The current tax system was introduced in January 1993. The Czech tax system today comprises:
- Value added tax (VAT)
- Excise taxes
- Corporate and personal income tax
- Road tax
- Real estate tax
- Inheritance, gift and real estate transfer tax
Value added tax
All entrepreneurs whose turnover exceeds CZK 1,000,000 in any subsequent 12-month period must register as a VAT payer with the financial authorities. Also other situations of obligatory registration duty exist. However, an entrepreneur can apply for registration as a VAT payer also voluntarily. The taxation period is either one month or a quarter.
There are two VAT rates, the basic tax rate is 19% and the reduced tax rate is 5%.The basic tax rate is levied on goods, services and transmission of real estate. The reduced tax rate applies for selected goods (including specific agricultural produce, essential foodstuffs, books, etc.) and selected services (e.g. public transport, air and waterway transport, health care services). There are also certain types of services that are rendered without VAT (education, basic health care services, post service, insurance activities, etc.).
Goods exported from the Czech Republic outside EU are tax exempt and services rendered abroad are not taxable in the Czech Republic. The Czech VAT system has been fully harmonized with EU 6. VAT Directive no 77/388.
The VAT payer has the right to have the exceeding input tax refunded.
Foreign persons/entities making taxable supplies in the Czech Republic are subject to VAT generally in the same way as Czech persons/entities.
Corporate Income Tax
Corporate Income Tax is levied on all income of Czech legal entities and on Czech-source income of foreign legal entities. It applies irrespective of whether the enterprise is subject to Czech or foreign ownership and is payable on the basis of profits reported in the enterprise's financial statements (as adjusted for certain deductible and non-deductible items). A branch or a permanent establishment of a foreign company is generally subject to tax on the same basis as a company. There is not tax consolidation in the Czech Republic. Companies having their seat (or the place where they are managed from) in the Czech Republic are subject to Czech tax on worldwide income.
No distinction is made between ordinary income and capital gains for these purposes. The standard rate of corporate tax has been consistently reduced since 1992 and for 2006 it is 24 %.
Losses incurred during a taxation period (usually corresponding to an accounting period, generally one calendar year) can be carried forward for a period of 5 years.
Social security contributions (health and social insurance) are based on employees' gross salary earnings. The employer's payable share is 35 % and the employee's share is 12.5 % of the base.
Certain types of income are subject to withholding taxes (different rates apply - 25 % on royalties, 15 % on dividends and interests), some applies to both Czech and non-resident taxpayers, some to all non-resident taxpayers and others to non-resident taxpayers from third countries (not based in EU) only.
Personal Income Tax
Czech residents are subject to income tax on their total income while non-residents pay income tax on Czech-source income only. Individuals having a permanent home in the Czech Republic and/or residing in the Czech Republic for at least 183 days within a calendar year are regarded as residents for this purpose. All categories of taxable income (including income from employment and private business, rental income and certain capital gains) are aggregated and taxed at progressive rates from 12 to 32 %. Personal allowances of CZK 38,040 per year will apply. Employees usually are subject to health insurance and social security contributions, which are based on the gross income and equal to 12.5 % of the gross income.
