Czech Republic Tax & Business Guide - Deloitte

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Basic facts
Population 10.2m Inflation 2.5% (2006)*
Main languages Czech GDP per head US$13,880*
Currency Czech koruna (CZK) GDP growth 6.1% (2006)*
Economic communities European Economic Area, EU, OECD, WTO
GDP sources 2.7% agriculture, 39.3% industry, 58.0% services
Economist Intelligence Unit estimates.
Political environment

The Czech Republic is a parliamentary democracy. Executive power is exercised by the prime minister, currently Mirek Topolanek. Mr Topolanek leads a coalition dominated by the Civic Democratic Party (ODS), but joined by two small parties, the Christian Democratic Union-Czechoslovak People's Party (KDU-CSL) and the Green Party. The coalition won a confidence vote in parliament in January 2007, after two rogue deputies from the main opposition party, the Czech Social Democratic Party (CSSD), agreed to abstain from the vote.

Vaclav Klaus is the president. The next presidential election is scheduled for January 2008.
Foreign trade and investment
Exports US$95.1bn (2006)* Imports US$93.2bn (2006)*
*Economist Intelligence Unit figures.

Main export markets: Germany, Slovakia, Austria, France and Poland.

Major exports: Machinery and transport equipment, and intermediate manufactured goods.

The government welcomes foreign investment.
Business and financing
Business forms Joint stock company, limited liability company

The joint stock (akciova spolecnostÛAS) and limited liability (spolecnost s rucenim omezenymÛs.r.o.) options are the most popular forms of corporate organisation for foreign investors because of their flexibility and low capital requirements.

Czech law permits foreign companies to set up branches or representative offices.

Prague, the capital, is the financial centre.
Labour environment
Unemployment rate 8.1% (2006)* Minimum wage CZK 8,000 (monthly)
*Economist Intelligence Unit figure.

About 15% of the workforce is unionised.

The state social security system provides pension and sickness insurance and social benefits. To finance these benefits, employers must contribute the equivalent of 35% of gross wages to the state social and health funds.

A foreign national may be hired only if the employer can demonstrate to the relevant labour authorities that no similarly qualified Czech citizen is available for the position.
Taxation
Corporate tax
Standard rate 24%

Resident companies are taxed on their worldwide income; non-resident companies are taxed only on Czech-source income. A company is resident if its legal seat or place of management is in the Czech Republic. Corporate tax is charged at a flat rate of 24%. Generally, dividends are not included in taxable income but are subject to a final withholding tax of 15%. Dividends are exempt from the tax if conditions for application of the EC Parent-Subsidiary EU Directive are met. Partnerships are treated as fiscally transparent, with the partners taxed on their shares of partnership profits.
Individual tax
Progressive rates rising to 32%

Resident individuals are taxed on their worldwide income. An individual who has a permanent home in the country or stays there for 183 days in the calendar year is resident for tax purposes. Most income is aggregated and charged to tax at progressive rates up to 32%. Dividends are subject to a final withholding tax of 15%.
Capital gains
Generally taxed as income

Capital gains of companies and individuals are generally taxed as income. Individuals are exempt from tax on gains on the disposal of non-business property held for five years or the sale of a dwelling that has been the main residence for at least two years. Capital gains derived from the sale of shares are tax-exempt for individuals if the shares have been held for more than six months in the case of a joint stock company and five years in the case of a limited liability company.
Indirect tax
Standard rate 19% Lower rate 5%

Value-added tax (VAT) applies to most transactions. A lower rate of 5% applies to foodstuffs, pharmaceutical products and some services. Exemptions include the transfer and lease of land and buildings, financial and insurance services, medical services and education. Exports are zero-rated.

Registration is compulsory for businesses with an annual turnover above CZK 1m.
Tax administration and compliance
Tax year Corporations: accounting year; Individuals: calendar year

Corporate taxpayers make either two or four advance tax payments, depending on the size of the previous yearÌs liability. A self-assessment tax return must be filed by the end of the third month following the tax year, but the deadline may be extended on request.

Employment income is generally taxed by withholding.
Additional tax information
Withholding taxes Dividends 15%, Interest 15%, Royalties 25%. Rates may be reduced by tax treaties or EC directives.
Tax treaties The Czech Republic has concluded more than 70 treaties, and also honours most treaties of the former Czechoslovakia.
Dividends Dividends are subject to a 15% withholding tax.
Revenue protection There is transfer-pricing and thin-capitalisation legislation.
Groups There is no provision for groups to file a consolidated return.
Incentives Incentives are available for large-scale investment.
Other taxes Inheritance and gift tax, Real estate tax, Road tax, Tax on the transfer of immovable property.