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 36 times the average salary (approx. EUR 65,200 p.a.) 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 21%. A 5% rate applies to basic investment funds. The Czech Republic is going to transpose the EU Directive on Ensuring a global minimum level of taxation for multinational enterprise groups and large-scale domestic groups in the EU (BEPS 2.0 – Pillar 2) as of 31 December 2023.
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. The company may choose that its functional currency is the Euro, the US Dollar or the British Pound Sterling under certain conditions.
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 (see table for more details).
|
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) |
|
Investment incentives |
Job creation and training grants Cash grants for strategic investments Corporate income and property tax relief |
|
Tax loss deduction |
Carry forward for five tax periods (Limited) Carry back for two tax periods |
|
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 emission-free vehicles acquired from the 2024 to 2028 tax periods |
In years 2024 and 2025, some companies active in energy, oil and banking industries are subject 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 rate is 12%. 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 for selected vehicles are applicable in the Czech Republic.
|
Ondřej Janeček Martin Hladký |
|
