The Czech tax environment: Transparent and competitive
The Czech tax system is transparent and competitive, and offers a number of opportunities to investors.
For individuals
Tax base below 48 times the average salary (approx. EUR 79,700) is subject to a 15% tax rate; tax base above this limit is subject to a 23% tax rate. The final tax liability may be lowered by different tax deductions and forms of tax relief depending on the individual’s personal situation. Participation in the Czech social security and health insurance systems is generally required but can be modified by applying EU legislation or a respective totalisation agreement. The Czech social security system covers a wide range of state support including high-quality public medical care, pension, disability insurance, sickness insurance and unemployment benefits.
For businesses
Business income is taxed at a rate of 19%. A 5% rate applies to basic investment funds. There is no alternative minimum tax.
The corporate income tax base is determined in accordance with the Czech Accounting Standards with adjustments for tax purposes. The functional currency is the Czech koruna.
Withholding tax is applicable to limited types of payments to non-residents (e.g. dividends, interest and royalties); however, exemptions based on the respective EU directives and/or double taxation treaty can be obtained.
To support the business activities of domestic and foreign investors, the following new and existing benefits are available:
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R&D deduction |
Eligible costs can be deducted twice: once as operating costs and further as a special R&D deduction (a 110% increase for incremental eligible costs is available) |
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Investment incentives |
Job creation and training grants Cash grants for strategic investments Corporate income and property tax relief |
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Tax loss deduction |
Carry forward for five tax periods Carry back for two tax periods |
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Acceleration of tax depreciation |
Tax amortisation of intangible assets equals to its accounting amortisation (for assets acquired from 1 January 2020) Extraordinary tax depreciation of assets in the first and second depreciation groups acquired in the 2020 and 2021 tax periods |
In year 2023 and onwards, some companies activein energy, oil and banking industries may besubject to so called windfall tax of additional 60% on the profits compared to the benchmark stipulated based on prior years profits.
Indirect taxes
For VAT payers performing taxable activities, VAT generally should not represent an additional cost.
The standard VAT rate is 21% and the reduced rates are 15% and 10%. Certain supplies are exempt.
The Czech Republic implemented Directive 2006/112/EC on the common system of VAT and is thus generally in line with the principles applied within the EU.
The transfer of goods within EU member states is generally not regarded as export or import. Goods imported from third countries are subject to import customs duties, excise duties, VAT and other measures based on the EU customs tariff.
Other taxes
Several rather immaterial taxes such as property tax and road tax are applicable in the Czech Republic.
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Ondřej Janeček Martin Hladký |