Czech Republic country profile

Czech Republic country profile

Key tax factors for efficient cross-border business and investment involving Czech Republic.

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EU Member State

Yes.

Double Tax Treaties

With:

Albania Denmark Japan Montenegro Slovenia Vietnam.
Armenia Egypt Jordan Morocco South Africa  
Australia Estonia Kazakhstan Netherlands Spain  
Austria Ethiopia Rep. of Korea New Zealand Sri Lanka  
Azerbaijan Finland People's Rep. of
Korea
Nigeria Sweden  
Bahrain France Kuwait Norway Switzerland  
Barbados Georgia Latvia Pakistan Syria  
Belarus Germany Lebanon Panama Tajikistan  
Belgium Greece Liechtenstein Philippines Thailand  
Bosnia &
Herzegovina
Hong Kong Lithuania Poland Tunisia  
Brazil Hungary Luxembourg Portugal Turkey  
Bulgaria Iceland Macedonia Romania UAE  
Canada India Malaysia Russia Ukraine  
China Indonesia Malta Saudi Arabia UK  
Colombia Ireland Mexico Serbia USA  
Croatia Israel Moldova Singapore Uzbekistan  
Cyprus Italy Mongolia Slovakia Venezuela  

Forms of doing business

Limited Liability Company (s.r.o.), joint-stock company (a.s.), European
Company (SE), Limited Partnership (k.s.), General Commercial Partnership
(v.o.s.), Cooperative.

Legal entity capital requirements

s.r.o. - minimum registered equity is CZK 1

a.s. - minimum registered equity is MCZK 2

SE - minimum registered equity is TEUR 120

v.o.s. - minimum registered equity is not set

k.s. - minumum registered equity is TCZK 5

cooperative - minimum registered equity is not set.

Residence and tax system

A company is resident if it has been incorporated in the Czech Republic or if its management and control is exercised in the Czech Republic.

Resident companies are taxed on their worldwide income. Non-resident
companies are taxed only on their Czech source income.

Compliance requirements for CIT purposes

A standard form is used for CIT compliance purposes. The tax return must be
filed within three months of the end of the taxable period (or six months if the
company is audited/the tax return is filed by a registered tax advisor based on
a power of attorney). The tax return has to be filed electronically under penalty of TCZK 2.

Tax rate

The standard corporate income tax rate is 19 percent.

Withholding tax rates

On dividends paid to non-resident companies

35 percent for countries where no DTT or Tax Information Exchange
Agreement has been concluded, otherwise 15 percent.

Exemption from WHT on dividends* to an EU, Icelandic, Norwegian, Swiss
parent or Liechtenstein associated companies:

  • Participation requirement: 10 percent of the share capital;
  • Minimum holding period: 12 months (or commitment) – can be met ex post;
  • Taxation requirement: No.

* Expected implementation of Parent-Subsidiary Directive Amendment, i.e. no exemption if the dividend may be considered as an item decreasing tax base in the paying country.

On interest paid to non-resident companies

35 percent for countries where no DTT or Tax Information Exchange
Agreement has been concluded, otherwise 15 percent.

Exemption from WHT on interest paid to EU, Icelandic, Norwegian, Swiss
or Liechtenstein associated companies:

  • “affiliated companies”: 25 percent of the share capital or voting rights are
    held directly; or indirectly if common 25 percent parent;
  • Minimum holding period: 24 months (or commitment) – can be met ex post;

On patent royalties and certain copyright royalties paid to non-resident companies

On royalty and interest payments: 35 percent for countries where no DTT or
Tax Information Exchange Agreement has been concluded, otherwise 15
percent.

Exemption from WHT on royalties paid to EU, Icelandic, Norwegian, Swiss or
Liechtenstein associated companies:

  • “affiliated companies”: 25 percent of the share capital or voting rights are held directly; or indirectly if common 25 percent parent;
  • minimum holding period: 24 months (or commitment) – can be met ex post.

On fees for technical services

No.

On other payments

Czech source income:

- income from a permanent establishment - taxed through tax return

- income from employment 15 percent

- income from provision of services* 15 percent

- income from the sale and/or use of immovable assets - taxed through tax
return

- income from an independent activity* 15 percent

- income of entertainers and sportsmen* 15 percent

- income from the use of movable assets* 15 percent

- remuneration of members of statutory bodies 15 percent

- income from the sale of movable assets of a permanent establishment,
investment instruments under the special regulation of capital market business, property rights registered in the Czech Republic - taxed through tax return

- winnings from lotteries and other games of chance 15 percent

- pensions 15 percent

- contractual fines 15 percent

- income from settlement of a receivable acquired by assignment - taxed
through tax return

- income from trust 15 percent

- gratuitous income 15 percent

- income from a transfer of shares in a company seated in the Czech
Republic - taxed through tax return

- income from a sale of business located in the Czech Republic - taxed through tax return

- rental income from movable property located in the Czech Republic

- income received by a shareholder of a company in connection with a
registered capital reduction 15 percent

* performed/exercised/located in the Czech Republic

Under Czech law, Czech-sourced income paid to a non-resident is generally
subject to either 15 percent withholding tax or the non-resident must file a tax return. The WHT rate is increased to 35 percent if the income is paid to
residents of countries which have not signed a DTT with the Czech Republic or when no arrangement is in place for the exchange of information on tax
matters.

Branch withholding taxes

No.

Holding rules

Dividend received from resident/non-resident subsidiaries

In principle, subject to 15 percent tax. An exemption (100 percent) applies to dividends from domestic and EU subsidiaries if the following requirements are met:

  • Participation requirement: 10 percent of the share capital;
  • Minimum holding period: 12 months (or commitment) – can be met ex post;

For dividends received from subsidiaries resident in non-EU countries that
have entered into DTT with the Czech Republic, the exemption can be applied if the minimum holding conditions are met and the subsidiary is subject to a minimum 12 percent tax rate. The exemption cannot be applied if the parent company or the subsidiary: are exempt from corporate income (or a similar) tax; or may claim some corporate income tax exemption or relief; or are subject to corporate income tax at a rate of 0 percent.

Capital gains obtained from resident/non-resident subsidiaries

Exemptions may apply to

  • gains derived by a domestic company from the sale of shares in a domestic, EU or non-EU subsidiary under the same conditions as apply to dividends.

Tax losses

Losses can be carried forward for 5 years.

Tax consolidation rules/Group relief rules

No.

Registration duties

For corporate income purposes, a taxpayer must register with the tax
authorities:

  • in the case of residents: within 15 days after the incorporation of a company
  • in the case of non-residents: within 15 days after the incorporation of the permanent establishment
  • in the case of non-residents: within 15 days after the receipt of certain types of Czech-sourced income or after obtaining the business permission.

Transfer duties

On the transfer of shares

No. The definition of real estate company is based on the particular DTT.

On the transfer of land and buildings

4 percent. This transfer tax is usually paid by the seller but can, in mutual agreement, also be paid by the acquirer. The amendment legislation proposed that an acquirer will be the only possible taxpayer.

Stamp duties

No.

Real estate taxes

Yes: computed based on the area of land occupied, category of land and other variables (number of floors, local coefficients determined by the local authorities).

Controlled Foreign Company rules

No.

Transfer pricing rules

General transfer pricing rules

OECD Transfer Pricing Guidelines.

Documentation requirement?

The Czech Ministry of Finance has issued guidelines covering recommended documentation.

Thin capitalization rules

Interest and other expenses on credits and loans (e.g., loan arrangement fees, guarantee fees) from related parties and from unrelated parties where a related party is a guarantor are subject to thin capitalization rules.

  • Debt-to-equity ratio of 4:1 (6:1 for banks and insurance companies) on loans or credits granted by related parties: Excess expenses (including interest) are non-deductible.
  • Interest on “back-to-back” loans is treated as interest on related-party debt.
  • Any upward adjustment of profit resulting from a thin capitalization or transfer pricing adjustment relating to a non-EU or non-EEA resident counterparty may be treated as a dividend, i.e., is subject to dividend withholding tax and reduced by the provisions of any applicable DTT, if such reclassification is allowed by the DTT.

General Anti-Avoidance rules (GAAR)

Yes.

Specific Anti-Avoidance rules/Anti Treaty Shopping Provisions

Restrictions on loss utilization in corporate reorganizations and changes in ownership if there is also a change in the business ("same activities test").

"Subject to tax" requirement for the exemption of dividends and capital gains.

Where the interest rate or the interest payment is dependent on the borrower’s profit, the related expense is non-deductible.

Advance Ruling system

Binding rulings can be obtained for the following:

  • The apportionment of costs that cannot be allocated solely to taxable income;
  • The calculation of the proportion of expenses connected with the operation of real estate used partly for business or lease purposes and partly for private purposes (for sole traders);
  • Improvement of an asset;
  • Deductibility of expenses incurred on R&D projects;
  • Loss carry-forward on a change of ownership (but only after the event);
  • Transfer pricing;
  • The applicable VAT rate.
  • Application of local VAT reverse charge mechanism on sale of scrap.

IP / R&D incentives

Yes.

Other incentives

Investment incentives can be granted if the particular conditions and all the
administrative requirements are met.

VAT

The standard rate is 21 percent, with two reduced rates: 15 percent and 10
percent.

Other relevant points of attention

“Substance over form” rule; however in practice, “form” tends to be more
important.

 

Source: Czech tax law and local tax administration guidelines, updated 2016.

Contact us

Vaclav Banka

KPMG in the Czech Republic

T: +420 222 123 505

E: vbanka@kpmg.cz


Helena Pajskrova

KPMG in the Czech Republic

T: +420 222 123 742

E: hpajskrova@kpmg.cz 

 
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