Tax Laws and Regulations
Global expansion is a great way to grow your business and the Czech Republic offers many appealing opportunities. However, the tax laws can be complex and require time-consuming research. With over 20 years’ experience in the front rank of international payroll providers, Bradford Jacobs ensures our clients comply with every level of tax and employment law across the globe. Our knowledge is vital for foreign companies expanding into the Czech Republic. By using our PEO-service, we will take care of the complicated legwork so that you can focus on your business goals.
We have made it our goal to keep track of the latest changes in the tax policies to always ensure complete compliance. To keep you informed and updated too, we created this guide which includes the basic facts regarding tax regulations in the Czech Republic.
Overview of Taxes in the Czech Republic
* Although a member of the European Union, the Czech Republic is not in the European Monetary Union ‘Eurozone’ and has the Koruna, CZK, as its currency.
- Individual Income Tax: Up to CZK 141,764 monthly (€5,520, US$6,428) – 15.0%; Above – 23.0%
- Social Insurance Taxes:
– Employer: 33.8% (Social Security & Health Insurance)
– Employee: 11% (Social Security & Health Insurance)
- Corporate Income Tax (CIT): General rate – 19.0%; Dividends from non-resident companies – 15.0%; Certain investment funds – 5.0%;
- Withholding Tax (WHT): On dividends, interest etc. to foreign entities
- Value Added Tax (VAT): General rate on goods and services – 21.0%; Foodstuffs, medications, publications etc. – 15.0%; Entry to cultural events and other categories – 10.0%
Czech Republic Individual Tax – Single & Married
Individuals are considered tax residents if their permanent home is in the Czech Republic, or they usually reside there. Individuals who stay in the country for 183 days either continuously or in separate spells in a calendar year are liable for taxes. Non-residents are liable for the same tax rates, usually withheld by their employer and remitted to the General Financial Directorate. Married couples cannot file joint returns; however, a resident taxpayer can claim CZK 24,840 (€966, US$1,126) against income if their spouse’s annual taxable income does not exceed CZK 68,000 (€2,650, US$3,080).
Taxpayers supporting a disabled spouse whose income is under CZK 68,000 (€2,650, US$3,080) can claim an annual allowance of CZK 24,840 (€966, US$1,126).
There are also allowances for children living with the taxpayer, of CZK 15,204 (€591, US$690) for one child, CZK 19,904 (€774, US$902) for the second and CZK 24,204 (€942, US$1,097) for subsequent children.
Taxable Income for residents and non-residents in CZK are as follows (in both Euros (€) and US Dollars (US$)):
- 0 CZK – CZK 141,764 (€5,520, US$6,428) monthly: 15.0%
- Above CZK 141,764 (€5,520, US$6,428) monthly: 23.0%
There are no local taxes in the Czech Republic applying to individual taxpayers.
Employee Social Insurance Taxes are as follows:
- Social Security Fund – 6.5%
- Health Insurance Fund – 4.5%
- Czech Republic Individual Tax Rules
- Czech residents are taxed on their worldwide income, non-residents only on income earned in the country
- The main categories of personal tax are employment income, rental income, capital income from such as dividends, sale of securities or property
- The tax year is from January 1 until December 31
- Tax filing and payments are due by April 1 of the next year, May 1 if filing electronically or July 1 if sent by an accountant or solicitor with their power of attorney registered by April 1
- Tax rate for residents and non-residents is 15% for monthly taxable income up to CZK 141,764 (€5,520, US$6,428) and 23% above that
- Married couples cannot file joint returns; however, a resident taxpayer can claim CZK 24,840 (€966, US$1,126) against income if their spouse’s annual taxable income does not exceed CZK 24,840 (€966, US$1,126)
The general rate is 21%, which is applied to most goods and services. Other categories changed in 2020, with a reduced rate of 15% applying to certain foodstuffs, medications, books, and newspapers. Hotel accommodation and entry to sporting and cultural events are among those subject to 10% VAT since July 2020, with this band also applying to such services as catering and hairdressing.
Czech Republic Employers’ Social Security and Statutory Contributions
- Social insurance: Employers contribute the equivalent of 24.8% of employee earnings towards the national social security fun and 9% for the health insurance fund.
- National Minimum Wage: The Czech Republic has a government-mandated national minimum wage of CZK 15,200 (€592, US$690) per month, applying to employees working the standard 40 hours per week. The national minimum wage brings up the wages for the lowest paid workers, as different minimum wages apply to eight different employment groups as defined by government decree, according to the difficulty, responsibility, and complexity of the role. Minimum monthly wages range from CZK 16,800 (€654, US$761) for Group 2 (e.g., craftsmen and on-site workers) to CZK 30,400 (€1,183, US$1,378) for Group 8 employees such as financial and sales directors.
Czech Republic Corporate Taxes
Corporate Income Tax: The rate is 19%. All companies are subject to CIT on their profits, including branches of foreign companies. Resident companies are liable for CIT on their worldwide income, while non-resident companies are taxed on Czech-sourced profits. The 19% also applies to capital gains from selling shares. Resident companies are liable for 15% CIT on dividends from non-resident companies, with 5% CIT applied to some investment funds. Payments are due on the same date as filing, which is three months after the end of the tax year. The deadline can be extended by one month for electronic filing, or by three months if the company is represented by a registered tax advisor or subject to statutory accounting audits.
Withholding Tax (WHT): Czech resident companies withhold tax on dividends, interest and royalties that are paid to foreign entities at varying rates, depending on the country involved.
Corporate Deductions and Capital Allowances: Depreciation is covered by corporate tax legislation. Assets are classified into six groups and must have a ‘useful life’ of more than one year and an original minimum price of CZK 80,000 (€3,118, US$3,605). Deductible corporate expenses include start-up costs, interest costs, bad debts, charitable contributions, travelling, and meal expenses paid to employees, vehicle, and real estate taxes. Losses in a tax year can be carried forward to offset profits for up to the following five years.
The Czech Republic’s tax regulations demand expert advice for incoming foreign companies. Businesses cannot risk stumbling into mistakes over payroll and taxation, with the chance of fines and sanctions. Do not waste time worrying about your move into the Czech Republic. Contact us today to learn more about how we can help you with your payroll and tax issues!