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ADVICE #93

Peculiarities of the tax system of the Czech Republic

Despite the fact that almost all European countries aim to the unity of laws and integration in the areas of economic and social policies, tax systems of European countries do not differ with unity.

Russian analysts of the consulting company “TexArt Group” researched the tax system of 38 European countries with developed market economies, and weak, still “wobbly” after the collapse of the socialist States.

Some of the investigated countries are already EU members, others are candidates for membership in the single currency area, but in the meantime, in most States of United Europe, you may encounter drastic differences in tax systems and the principles of taxation.

If you are going to live abroad and operate your business, you should carefully review the tax code of the country: what size of income tax in this country; the amount of tax “at the source”; VAT; what are the taxes levied on the income of individuals and their property, and more.

We offer to your attention an analytical report with detailed information about the economy, the characteristics of the market, as well as tax rates and the criteria for levying taxes in each country of Europe.

Since 2004 the Czech Republic has been an EU member, however, not part of the Eurozone. The tax system of the Czech Republic is in many ways similar to the tax systems of other European countries. The tax burden level in this country is quite high. The reform of tax legislation in the Czech Republic accounted for 2007-2009.

The income tax

Income tax levied on the profits of residents around the globe, as well as the profits of non-residents from sources in the Czech Republic. A resident of the Czech Republic is a company registered in, or operated from the Czech Republic. The standard rate of income tax in the Czech Republic is 19%. Income from capital gains are taxed in the composition of income tax. Provides lower rates on income from investment and mutual funds in the amount of 5%. The Czech law contains provisions on the regulation of transfer pricing, in particular, it is established that the transactions between independent parties should be implemented in accordance with the “rule of long arm”. In the Czech Republic there are no rules regarding the taxation of profit of controlled foreign companies.

Withholding tax

Withholding tax on dividends, interest and royalties paid to address non-residents is 15%, except when a different rate is provided SODN, or jurisdiction of a nonresident is “offshore”.

Payments to persons living in the country with which the Czech Republic has no relevant agreement on avoidance of double taxation treaties or agreements on the exchange of information is also subject to withholding at 35%. Interest and royalties paid by a Czech company in the companies having a permanent establishment in the Czech Republic or registered in the EU is not subject to withholding tax under certain conditions.

VAT

The standard VAT rate is 21%. It was provided the reduced rate of VAT of 15% on basic foodstuffs, medicine, printing products, medical equipment, heating, social housing. Zero-rate is provided for exports of goods, deliveries within the EU, international transport services. Tax-exempt financial services, real estate operations and the like.

A VAT payer is companies whose turnover exceeds 1 million CZK (~ 36 000 €) 12 months (excluding non-taxable activities). This rule does not apply to non-residents.

Taxation of incomes of physical persons

The tax is imposed on residents in respect of all income, as well as non- resident in respect of income from sources in the Czech Republic.

A resident is a person residing in the Czech Republic or staying in the country for at least 183 days within 12 months.

The standard tax rate is 15%.

Income from business activity that exceeds 48 times the average salary in a year subject to an additional “solidarity tax” at the rate of 7%.

Income from transfer of immovable property included in the tax base under the tax to incomes of physical persons.

The real estate tax of individuals

A taxpayer is the owners of real estate or land on the territory of the Czech Republic. Depending on the location, area, property or land, used different coefficients for the calculation of the tax.

A tax on the sale of real estate in the Czech Republic at the rate of 4% is also provided.

The text is prepared by the Russian consulting company TaxArt Group LLC specifically for Banki.ru

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