In this article, we will cover all you need to know about the taxation system before you immigrate to the Czech Republic.
Taxation in the Czech Republic
The Czech Republic is a Central European state bordered by Germany in the west, Austria in the south, Slovakia in the east, and Poland in the northeast. Having a strategic location, an investment-friendly environment, and a consistent and predictable economic policy have importance for the country. The country has a strong and independent central bank. Czech National Bank has provided exceptional currency stability since 1991. Other factors proving the positive economic foundations of the country are investment ratings received from international credit rating agencies and early members of the OECD.
The current taxation system in the Czech Republic was established in 1993. Taxes can be basically divided into 3 groups as direct taxes, indirect taxes, and other taxes. Since EU accession, the taxation system has the process of harmonization with European legislation. The Czech Republic also has double taxation treaties with both EU and non-EU countries. These double taxation treaties are based mainly on the OECD Model Tax Convention. The ones doing business in the Czech Republic will also be responsible for paying taxes in accordance with the tax legislation in force Czech Republic.
Taxes and Tax Rates in the Czech Republic
The Czech Republic’s tax system at the main points of the EU and is similar to the systems of OECD countries. Taxes can be divided into direct taxes, related to the level of income of the subject, and indirect taxes, related to consumption, or the purchase of goods and services.
Direct taxes consist are personal income and corporate income taxes, property taxes, transfer taxes. Indirect taxes include value-added tax (VAT), excise tax, customs duties, and ecological taxes, governed by a special Law on taxes from energy sources. Other taxes consist of mandatory contributions to the social security and public health insurance systems.
As of 1 January 2010, the standard corporate tax rate that legal entities need to pay is 19%. Investment funds have a special tax rate of 5% and for pension funds, the rate is 0%.
Individuals that are considered as tax residents pay personal income tax that is subject to a flat tax rate of 15%. The tax base for employees is calculated as the gross salary increased by the employer’s health insurance and social security contributions.
VAT is generally charged at 21% as standard on supplies of goods and services within the Czech Republic. Certain supplies (e.g. groceries, accommodation, newspapers, certain medical types of equipment) are taxed at a rate of 15% as reduced VAT. Another reduced rate of 10% is applicable for drinking water, catering services, soft drinks and draft beer, shoe and clothing repairs, hairdresser services, e-books, etc.
Objects of the excise tax in the Czech Republic are engine oils, alcoholic beverages as wine and beer, and tobacco products. Road Tax is a tax, that is supposed to be paid by everyone who uses his/her car or another vehicle. The tax rate varies from CZK 1,200 to CZK 4,200 in the case of passenger vehicles and from CZK 1,800 to CZK 50,400 in the case of other vehicles.
All workers are liable to social and health insurance payments. The social security system covers health care provisions, pensions, employment insurance, and sickness pay as well as child-related benefits and other social services. Both employers and employees contribute to the social security system.
Gurcan Partners is a Foreign Economic Relations Board, AmCham and Association of German Chambers of Industry and Commerce member international law and consultancy firm.
Double Taxation Agreements
Double Taxation Agreements are treaties between two or more countries to avoid international double taxation of income and property. The purpose is to divide the right of taxation between the contracting countries, to avoid differences and prevent evasion of taxation.
Desiring to conclude an agreement that prevents double taxation and prevents tax evasion on income tax Turkey and the Czech Republic signed an agreement in 1999. Agreement applies to taxes on income received by contracting state regardless of how income is received
The current tax system in the Czech Republic was established in 1993. The Czech Republic has exceptional currency stability since 1991 provided by Czech National Bank. The Czech Republic has double taxation treaties with both EU and non-EU countries. These double taxation treaties are based mainly on the OECD Model Tax Convention. Turkey and the Czech Republic signed an agreement in 1999 on income tax.
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