Paying corporate taxes in the Czech Republic

Corporate income tax

Rate: There is only one corporate income tax (CIT) rate of 19% applied to the general CIT base. (As an exception, certain investment funds have a special CIT rate of 5% and pension funds a 0% CIT rate.) There are no state, municipal or other similar local income taxes. For years 2023 – 2025 a new “windfall tax” was introduced in connection with the spiking energy prices. The windfall tax applies to companies operating in banking and energy sector. The base of the new tax is the amount by which the corporate income tax base of the company generated in years 2023 – 2025 exceeds 120% of its average base reported in years 2018 – 2021.

Base: The CIT base is calculated based on the accounting result determined according to the Czech accounting principles. The accounting result is then adjusted for non-tax-deductible costs and non-taxable revenues. If the CIT base is negative, the tax loss can be carried forward for five subsequent tax years or carried back to two preceding tax years (max. EUR 1.1 million).

Capital income: Dividends from abroad are generally subject to a reduced CIT rate of 15%. Capital gains from sale of shares is included in the standard tax base (19% CIT). Dividends and capital gains from EU subsidiaries can be exempt under the EU Parent-Subsidiary Directive. Dividends, interest, license fees and some other types of income paid to abroad are subject to a withholding tax (WHT) of 15%. The WHT can be reduced based on the applicable double taxation treaty or based on the EU Parent-Subsidiary or Interest/Royalty Directives.

Transfer pricing: The transfer pricing (TP) rules for transactions between related parties are compatible with the OECD TP guidelines. TP documentation is not obligatory; it is only recommended.

Tax incentives: Investment incentives in the form of CIT relief for ten years are available for certain new investments (manufacturing plants, technology development and shared-services centres). The maximum level of state aid is 25% of the costs of the investment. A generous tax incentive is also available for R&D activities; this incentive has the form of a double tax-deduction for costs incurred on R&D projects.

Value-added tax

Value-added tax (VAT) is charged by all VAT payers as part of the agreed price when supplying most of goods or services locally. A customer that is a VAT payer may claim the input VAT back. In some cases, a “reverse charge” may apply, i.e. VAT is not charged by the supplier, but is self-accounted by the customer.

Rates: There are three VAT rates. The standard rate of 21% is applied to most goods and services. The first reduced rate of 15% is applied to, for example, public air transport, most food and construction works related to social housing. The second reduced rate of 10% is applied to, for example, accommodation, leisure activities and certain types of medication, books, newspapers, draft beer, etc.

There are also VAT-exempt goods and services, e.g. banking and insurance services, rent of apartments, education and health services, etc.

Tax-administration obligations: Besides the VAT return and EC Sales List (when EU sales of goods or services are carried out), a control statement (a Czech form of SAF-T) must be submitted by Czech VAT payers.

As from January 2023, the VAT registration thresh- old was doubled to approximately EUR 78,500 (i.e. CZK 2,000,000) in order to relieve small businesses of the associated administrative burden.

Illustrative comparison of VAT rates in the Czech Republic and neighbouring countries