
Taxpayers may elect to depreciate assets using the straight-line or the accelerated method. The method chosen, however, does not affect the period of depreciation. Under the accelerated method, depreciation for the first year is calculated by dividing the cost of the asset by the applicable coefficient (see table below). For subsequent years, accelerated depreciation is calculated by multiplying the residual tax value of the asset by two and then dividing by the applicable coefficient, which is reduced by the number of years for which the asset has already been depreciated.
The following are the depreciation rates and coefficients for the six categories under the straight-line and accelerated methods.
1 20% for first year 3 for first year and and 40% for 4 for subsequent subsequent years years
2 11% for first year 5 for first year and and 22.25% for 6 for subsequent subsequent years years
3 5.5% for first year 10 for first year and and 10.5% for 11 for subsequent subsequent years years
4 2.15% for first year 20 for first year and and 5.15% for 21 for subsequent subsequent years years
5 1.4% for first year 30 for first year and and 3.4% for 31 for subsequent subsequent years years
6
1.02% for first year 50 for first year and and 2.02% for 51 for subsequent subsequent years years
Taxpayers may elect to use lower than the maximum straight-line depreciation rates. Additional rules apply to assets that were technically improved.
An initial accelerated depreciation charge (additional 10% to 20% of input price; in general, the input price is the acquisition cost, including related costs) is granted in the year of acquisition for certain tangible assets if other conditions are met.
Nature of tax Rate
(The maximum assessment base is CZK2,110,416 as of 1 January 2024.) Excise tax, imposed on entities that produce or import certain goods, including hydrocarbon fuels and lubricants, alcohol and spirits, beer, wine and tobacco products; tax based on the quantity of goods expressed in specific units; tax may be levied only once on a particular good Various Road tax, imposed on certain categories of vehicles registered in the Czech Republic; special reductions of tax rates, allowances and exemptions may apply Various Environmental tax; imposed on electricity, natural gas and solid fuel when delivered to final consumers; tax is based on the quantity of goods expressed in specific units; tax is administered and paid by the distributor which charges it to the final customer as a price increase Various Electronic tax stamps for the use of highways Small vehicles (up to 3.5 tons; annual stamp)
CZK2,300 Large vehicles Electronic road tolls
E. Miscellaneous matters
Foreign-exchange controls. The only legal tender valid in the Czech Republic is the Czech crown (CZK). Other currencies may be used for domestic transactions, but the use of the Czech crown is prevalent.
The Czech crown is fully convertible. Several financial transactions, such as direct investments or acceptance of credit from abroad, are subject to a reporting requirement.
Anti-avoidance legislation. In applying the tax law, the tax authorities may consider the substance of a transaction if the form of the transaction conceals the actual facts. In addition, the Czech courts have developed the abuse-of-law concept. The concept is similar to the one developed by the European Court of Justice (for example, Halifax [No. C-255/02]).
A minimalistic version of the general anti-avoidance rule (inspired by the Anti-Tax Avoidance Directive [ATAD]) is included in the Tax Administration Law. The provision applies to all taxes, and its wording (together with the explanatory report) indicates continuity of the current approach to the abuse of law concept.
Transfer pricing. If prices in a transaction involving related parties vary from the current market prices and if the difference cannot be justified, the market prices are used for tax purposes. Related parties include companies related through capital (that is, the same legal or natural persons directly or indirectly manage, control or own more than 25%) and companies related in a different manner. In addition, related parties are persons who establish a
business relationship for the principal purpose of decreasing taxable income or increasing a tax loss.
Binding rulings. Taxpayers may apply to the tax authorities for advance pricing agreements and for binding opinions on, for example, transfer prices, the determination of the tax base of a tax nonresident from activities carried on by a permanent establishment, technical improvements of long-term assets, the allocation of expenses to taxable and nontaxable income, expenses incurred on R&D projects, expenses incurred on buildings that are also used for private purposes, and the application of VAT rates.
Financing expenses. The tax deductibility of financing expenses (interest and associated expenses) with respect to related-party loans (including back-to-back loans) is limited by a debt-equity ratio of 4:1 (6:1 for banks and insurance companies). Financing expenses with respect to profit-participating loans are nondeductible for tax purposes. Also, limitations are imposed on the deductibility of financing expenses related to shareholdings.
Based on the transposition of the ATAD, the deductibility limit for exceeding borrowing costs is the higher of 30% tax earnings before interest, tax, depreciation and amortization (EBITDA) or CZK80 million. The rule does not apply to “standalone” taxpayers and to listed financial enterprises. Borrowing costs subject to this rule are defined broadly in line with ATAD. Disallowed exceeding borrowing costs may be carried forward and claimed in future tax periods (however, transfer to previous tax periods and transfer of unused capacity to future tax periods will not be allowed). The interest deductibility limitation rule will apply together with the thin-capitalization rule and other limitations on financing expenses.
Controlled foreign company rules. Controlled foreign company (CFC) rules were implemented through the ATAD transposition. The CFC rules provide for taxation of certain types of passive income of a CFC (or permanent establishment if exempt pursuant to a double tax treaty) in the hands of a Czech controlling company in proportion to the share capital held in the CFC if the following conditions are met:
• The CFC entity does not carry out substantive economic activity.
• The foreign tax of the CFC entity is lower than 50% of the tax that would be paid as a Czech resident under Czech rules.
• The Czech controlling company directly or indirectly (itself or with associated companies) has a greater than 50% share of the voting rights, capital or profits.
Stricter CFC rules apply to entities from jurisdictions on the EU list of noncooperative jurisdictions.
Exit taxation. Exit taxation rules (that is, taxation of the transfer of assets with no change in ownership from the Czech Republic to another jurisdiction if the Czech Republic loses the right to tax the transferred asset) were implemented through the ATAD transposition. The main parameters of the rules are broadly in line with those in the ATAD.
Anti-hybrid rules. Anti-hybrid rules were also implemented through the ATAD transposition. Situations of double deduction,
Azerbaijan 8 0/5/10 (g) 10
Bahrain 5 0 10
Bangladesh 10/15 (b) 0/10 (g) 10
Barbados 5/15 (b) 0/5 (g) 5/10 (a)
Belarus 5/10 (b) 0/5 (g) 5
Belgium 5/15 (b)(s) 0/10 (g)(t) 0/5/10 (q)(aa)
Bosnia and Herzegovina 5 0 0/10 (a)
Botswana 5 0/7.5 (g) 7.5
Brazil 15 0/10/15 (g)(i) 15/25 (v)
Bulgaria 10 (s) 0/10 (g)(t) 10 (q)
Canada 5/15 (c) 0/10 (g) 10
Chile 15 4/10 (z) 5/10 (w)
China Mainland 5/10 (b) 0/7.5 (g) 10
Colombia 5/15/25 (b) 0/10 (g) 10
Croatia 5 0 10
Cyprus 0/5 (c)(s) 0 (t) 0/10 (a)(q)
Denmark 0/15 (c)(s) 0 (t) 0/10 (a)(q)
Egypt 5/15 (b) 0/15 (g) 15
Estonia 5/15 (b)(s) 0/10 (g)(t) 10 (q)
Ethiopia 10 0/10 (g) 10
Finland 5/15 (b)(s) 0 (t) 0/1/5/10 (m)(q)
France 0/10 (b)(s) 0 (t) 0/5/10 (q)(u)
Georgia 5/10 (b) 0/8 (g) 0/5/10 (u)
Germany 5/15 (b)(s) 0 (t) 5 (q)
Ghana 6 0/10 (g) 8
Greece 15 (s) 0/10 (g)(t) 0/10 (a)(q)
Hong Kong 5 0 10
Hungary 5/15 (b)(s) 0 (t) 10 (q)
Iceland 5/15 (b)(s) 0 (t) 10 (q)
India 10 0/10 (g) 10
Indonesia 10/15 (e) 0/12.5 (g) 12.5
Iran 5 0/5 (g) 8
Ireland 5/15 (b)(s) 0 (t) 10 (q)
Israel 5/15 (f) 0/10 (g) 5
Italy 15 (s) 0 (t) 0/5 (a)(q)
Japan 10/15 (b) 0/10 (g) 0/10 (a)
Jordan 10 0/10 (g) 10
Kazakhstan 10 0/10 (g) 10
Korea (North) 10 0/10 (g) 10
Korea (South) 5 0/5 (g) 0/10 (a)
Kosovo 5/15 (b) 0 0/10 (a)
Kuwait 0/5 (k) 0 10
Kyrgyzstan 5/10 (f) 5 (g) 10
Latvia 5/15 (b)(s) 0/10 (g)(t) 10 (q)
Lebanon 5 0 5/10 (w)
Liechtenstein 0/15 (c)(s) 0 (t) 0/10 (a)(q)
Lithuania 5/15 (b)(s) 0/10 (g)(t) 10 (q)
Luxembourg 0/10 (c)(s) 0 (t) 0/10 (a)(q)
Malaysia 0/10 (l) 0/12 (g) 12
Malta 5 (s) 0 (t) 5 (q)
Mexico 10 0/10 (g) 10
Moldova 5/15 (b) 5 10
Mongolia 10 0/10 (g) 10
Montenegro 10 0/10 (g) 5/10 (a)
(b)(s)
(c)
(b)
(c)(s)
(b)
(y)
(c)
(j)(s)
(g)
(g)(z)
(g)
(g)(t)
(g)(t)
(u)(q)
(r)
(a)
(t) 0/10 (a)(q)
Slovenia 5/15 (b)(s) 0/5 (g)(t) 10 (q) South Africa 5/15 (b)
10
5/15 (b)(s) 0 (t) 0/5 (n)(q)
(o)
(b)(s)
(c)(s)
10/15 (b)
(g)
(g)
(a)
(a)(q)
(p)(q)
(g) 5/10 (w)
(g)
0/10/15 (g) 5/10/15 (h)
(a)
(k)
(b)
(c)
(b)
(f)
(a)
(a)
(g)
(g)
(g)
Non-treaty jurisdictions 15/35 (x) 0/15/35 (d)(x) 15/35 (x)
(a) The lower rate applies to royalties paid for copyrights. The higher rate applies to royalties paid for patents, trademarks, designs or models, plans, secret formulas or processes, or industrial, commercial or scientific equipment or information.
(b) The lower rate applies if the receiving company (other than a partnership) owns at least 25% of the capital of the payer. Under the Belgium treaty, dividends paid to partnerships may also qualify for the lower rate. Under the United Kingdom treaty, the lower rate applies if the receiving company controls at least 25% of shares with voting rights of the payer. Under the Japan treaty, the lower rate applies if the receiving company holds at least 25% of shares with voting rights of the payer for at least six months preceding the payment of dividend. Under the Colombia treaty, the 25% rate applies to dividends paid by a Colombian resident that are derived from profits that
(v) The 25% rate applies to royalties paid for trademarks. The 15% rate applies to other royalties.
(w) The 5% rate applies to royalties paid for industrial, commercial or scientific equipment.
(x) A 35% tax rate applies to payments to tax residents in countries with which the Czech Republic has not entered into a double tax treaty or a treaty on exchange of information in tax matters. For further details, see footnote (e) in Section A.
(y) The 5% rate applies to business profits after taxation transferred by a permanent establishment in one contracting state to its head office in the other contracting state.
(z) The 4% rate applies to interest paid to banks, insurance companies and other specified lending and financial institutions. If Chile agrees to a lower rate or an exemption with an Organisation for Economic Co-operation and Development Member State, this lower rate or exemption would also apply to the treaty between Chile and the Czech Republic.
(aa) The 0% rate applies to copyright royalties paid from the Czech Republic to Belgium. The 5% rate applies to royalties paid for use of industrial, commercial or scientific equipment.
(bb) A special bill aimed at preventing double taxation with respect to Taiwan entered into effect on 1 January 2021.
(cc) The 0% rate applies to certain state or state-owned recipient entities. The 5% rate applies if a company holds directly at least 10% of the capital of the paying company.
(dd) On 11 August 2023, the Russian Federation announced that it was unilaterally suspending the implementation of the double tax treaty with the Czech Republic, specifically Articles 5 to 22 and 24 of the treaty. The Ministry of Finance of the Czech Republic subsequently published a communication confirming the suspension of the implementation of the provisions of the treaty, effective from 29 September 2023. It implies that in the absence of implementation of the aforementioned articles of the treaty, it is no longer possible to implement Articles 23 and 25 (that is, the application of the elimination of double taxation).