If you are moving to the Czech Republic or starting a business, it is worth knowing the Czech tax system and rates. The Czech tax system includes direct and indirect taxes. Taxes are divided into 3 basic groups: direct taxes, indirect taxes, and other taxes. Under these headings, we should mention ten types of taxes in general, including taxes set on companies and individuals.
Table of contents
Personal Income Tax (PIT)
The type of tax levied on the gross income of individuals counted as taxpayers in the Czech Republic is called Personal Income Tax. Taxable income also includes income from employment, income from entrepreneurship, and rent. Gross income up to the social security payment cap of 1,867,728 CZK, Personal Income Tax rate is 15% if gross income exceeding the threshold is subject to a rate of 23%. PIT return due date 1 April or 1 May for electronic filing.
Corporate Income Tax (CIT)
Suppose you have a legal entity registered in the Czech Republic or a business with effective management. In that case, you are considered a taxpayer subject to the Czech Corporate Income Tax.
The tax rate on corporations in the Czech Republic on a year-on-year basis has decreased since 1980, standard Corporate Income Tax rate is 19% of corporate income.
- In the case that the general partners are individuals, a personal income tax rate of 15% applies.
- If the general partners are corporations, the corporate income tax rate of 19% applies.
Corporate Income Tax is a direct tax levied on Czech Republic corporations. According to the accounting regulations, the tax levied on institutions is calculated based on the institution’s profit and levied on all types of enterprises. When calculating the CIT, worldwide income can be taken as the basis from institutions resident in the Czech Republic. In contrast, non-resident institutions are taxed only on their income from the Czech Republic.
Although the tax period for paying Corporate Income Tax is considered a calendar year, a financial calendar consisting of 12 consecutive months can also be created. Taxpayers are obliged to file a tax return within three months after the end of this tax period. In this annual tax return, the final tax liability is assessed and must be paid by the exact due dates as those provided for in the tax return.
If the final tax liability is between 30,000 – 150,000 CZK, advance payments must be paid two times a year. If the final tax liability is between 30,000 – 150,000 CZK, the advance payment is 40% of the tax liability. If the tax liability is more than 150,000 CZK, the advance payment is ¼ of the previous tax liability and is paid quarterly.
The Czech Republic is one of the countries that has the lowest Corporate Income Tax rate in the European Union. When we look at the Corporate Income Tax rates of the European countries, France has a tax rate of 32%, Germany with 29.9%, Belgium with 29.6%, Austria with 25%, and the Netherlands with 25%. The Czech Republic is the country with the lowest tax rate among these compared countries. This low tax rate allows companies to expand their scope of activity further.
Social security contributions
All employees are responsible for paying for their social and health insurance, and employers and employees contribute to the social security system. The social security system also covers health care, pensions, business insurance, sick pay, and child benefits.
The contribution rates for the employer are 24.8% for social security and 9% for health insurance. The contribution rates for the employee are 6.5% for social security and 4.5% for health insurance.
Social security rate for the employer: 33.80
Social security rate for employees: 11.00
Total social security rate: 44.80
Other direct taxes
- Real Estate Tax
- Real Estate Acquisition Tax
- Gift Tax
- Inheritance Tax
- Road Tax
Value Added Tax (VAT)
Value Added Tax (VAT) is usually taken from the products and services sold, as in all European Union countries. The standard rate of 21 % on the sale of goods and services. The reduced rate of 15 % on the transfer of certain residential houses, on the sale of certain goods such as food, gas, etc., and certain services such as waterway, and accommodation. The second reduced rate of 10 % on the pharmaceuticals used for health care, grocery and non-alcoholic beverages, plants, animals, and books.
VAT registration in the Czech Republic is mandatory for companies in the Czech Republic with a turnover exceeding CZK 1 million in 12 calendar months. The foreign legal entity must apply for registration as a VAT payer within 15 days of making the taxable supply. Entities with no place of business, or fixed establishment in the Czech Republic submit VAT returns monthly.
Every merchant who is VAT registered in the Czech Republic and imports goods from a third country to the Czech Republic must declare the import VAT, and pay the import VAT. At the same time, it can get a VAT refund for the import of goods.
Excise Tax is a tax usually levied on products such as motor oils, alcohol drinks, or tobacco products consumption, and it has a fixed value on the product label. The difference between Excise Tax and VAT is that Excise Tax is levied on consumer products that are harmful to health, morally dangerous, or costly.
EcoTax is a type of tax that has been regulated after becoming a member of the European Union in 2004 to ensure the continuity of natural life, such as air protection, water, and soil protection, and it has wide different varieties.