Czech Republic

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Tax Policy

TAX POLICY

Income Tax Rate 15%

Corporate Tax Rate 19%

Sales Tax / VAT Rate 20%

Income Tax

Czech Republic personal income tax rate is a flat 15%.

Czech Republic income tax is payable by Czech resident individuals on income derived from worldwide sources. Nonresident individuals are only required to pay tax on Czech sourced income.

Other taxes on individuals:

Capital duty – No

Stamp duty – No

Capital acquisitions tax – No

Real property tax – A real estate tax is levied on the occupation of real property or plots of land. The rate depends primarily on the size of the land.

Transfer tax – The only transfer tax is the real estate transfer tax levied at a rate of 3%.

Inheritance/gift tax – Progressive rates ranging from 7% to 40%. Certain persons (generally relatives) are exempt from the tax.

Net wealth/net worth tax – No

Social security contributions – Employees contribute 11% of gross income (4.5% for health insurance and 6.5% for old age pension). Self-employed individuals are subject to a mandatory contribution of 42.7% (13.5% for health insurance, a 28% old age pension and 1.2% for unemployment). The maximum assessment base for 2009 is CZK 1,707,048.

Filing and payment – Tax on employment income is withheld by the employer and remitted to the tax authorities. Self-employed individuals (entrepreneurs) must file a tax return. Tax returns must be filed by 31 March of the following year, but the deadline can be extended if the tax return is prepared and submitted by a registered tax advisor under a power of attorney (see under "Corporate taxation"). Upon application of the taxpayer, a 3-month extension to file a tax return may be granted at the discretion of the tax authorities.

Penalties – Penalties and interest apply for under-declaring income, late payment of tax, failure to file or late filing.

Corporate Income Tax

Czech Republic corporate income tax rate is 19% in 2010.

Company tax is payable by Czech resident companies on income derived from worldwide sources. Non-resident companies are required to pay the tax on income sourced in the Czech Republic.

The corporate income tax rate is 19% for 2010. A 5% tax rate applies for investment funds, pension funds and share funds. The fiscal year is the calendar year, or economic (business) year if agreed with the tax authority. Tax is due and payable in a single payment if the previous year's tax liability was under CZK 30,000; in six monthly advance payments if the previous tax liability was between CZK 30,000 and 150,000; or in quarterly advance payments if the previous tax liability was over CZK 150,000.

Withholding tax:

Dividends – Dividends paid to nonresidents are subject to a 15% withholding tax, unless the rate is reduced under a tax treaty. Under the EC parent-subsidiary directive, dividends paid by Czech companies to parent companies located in other EU member states are exempt from withholding tax if the parent company maintains a holding of at least 10% of the distributing company for an uninterrupted period of at least 12 months.

As from 2009, the exemption also applies to dividends paid to parent companies in Iceland, Norway and Switzerland.

Interest – Interest paid to nonresidents is subject to a 15% withholding tax, unless the rate is reduced under a tax treaty or exempt under the EC interest and royalties directive.

As from 1 January 2009, taxpayers from EU/EEA member states are allowed to file a tax return at year end where it will be possible to deduct costs related to interest payments.

Royalties – Royalties paid to nonresidents are subject to a 15% withholding tax. The EC interest and royalties directive will be applicable as from 1 January 2011. As from 1 January 2009, taxpayers from EU/EEA member states are allowed to file a tax return at year end where it will be possible to deduct costs related to royalty payments.

Branch remittance tax – No

Other taxes on corporations:

Capital duty – No

Payroll tax – No

Real property tax – A real estate tax is levied on the occupation of real property or plots of land. The rate depends primarily on the size of the land.

Social security – Employers contribute 34% of the employee's gross salary to the state health and social security funds. A cap on the premium is available.

Stamp duty – No

Transfer tax – The only transfer tax is the real estate transfer tax levied at a rate of 3%.

Other – Road tax is imposed on entities that use vehicles. Gift tax is imposed on the gratuitous acquisition of property.

Tax year – Calendar year or fiscal year Consolidated returns – Consolidated returns are not permitted; each company must file a separate return.

Value Added Tax (VAT)

Rates – As from 1 January 2010, the standard VAT rate in Czech Republic is 20% and the reduced rate is 10%.

Taxable transactions – VAT is levied on the sale of goods and the provision of services.

VAT is levied on imported goods at the same rates as domestic goods. Exported goods to non-EU countries are an exempt supply.

Filing and payment – The VAT return must be filed and tax paid within 25 days after the end of the taxable period. The taxable period is a calendar month or calendar quarter depending on taxpayer turnover.