Czech Republic: Income tax in pending legislation | KPMG | GLOBAL

Czech Republic: Income tax changes included in pending legislation

Czech Republic: Income tax in pending legislation

A tax package—containing changes with respect to income taxes, value added tax (VAT), and tax procedure rules—has received its third reading in the Chamber of Deputies and now is pending consideration by the Senate.

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Among the income tax amendments are the following items:

  • Provisions to rectify a formerly inaccurate implementation of an amendment to the EU Parent-Subsidiary Directive regarding the exemption of dividends. The exemption of dividends paid to parent companies would not apply to all dividends treated as items decreasing the tax base by the entity paying the dividends.
  • The period of amortisation of intangible assets would be set as the minimum periods. However, it would be possible to apply longer amortisation periods to intangible assets put into use after the amendment’s effective date.
  • Sub-lessees would be allowed to depreciate technical improvements, but only those put into use after the amendment’s effective date.
  • The tax residual value (not the net book value) of assets being liquidated would be included in the cost of a new construction.
  • Non-residents’ “gratuitous income” received from tax residents or Czech permanent establishments relating to the transfer of real estate located in the Czech Republic, ownership interests in corporations with their registered offices in the Czech Republic, and business establishments located in the Czech Republic would be subject to withholding tax.
  • A two-year deadline would apply for filing a request for clarification concerning withholidngs. Foreign entities would be allowed additional time to arrange for all administrative papers and certificates required by the Czech tax administration.
  • Concerning refunds of advance payments with respect to profit shares, the tax withheld would be refunded to the entity required to refund the advance payment. The new rules would explicitly confirm the current approach, consisting of separate assessments of exemption criteria for advance payments and additional payments.
  • The maximum amount of expenses that could be claimed as a percentage of income by individuals (natural persons) would be reduced to 50%. An indivdiual taxpayer claiming expenses as a percentage of income would be allowed to apply tax credits for the taxpayer’s spouse and for dependent children.
  • Taxpayers would be allowed to apply for a binding ruling regarding the tax base allocated to a permanent establishment of a foreign entity.

Effective date

Because the amendments were not discussed before the end of 2016, the effective date would be postponed to 1 April 2017. As a result, the majority of approved changes would be effective for the taxable periods starting on or after the amendment’s effective date. This means that the changes generally would not apply before 2018 for calendar-year taxpayers. However, certain provisions would already be effective in 2017—for instance, measures concerning increases in tax credits.

 

Read a February 2017 report [PDF 249 KB] prepared by the KPMG member firm in the Czech Republic

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