The Czech Republic has signed double tax treaties with the following countries: Albania, Armenia, Australia, Austria, Azerbaijan, Belarus, Belgium, Bosnia and Herzegovina (the former treaty was signed with Yugoslavia, but the document is still applicable), Brazil, Bulgaria, Canada, China, Croatia, Cyprus, Denmark, Egypt, Estonia, Ethiopia, Finland, France, Georgia, Germany, Greece, Hungary, Iceland, India, Indonesia, Ireland, Israel, Italy, Japan, Jordan, Kazakhstan, Korea, Kuwait, Latvia, Lebanon, Lithuania and Luxembourg.
It had also signed treaties for the avoidance of double taxation with Macedonia, Malaysia, Malta, Mexico, Moldova, Mongolia, Montenegro, Morocco, Netherlands, New Zealand, Nigeria, Norway, Philippines, Poland, Portugal, Romania, Russia, Serbia, Slovakia, Slovenia, South Africa, Singapore, South Korea, Spain, Sri Lanka, Sweden, Switzerland, Syria, Tajikistan, Thailand, Tunisia, Turkey, Ukraine, United Arab Emirates, United Kingdom, United States of America, Uzbekistan, Venezuela, Vietnam and has draft agreements waiting to be signed with many more.
Hong Kong and the Kingdom of Bahrain are the last jurisdictions to which the Czech Republic has signed double tax treaties.More details on the double taxation agreements available in Czech Republic are presented in the video below, but our team of Czech company formation specialists can also assist you with extensive information:
The current list of double tax treaties signed by Czech Republic with other countries can be verified on the website of the Czech Financial Administration, where one can see the latest updates of the treaties (some treaties are modified throughout the years due to the fact that various tax regulations in a contracting state or in both have changed).
However, the treaties presented by the institution are in the Czech language and, if you need guidance on the any treaty or its amendments, presented in English or other common international languages, you can address to our specialists. You can also request full legal and tax assistance on the provisions of the documents and on the tax measures applicable under a specific treaty from our team of specialists in company formation in Czech Republic.
The advantages of treaties for foreign investors in Czech Republic
The reason of concluding these treaties is avoidingthe double taxation of incomes and capital and minimizing the withholding taxes on dividends, interests and royalties paid by foreign legal entities in Czech Republic and in the country were they reside. Those who want to open a company in Czech Republic as an establishment of a foreign company can benefit from the provisions of such treaties, if the foreign country they are from has signed an agreement with the Czech authorities.
There are two ways to apply the treaties’ regulations regarding thetaxation of capital and income: through exemption, when the reduction is applied directly at source and the company doesn’t pay any tax in the Czech Republic, and through credit, when the company is paying the taxes, but they are deducted in the country of residence.
What are the main stipulations of a double tax treaty?
A double tax treaty is created with the purpose of establishing the types of entities that are liable to taxation in any of the contracting states and the manner in which the respective entities must pay taxes. A double tax agreement will stipulate the types of taxes each country will apply (both countries must apply the same taxes or, if this is not possible due to the national tax legislation of each country, similar taxes).
A double tax treaty is applicable to tax residents of both contracting states and the document will present the manner in which the tax residents of a country will be taxed in the other country, in the case in which they obtain taxable income in the respective country. This is of crucial importance for those who want to open a company in Czech Republic and who have commercial operations in their country as well.
Also, natural persons should verify the tax system applicable to them as, if they are the citizens of a contracting state and if they develop a taxable activity in the other country through employment or other means of obtaining an income, they will becomeliable for taxationas well.
As a general rule, any double tax treaty signed with the Czech authorities will mention the following types of incomes as incomes that fall under the purpose of an agreement for the avoidance of double taxation: taxes on income and capital (total income and total capital or elements of such types of incomes), taxes imposed on immovable property and taxes on wages.
Foreign investors who want to start the procedure ofcompany formation in Czech Republic and who will hire foreign workforce are also included in the provisions of double tax treaties, as the residency of the recipient of the taxable income is important. It must be noted that, as a general rule, all double tax treaties mention that the tax resident of a country will generally be liable for taxation in that country.
This means that if the foreign company operating in Czech Republic hires a foreign employee, a tax resident of another country, then the company should pay taxes for the respective employee in the country where the person is a tax resident, but this is applicable only as long as the recipient has spent in the other state (that is, Czech Republic) a maximum of 183 days in a fiscal year.
In the case in which the person has spend more than 183 days in this country, then the person will become liable for taxation in Czech Republic and, depending on the person’s nationality, other legal measures will have to be enforced (such as applying for a residence permit). If you need more details on the manner in which the taxation of foreign tax residents is done in this country, we invite you to request more details fromour team of specialists in company registration in Czech Republic.
The rates of taxes in Czech Republic
The withholding taxes on dividends, interests and royalties are ranging from 5% to 10% depending on the capital owned by the foreign shareholders and the receiver. Another important aspect with regards to the payment is the tax residence of the recipient, as the tax rate can vary based on the stipulations of each treaty, as follows:
• for example, thetreaty signed with China specifies that the dividends are taxed with 5%, if 25% of the capital is owned by the Chinese residents;
• however, the same treaty mentions a tax rate of 10% in all other cases (for the taxation of dividends);
• the interest is taxed with 0% when it has as a source any governmental institutions and 7.5% in all other cases, while royalties are taxed with 10%;
• the double tax treaty signed with the United Kingdom stipulates a standard rate of 5% on dividends, if the UK company holds at least 25% of the voting rights of the company, but in all other cases, the taxation of dividends is done at a rate of 15%;
•the UK treaty stipulates that royalties can be taxed at a rate of maximum 10% from the gross value of the royalties, which is a common stipulation in most of the treaties.
In some cases, the above rule is not applicable. For example, in the last treaties signed with Hong Kong and Bahrain it is specified that the withholding taxes on dividends are applied at rates of 5%, on interests at 0% and on royalties at 10%, regardless of the recipient, the payer or the amount of capital owned by the foreign legal entity. If you need more details about the benefits of the double tax treaties signed by Czech Republic, you may contact our specialists in Czech company formation.
The team from CzechCompanyIncorporation.com is very qualified and benefits from extensive expertise in this area. I would definitely recommend them to any entrepreneur decided to start his own business here.
Mihai Cuc, Partner of Enescu&Cuc; Law Firm www.romanianlawoffice.com