Since the country joined the EU on 1 May 2004, the system being used in this European country has undergone a lot of changes to adapt to European legislation. This European country also has a broad network of double taxation treaties with other EU states and some non-EU countries.
If you plan to learn more about the tax system being used in the Czech Republic before you travel to the country, we’ve got you covered. In this article, we will be unveiling everything you should know about the Czechian tax system from the common income taxes to advanced corporate taxes.
Overview of the Czechian tax system
There are three basic types of taxes being used: direct, indirect, and other taxes. Direct taxes consist of personal income, corporate income, property, and transfer taxes.
Indirect taxes include everything from VATs, customs duties, ecological, and excise taxes. On the other hand, other taxes consist of mandatory contributions to the social security system, public health insurance, and municipality fees.
There are several administrative bodies and departments within the financial administration charged with the responsibility of collecting taxes levied on its citizens and residents.
One of the major roles played by the Ministry of Finance is to supervise other lower tax authorities and departments within the system because it is at the top of the administrative hierarchy.
The Ministry also has other functions other than supervising tax collection. It also has an eight sections organization chart.
Each section is responsible for overseeing one area like financial management and audit, public budgets, international relations, financial markets… The Ministry is also charged with the responsibility of creating the state budget, analyzing the state’s final account, and other foreign exchange policies.
Tax offices are placed on the first level of the hierarchy and are responsible for managing a set of taxpayers and taxes. They transfer acquired revenue to the ministry of finance. They also control, monitor, and supervise the tax system in specific regions within the economy to prevent issues.
Aside from the ministry of finance and tax offices, specialized tax offices are also provided by law to manage taxes in specific stipulated subjects. In the next subheadings, I will be walking you through Czechian tax rates for individuals, expats, and companies.
Personal income taxes
Individual taxes are among the most relevant source of revenue and funding used by governments across the OECD. They are levied on an individual or household on their monthly income to fund general government operations.
In most countries, these taxes are progressive, which means that the more the individual’s income increases, the more he is taxed. The personal income tax rate in the Czech Republic is a flat 15%.
This makes the country a taxed haven when compared to other European that countries at its level that collects up to 30% of a person’s revenue in taxes. However, revenue generated from these levies is usually allocated to social insurance programs like unemployment insurance, government pension, and health insurance.
Czech Republic’s income tax is payable by residents on revenue derived from worldwide sources. You automatically become a resident if you domicile or spent at least 183 days in a calendar year in any part of the state.
Taxable income includes employment income, dividends, rental, interests, annuities, and other income and capital gains. Your income tax is payable on assessable expenses and allowable deductions
Expenses cannot be claimed for employment income or capital gains since most of them are subject to withholding tax. Your employment income and any other category of income cannot be reduced by losses.
While Value Added Taxes are imposed on the transfer or use of real estate, goods, and services. There are three rates of VAT being used in the country; 21% rate, 15% rate, and 10 % rate.
The 21% rate applies to supplies of goods and most services. A 15% rate is levied on selected services and goods, while the 10% applies to other products like pharmaceutical products, printed books, household products, and some agric commodities.
Expatriate taxes
As a foreign national living in this European country, you are legally required to file your tax return to your home country every year regardless of where you currently reside in.
Expatriate taxes in the Czech Republic are quite similar to individual taxes. Non-tax residents are taxed a flat 15% on revenue generated in the Czech Republic. Taxable income can come in form of entrepreneurial income, capital gains, interest, dividends, rents, and other forms of income.
You can claim expatriate Foreign Earned Income Exclusion only if you file your tax return on a timely basis. As an expat living in the Czech Republic, you get an automatic extension to file until a specific time chosen by your country after the end of the calendar year to avoid penalties and interest.
Corporate taxes
The corporate income tax rate in the Czech Republic is a flat 19% including capital gains from the sale of shares, income from defined investments, and dividend income received by the company.
The company can choose either a calendar year or its accounting year as its tax year.
Company taxes are payable by resident companies on revenue derived from worldwide sources and Non-resident companies are levied on income generated in the country.
Your taxes are due and payable in a single advance payment if the previous year’s tax liability was under CZK 30,000. You can also make double payments every six months if the previous tax liability was between CZK 30,000 and 150,000 or quarterly payments if the previous tax liability was over CZK 150,000.