Object of taxation
Income incl. gifts and inheritance
Tax rate
21 %
Corporate income tax rate for corporations with unlimited or limited liability to tax, no minimum corporate income tax
5 %
Corporate income tax rate for basic investment funds
Tax liability
Unlimited
Legal persons (a.s., s.r.o., v.o.s., k.s.), branches and public sector institutions with their residence or management in the Czech Republic, on their worldwide income
Limited
Foreign legal persons neither resident nor managed in the Czech Republic, on their Czech income
Financial year
Calendar year; different financial year possible, but must be reported to the tax office in writing 3 months in advance
Accounting
In general, double-entry bookkeeping as specified in Bookkeeping Act
Loss carryback
Loss set-off possible; Accumulated limit to loss carry back from one taxable period in the amount of CZK 30 million (EUR 1.20 million), may be deducted in full or in part during 2 preceding years.
Loss carryforward
Loss set-off possible; no limits to amounts of loss carryforwards, may be deducted immediately, in full or in part, time limit of 5 years; Possibility to waive the right to utilise the tax loss in subsequent tax periods.
Shell company purchase
Purchased tax losses (shell companies): loss carry-forwards cease to be deductible where there is a major change of ownership (25 % or more of share capital) and a change of business activities.
Operating expenses
Expenses incurred to procure, secure or maintain business income
Transfer prices
Arm’s length basis
Interest on debt financing of acquisition of shares
Non-deductible; interest on loans taken up in the six months preceding the acquisition is treated as connected with the acquisition of share and is not deductible (evidence to the contrary possible)
Debt / equity
Credits or loans from related parties also include a credit or loan granted by a third party (e.g. a bank) if its provision was contingent upon a cash deposit of an related party with the bank (so-called “back-to-back” loan, e.g. the parent company deposits money with the bank and the subsidiary receives a loan in return).
Financing expenses of credits and loans if the interest rate depends on the borrower's profit, are not tax deductible (in case of such dependence, higher profits mean higher interest).
Intragroup financing is also regulated in accordance with the Czech law.
Threshold for tax deductibility of borrowing costs is the amount of credit or loans in relation to the equity at a ration 1:4.
Borrowing costs relating to the amount of credit or loans exceeding the 4-times the equity are considered as tax non-deductible.
Financing is regulated in accordance with EU Anti-Tax Avoidance Directive (ATAD).
Thresholds for tax deductibility of net borrowing costs:
■ CZK 80,000,000 (EUR 3,192,338), or
■ 30 % of EBITDA
Net borrowing costs exceeding the higher of the two thresholds are considered tax non-deductible.
Tax depreciation
Tax depreciation available to eligible tax payers (usually legal owners or funds; not available
to lessees in the case of finance leases)
The tangible asset is classified into 1 of 6 categories (depreciation over 3 – 50 years); For intangible assets, tax depreciation corresponds to the accounting depreciation.
Tax depreciation methods: straight-line or reducing balance, time-based, unit-of production method (only for certain production equipment).
A possibility to apply special tax depreciation for zero emission cars acquired between 2024-2028 (depreciation over 24 months following after the month of acquisition).
Depreciation (straight-line and reducing balance) is not mandatory and can be interrupted for a time. Changes in method are not permitted
Depreciation for accounting purposes is the responsibility of the company, and should reflect the expected useful life of the asset
Writedowns for loss of value in use and additional depreciation for extraordinary wear and tear are not possible for tax purposes.
Low-value items up to CZK 80,000 (EUR 3,192) can be fully expensed in the year of acquisition.
Accelerated depreciation
For most newly acquired plant and equipment an accelerated depreciation of 10 %, 15 % (for equipment for water purification and treatment) or 20 % (for agricultural production machines) of the acqusition price can be claimed in the first depreciation year.
Depreciation of photovoltaic plants
Tangible fixed assets used in the production of solar electricity are depreciated using the straight-line method over 240 months beginning in the month following capitalization. This depreciation cannot be interrupted.
Provisions
Provisions for tax purposes are governed by a special provisions law.
Only provisions for repairs, bank and insurance provisions, electro-waste from photovoltaic panels, and provisions for reafforestation and environmental restoration are allowable as tax deductible costs.
The provision for repairs is only deductible if matching funds are deposited in a bank account specially designated for the purpose of this provision.
No provisions for severance payments and pensions, or other liabilities of uncertain amount.
Motor vehicle expenses
Depreciation over 5 years.
Passenger cars: Limitation of the tax deductibility of acquisition costs: max CZK 2,000,000 (EUR 79,808)
Non-deductible expenses
Refreshment and beverage expenses
Expenses in connection with acquisition of share (direct and indirect costs); indirect costs are taken as being 5 % of the dividends on the share (evidence to the contrary possible).
Expenses directly related to non-taxable income.
Taxes paid on behalf of another taxpayer
Interest barrier
See point "Debt / equity"
Interest and royalties to intra-group companies
Interests see point "Debt / equity" and royalties tax deductible.
Withholding taxes
Withholding tax is generally at 15 %, increasing to 35 % for non-EU residents from states without DTA or TIEAs.
Interest
At 15 % (35 %), or per applicable DTA and applying the EU Interest and Royalty Directive for group purposes
Royalties
At 15 % (35 %), or per applicable DTA and applying the EU Interest and Royalty Directive for group purposes; exception – 5 % for finance leasing
Dividends
At 15 % (35 %), or per applicable DTA and applying the EU Parent Subsidiary Directive for group purposes.
Controlled foreign corporation (CFC) rules
Taxation of certain income of foreign corporations / permanent establishments at the level of the controlling Czech corporation. The CFC rules will not apply if the controlled foreign company performs a substantial economic activity.
Requirements:
- The participation on the capital / profit in share is at least 50 %.
- The controlled foreign company does not perform a substantial economic activity.
- The taxation of the controlled foreign company is less than 50 % of the tax, that would be paid in the Czech Republic.
Hybrid mismatches
Mismatches which, due to differing fiscal recognition methods, lead to a different tax treatment in different countries and may under certain circumstances lead to profit shifting or profit reduction must be neutralized.
National parent- subsidiary exemption
- Dividends are tax exempt
- Gains on disposal are tax exempt
Requirements:
qualifying period 12 months; minimum share 10 %
International investments
- Dividends are tax exempt
- Gains on disposal are tax exempt
Requirements:
qualifying period 12 months; minimum share 10 %
Non-EU states
- Dividends are tax exempt
- Gains on disposal are tax exempt
Requirements:
Qualifying period 12 months, minimum share 10 %, a double taxation agreement exists with the third
country, minimum corporate income tax of 12 % in the third country.
Interest and Royalty Directive
(EU, Switzerland, Norway, Iceland and Liechtenstein)
Exemption from withholding tax on interest on loans and royalties provided that the following conditions are met:
- Qualifying period: 2 years
- Minimum share: 25 %
Exemption from withholding tax must be confirmed by tax office ruling
International parent- subsidiary exemption and portfolio investments
N/A
Goodwill amortisation
Goodwill amortisation over 15 years: only for asset deals
Not deductible for tax purposes in the case of mergers or contributions in kind
Group taxation / pooling
Not possible
Windfall tax
A tax on unexpected profits "windfall tax" for large-scale energy, oil and mining companies and banks is applied for the period of calendar years 2023 to 2025.
The tax base for windfall tax is the amount exceeding the companies’ average of tax bases of periods 2018-2021, such average being increased by 20 %.
A tax rate of 60 % will apply on such tax base.
