Key tax factors for efficient cross-border business and investment involving Czech Republic.
Yes.
With the following countries, territories and jurisdictions:
Albania | France | Luxembourg | Slovakia |
Armenia | Georgia | Malaysia | Slovenia |
Australia | Germany | Malta | South Africa |
Austria | Greece | Mexico | Spain |
Azerbaijan | Hong Kong SAR | Moldova | Sri Lanka |
Bahrain | Hungary | Mongolia | Sweden |
Barbados | Iceland | Montenegro | Switzerland |
Belarus | India | Morocco | Syria |
Belgium | Indonesia | Netherlands | Tajikistan |
Bosnia & Herzegovina | Iran | New Zealand | Thailand |
Brazil | Ireland | Nigeria | Tunisia |
Bulgaria | Israel | North Macedonia | Turkey |
Canada | Italy | Norway | Turkmenistan |
Chile | Japan | Pakistan | UAE |
China | Jordan | Panama | Ukraine |
Colombia | Kazakhstan | Philippines | UK |
Croatia | Rep. of Korea | Poland | USA |
Cyprus | People's Rep. of Korea | Portugal | Uzbekistan |
Denmark | Kuwait | Romania | Venezuela |
Egypt | Latvia | Russia | Vietnam |
Estonia | Lebanon | Saudi Arabia | |
Ethiopia | Liechtenstein | Serbia | |
Finland | Lithuania | Singapore |
Limited Liability Company (s.r.o.), joint-stock company (a.s.), European Company (SE), Limited Partnership (k.s.), General Commercial Partnership (v.o.s.), Cooperative
s.r.o. - minimum registered equity is CZK 1
a.s. - minimum registered equity is MCZK 2
SE - minimum registered equity is TEUR 120
v.o.s. - minimum registered equity is not set
k.s. - minumum registered equity is TCZK 5
cooperative - minimum registered equity is not set.
A company is resident if it has been incorporated in the Czech Republic or if its management and control are exercised in the Czech Republic.
Resident companies are taxed on their worldwide income. Non-resident companies are taxed only on their Czech source income.
A standard form is used for CIT compliance purposes. The tax return must be filed within three months of the end of the taxable period (or six months if the company is audited/the tax return is filed by a registered tax advisor based on a power of attorney). The tax return has to be filed electronically under penalty of TCZK 2.
The standard corporate income tax rate is 19 percent.
15 percent. A tax rate of 35 percent applies to dividends paid to jurisdictions that are not members of the EU/EEA or have not concluded a DTT which contains Article 26 - Information Exchange, or a Tax Information Exchange Agreement with the Czech Republic.
Exemption from WHT on dividends to an EU, Icelandic, Norwegian, Swiss or Liechtenstein parent:
15 percent. A tax rate of 35 percent applies to dividends paid to jurisdictions that are not members of the EU/EEA or have not concluded a DTT which contains Article 26 - Information Exchange, or a Tax Information Exchange Agreement with the Czech Republic.
Exemption from WHT on interest paid to EU, Icelandic, Norwegian, Swiss or Liechtenstein affiliated companies:
15 percent. A tax rate of 35 percent applies to dividends paid to jurisdictions that are not members of the EU/EEA or have not concluded a DTT which contains Article 26 - Information Exchange, or a Tax Information Exchange Agreement with the Czech Republic.
Exemption from WHT on royalties paid to EU, Icelandic, Norwegian, Swiss or Liechtenstein associated companies:
No.
Under Czech law, Czech-sourced income paid to a non-resident is generally subject to either 15 percent withholding tax or the non-resident must file a tax return. The WHT rate is increased to 35 percent if the income is paid to residents of countries which have not signed a DTT with the Czech Republic or where no arrangement is in place for the exchange of information on tax matters. Czech source income taxed through tax return:
Czech source income taxed at 15 percent:
*performed/exercised/located in the Czech Republic
No.
In principle, subject to 15 percent tax. An exemption (100 percent) applies to dividends from domestic and EU subsidiaries if the following requirements are met:
For dividends received from subsidiaries resident in non-EU countries that have entered into a DTT with the Czech Republic, the exemption can be applied if the minimum holding conditions are met and the subsidiary is subject to a minimum 12 percent tax rate. The exemption cannot be applied if the parent company or the subsidiary: are exempt from corporate income (or a similar) tax; or may claim some corporate income tax exemption or relief; or are subject to corporate income tax at a rate of 0 percent.
Exemptions may apply to
Losses can be carried forward for 5 years.
No.
For corporate income tax purposes, a taxpayer must register with the tax authorities:
No.
The buyer is responsible for paying the real estate transfer tax at a rate of 4 percent.
No.
Yes: computed based on the area of land occupied, category of land and other variables (number of floors, local coefficients determined by the local authorities).
Yes. If a foreign subsidiary qualifies as a controlled foreign company (CFC), its income from qualifying assets and activities will be taxed at the Czech controlling entity. A controlled foreign company is a company in which a Czech controlling entity holds (directly or indirectly) at least 50 percent of the voting rights or registered capital or is entitled to more than 50 percent of the profits and whose effective tax liability is less than one half of what it would have been in the Czech Republic. CFC rules will mostly apply to the subsidiary’s passive income (i.e., interest, dividend, royalties). The rules will apply to taxable periods starting after March 31, 2019.
OECD Transfer Pricing Guidelines.
The Czech Ministry of Finance has issued guidelines covering recommended documentation.
Interest and other expenses on credits and loans (e.g., loan arrangement fees, guarantee fees) from related parties are subject to thin capitalization rules, as follows:
Deductibility of borrowing costs
Excessive borrowing costs (i.e. the difference between tax deductible borrowing costs and taxable borrowing income) are tax deductible only up to a certain threshold calculated for tax purposes from earnings before tax, interest, depreciation and amortisation (EBITDA). Therefore, if borrowing costs exceed this limit, the tax base is increased by the excess amount. Non-deductible borrowing costs may be transferred to the following tax periods. The limit should be CZK 80 million or 30 percent EBITDA. The rules will apply to taxable periods starting after March 31, 2019.
Yes.
Restrictions on loss utilization in corporate reorganizations and changes in ownership if there is also a change in the business ("same activities test").
"Subject to tax" requirement for the exemption of dividends and capital gains.
Where the interest rate or the interest payment is dependent on the borrower’s profit, the related expense is non-deductible.
Czech tax authorities apply the beneficial ownership test to grant benefits resulting from double tax treaties or local legislation (e.g. exemption or reduction of the withholding tax rate for dividends, interest or royalties).
Taxation of hybrid instruments
Taxable profit will be increased by the amount of expenses, which as a consequence of their hybrid treatment, resulted at the group level in the effective double deduction of this expense or the deduction of this expense without the corresponding income being taxed. The applies as of January 1, 2020.
Binding rulings can be obtained for the following:
Yes.
Investment incentives can be granted if the particular conditions and all the administrative requirements are met.
The standard rate is 21 percent, with two reduced rates: 15 percent and 10 percent.
Other relevant issues Multilateral instrument (MLI)
The approval process for the OECD MLI has commenced; the Czech Republic will only apply the OECD BEPS minimum standards (principal purpose test and mutual agreement procedure).
Exit taxation
The transfer of assets abroad without a change of ownership – for instance a transfer of assets from the head office in the Czech Republic to a permanent establishment abroad or vice versa or a transfer of tax residence abroad – will be subject to taxation. The rules will apply to transfers occurring after December 31, 2019.
Reporting duty related to income flowing abroad
Taxpayers should report not only payments (income) to foreign entities from which tax was withheld but also transactions generally liable to withholding tax but exempt from tax in particular cases, either under national legislation or the relevant double tax treaty. Untaxed payments (income) flowing abroad will have to be reported if they exceed CZK 100,000 per taxpayer per month. This duty will include dividends, royalties and interest paid abroad and also gratuitous income. The rules will apply as of April 1, 2019.
Source: Czech tax law and local tax administration guidelines, updated 2020.
For country specific information and updates on the EU Mandatory Disclosure Rules please visit KPMG’s EU Tax Centre’s MDR Updates page.
Ladislav Malusek
KPMG in the Czech Republic
T +420 222 123 521
E lmalusek@kpmg.cz
Vaclav Banka
KPMG in the Czech Republic
T +420 222 123 505
E vbanka@kpmg.cz
Helena Pajskrova
KPMG in the Czech Republic
T +420 222 123 742
E hpajskrova@kpmg.cz