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Paying Income Tax in the Czech Republic

Updated on Thursday 10th January 2019

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Paying-Income-Tax-in-the-Czech-Republic.jpgAll businesses performing commercial activities in the Czech Republic are required to register for the payment of the income tax (corporate income tax) and to pay for it in accordance with the provisions of the applicable legislation. Businessmen who want to open a company in the Czech Republic must be aware that branches of foreign companies are also liable to the local income tax, but only to the extend on their activity on the country’s territory. 
 

What are the rates of the Czech income tax? 

 
The corporate income tax in the Czech Republic is currently imposed at the rate of 19% on the company’s profits and the tax is also applicable to the capital gains available for the sale of shares. However, it is necessary to know that, in the latter case, exemptions can apply in specific conditions, which can be detailed by our team of consultants in company formation in the Czech Republic
 
A lower rate of 15% is imposed to dividend income obtained by Czech companies from foreign entities and an even lower rate, of 5%, is applicable to domestic investment funds. It is necessary to know that pension funds are exempted from the payment of the corporate income tax. In the case of partnerships registered in the Czech Republic, the corporate income tax will apply at the standard rate of 19%, but it will be imposed on the profits obtained by the partners of this type of structure. 
 

How are companies taxed in the Czech Republic? 

 
Companies operating in the Czech Republic are taxed based on their residency. A resident company is considered one that is incorporated in the country or which has its place of management registered here. In the case of resident companies, the income tax on their profits will be applied on their worldwide income, provided that they have expanded their activities in other jurisdictions. 
 
The manner in which they have to pay the income tax is established under the Czech accounting principles and our team of specialists in company registration in the Czech Republic can offer a detailed presentation on this matter; when discussing of foreign companies operating here, they will be liable to the payment of the income tax only for the profits obtained in this country as stated earlier. 
 

What are the main tax obligations for Czech businesses? 

 
During a financial year, a company has to comply with a set of accounting principles; a financial year (or a fiscal year) in the Czech Republic coincides with the calendar year, as it is the case in most of the countries. A corporate entity will need to follow the below mentioned aspects: 
 
  • as a taxpayer, a company will have to calculate the value of the corporate income tax due, based on a self-assessment scheme;
  • this is done through a tax return, which has to be submitted in a period of three months; 
  • provided that the tax return is completed by a tax advisor or auditor, the tax return can be filed with the local tax authorities in a period of six months;
  • companies are also required to offer advance payments, which need to be deposited twice a year. 
 
Thus, for the financial activity of the previous year, a Czech company will need to submit its tax returns no later than the end of March or by the end of June as it can be the case of audited companies. Foreigners should also take into account that the income tax is imposed on two levels – corporate and personal, which means that not only companies are liable for taxation on their income, but also natural persons. 
 
Foreigners can be taxed for their personal income tax if they obtain taxable profits from activities in this country, as long as they have lived in the Czech Republic for minimum 183 days in a taxable year. As presented above, foreign entities are also liable for the income tax in this country, and this applies not only to branches of foreign companies, but also to permanent establishments.
 
A permanent establishment defines a term that includes a wide range of business establishments; our team of consultants in company registration in the Czech Republic can offer an in-depth presentation on the types of establishments that are defined under this term. Due to the fact that the permanent establishment is a term that is included in any of the double tax treaties signed by the representatives of this state, the manner in which it is taxed is defined by each particular agreement. 
 
Businessmen are invited to contact our team of representatives, specialized in company formation in the Czech Republic, who can assist with advice on the other compulsory requirements concerning the income tax; investors can receive information on any other types of taxes that are imposed to local businesses.  
 

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