Czech Republic: “Windfall profits tax” on fossil sector and banks approved by Parliament

The Lower House of Parliament on 4 November 2022 approved the introduction of a tax on extraordinary profits (“windfall profits tax”) on certain taxpayers in the fossil fuel and energy sectors and for banks—effective for 2023 to 2025.

Read a November 2022 report prepared by the KPMG member firm in the Czech Republic 

Extraordinary profits would be defined as the general income tax base exceeding the average of tax bases or tax losses for taxable periods beginning and ending between 1 January 2018 and 31 December 2021, plus 20%. The tax base so determined would be subject to an additional tax of 60%. This tax would be applied on top of the statutory corporate income tax (19% on the entire tax base).

The payer of this tax will generally be a payer of corporate income tax generating income qualifying for the windfall profits tax of at least CZK 50 million in a taxable period falling at least partially within the windfall profits tax application period (2023-2025).

There are three categories of taxpayers subject to the windfall profits tax:

• Taxpayers who have income from the activities stated below, provided that the income qualifying for the windfall profits tax from those activities for the first accounting period ending on or after 1 January 2021 accounted for at least 25% of their annual total net turnover. 
  • Mining of hard coal
  • Extraction of crude petroleum and natural gas
  • Production of coke oven products
  • Manufacture of refined petroleum products
• Taxpayers generating income from the activities stated below, provided that in the windfall profits tax application period the taxpayer will have to be part of a corporate group (with the sum of the relevant income of all taxpayers within the group for the first accounting period ending on or after 1 January 2021 of at least CZK 2 billion) or record income qualifying for the windfall profits tax of at least CZK 2 billion for the first accounting period ending on or after 1 January 2021:
  • Production, transmission, and distribution of electricity except for the combined production of electricity and heat in a ratio of electricity produced to heat supplied of less than 4.4
  • Gas production; distribution of gaseous fuels through networks
  • Wholesale of liquid fuels and related products
  • Wholesale of gaseous fuels and related products
  • Transportation by oil pipeline
  • Transportation by gas pipeline
• Banks whose net interest income (the income qualifying for the windfall profits tax) for the first accounting period ending on or after 1 January 2021 exceeds CZK 6 billion while meeting the general precondition of having generated net interest income for the relevant taxable period of at least CZK 50 million

Windfall profits tax prepayments would be made in the second half of 2023 based on the estimated tax reported to the tax administrator for the last taxable period ending before 1 January 2023 (i.e., for the 2022 taxable period, for example). In this report, the taxpayer must include information they would have recorded in their windfall profits tax return and use this information to determine the amount and frequency of prepayments. This report must be submitted by 3 July 2023 at the latest. After filing the first tax return (i.e., for 2023, for example), prepayments would be determined based on the last known tax liability.

Read a November 2022 report prepared by the KPMG member firm in the Czech Republic