1. 9. 2014 | Source: BusinessInfo.cz
Income tax is undoubtedly one of the most complex forms of tax that exists. This document is based on Act No. 586/1992 Coll.,that has been revised by the end of 2013. The changes apply from the 1 January 2014. Besides selected provisions of the law, the document also provides other important information, including deadlines for filing tax returns and advance tax payment dates, as well as practical advice which can be used to reduce the income tax base.
Natural persons (NP)
Selected provisions of the law
- Subject of taxation
- What is not subject to taxation
- Tax-exempt income
- Tax base, tax loss
- Income tax rate
Further information on income tax for NP
Legal Persons (LE)
Selected provisions of the law
- Subject of taxation for taxpayers
- What is not subject to taxation
- Tax-exempt income
- Tax base and items reducing the tax base
- Income tax rate
Further information on income tax for LE
Provisions applicable to both NP and LE
Income tax on natural persons
Taxpayers (§ 2)
- Payers of income tax on natural persons are natural persons (“taxpayers”). Taxpayers are also tax residents of the Czech Republic or levies non-residents.
- Taxpayers who are residents or usually reside within the territory of the Czech Republic have the duty to pay taxes. The Duty of Czech tax residents is applicable to income from sources within the Czech territory, as well as to income from sources abroad.
- Taxpayers are not tax residents, if not included under Section 2 or those specified by international treaties. Tax non-residents have the duty to pay tax which is applicable only to income from sources within the territory of the Czech Republic (§ 22). Taxpayers who are within the territory of the Czech Republic solely for the purpose of studying or medical treatment have the duty to pay tax which is applicable only to income from sources within the territory of the Czech Republic, even if they usually reside within the territory of the Czech Republic.
- Taxpayers that usually reside within the territory of the Czech Republic are those that spend at least 183 days in the relevant calendar year here, either consecutively or at separate intervals; the period of 183 days includes every full or partial day spent in the Czech Republic. For the purposes of this law, residence within the territory of the Czech Republic means the fixed abode of the taxpayer in which that taxpayer is expected to reside on a permanent basis.
Subject of taxation on income of natural persons (§ 3)
The following forms of income of natural persons are subject to taxation (“tax”):
- income from dependent activity and emoluments – e.g.: wages, (§ 6)
- income from business and other self-employment, (§ 7)
- income from capital assets – e.g.: interests, dividends, (§8)
- income from leasing, (§ 9)
- other forms of income – e.g.: occasional income, income from the sale of property and movable assets, winnings (§ 10).
The following are not subject to taxation, for example (§ 3):
- Income obtained through the acquisition of shares or share certificates pursuant to the legal act, which specifies the conditions governing the transfer of state assets to other persons or by issuance of property via special legislation governing the restitution of property ,
- Credit and loans, with the exception of:
- 5.1. income received by a creditor from a returned loan or credit resulting from the assignment of receivables arising under that loan or credit, at the amount equivalent to the difference between the income from the return of the loan or credit and the price at which the receivable was assigned,
- 5.2. income received by a taxpayer who keeps tax records, from discount credit from a bill of exchange which is used to pay a receivable,
- income from the settlement of the joint property of spouses,1b)
- the European Court of Human Rights at the amount the Czech Republic has pledged to pay,1c)
- income received by the taxpayer specified in § 2 Para. 2, who assists with household work abroad, or the taxpayer specified in § 2 Para. 3, who assists with household work in the Czech Republic in return for meals and board, if the income goes towards satisfying basic social, cultural or educational needs (au-pair),
- income obtained through the transfer of property between closely associated persons related to the ending of entrepreneurial activity in agriculture if the closely associated persons follow-up in the activity until the third month of the taxation period following after the end of the entrepreneurial activity of the person who is transferring the relevant property. The death of the entrepreneur is of course an exception. Should the abovementioned conditions be not met, the incomes will be included in the levy for the relevant taxation period when the property was transferred on the condition that the tax payer is not in delay,
- income received a) as the result of a settlement of shares through the division of assets proportionate to the size of their shares 1d) b) exchange of property during the land-adjustment activities carried out in accordance with the legal act governing the principles of adjusting land property with the exception of the land including a building,
- sum paid by a health insurance company which exceeds the limit on regulatory fees and surcharges for medicaments or foodstuffs pursuant to special legislation governing limits on regulatory fees and surcharges for medicaments or foodstuffs,
- income received as a compensation awarded by the International Criminal Court or by other analogical judicial institution, which meets at least one of the conditions indicated by the § 145 Coll. 1 of the Act of international justice cooperation in criminal matters,
- property income of a creditor.
Income exempt from income tax (§ 4)
The complete list of incomes, including the terms governing exemption from income tax for natural persons, can be found in § 4 of the Income Taxes Act.
Tax base and tax loss
The definition of the tax base and tax loss and the means of calculating them can be found in § 5 and § 23 of the Income Taxes Act.
Tax rate (§ 16)
Tax from the tax base reduced by the non-taxable part of the tax base (§ 15) and by items deductible from the tax base (§ 34) rounded down to whole hundreds of CZK amounts to 15 %.
Further information on NP income tax
Income tax return for natural persons and deadlines for filing returns
A tax return must be filed by anyone whose annual income that is subject to taxation on the income of natural persons exceeds 15 000 CZK, not including tax-exempt income or income upon which tax is levied at a special tax rate.
A tax return must also be filed by anyone whose annual income that is subject to taxation on the income of natural persons does not exceed 15 000 CZK, but which shows a tax loss.
A tax return does not have to be filed by a taxpayer who had income from dependent activity pursuant to § 6 from just one or gradually from multiple taxpayers, including back payments of wages from those taxpayers (§ 38ch Coll. 4). The taxpayer must have signed a tax declaration with all these taxpayers for the relevant taxation period pursuant to § 38k of the law, and, with the exception of tax-exempt incomes and incomes upon which tax is levied at a special tax rate in accordance with § 36, has no other incomes exceeding 6 000 CZK. A tax return also does not have to be filed by a taxpayer who only receives income from dependent activity and emoluments from abroad which are exempt from tax.
However, a tax return for the taxation period must be filed by the taxpayer specified in § 2 Para. 3 of the law, who applies a tax discount pursuant to § 35ba Para. 1 b) to e) of the law, or tax relief or non-taxable part of the tax base. A tax return must also be filed by a taxpayer who was paid or otherwise received income from dependent activity during the past year which were not classed according to § 5 Coll. 4 as his income during the taxation period, accounted for by the taxpayer in his favour, as well as a taxpayer with income from dependent activity or who applies the value of gifts provided abroad to reduce the tax base the value of free benefits provided to foreign countries under the conditions in § 15 Coll. 1...
In the tax return the taxpayer must declare all incomes which are subject to taxation, with the exception of tax-exempt incomes and incomes upon which tax is levied at a special tax rate, provided that the procedure given in § 36 Para. 7 or 8 of the law is not applied. In the tax return the taxpayer also must declare the amount of the tax discount according to § 35bc and 35d. The taxpayer is obliged to declare the tax return to which applies tax solidarity increase or the tax base of the income tax from the dependent activity or functional benefits. Para. 1 b) to e) of the law (for a spouse, disability pension for first- and second-degree invalidity, disability pension for third-degree invalidity, is the holder of a disability pass) and tax benefit..
Taxpayers are obliged to file income tax returns for natural persons for 2013 no later than by Tuesday 2 April 2013. For taxpayers whose returns are scrutinized by an obligatory audit or prepared by a tax consultant the deadline is extended to Monday 1 July 2012.
Income tax of legal persons
Taxpayers (§ 17)
Income tax payers are legal persons who are:.
a) Legal persons
b) Government organization
c) Mutual Fund established by the act governing the investment companies and investing funds
d) Sub-fund of a joint-stock company with changed basic capital according to the Act governing the investment companies and investing funds
e) Pension Fund, by which is meant a fund administered by a pensions company according to the Act governing the pensions savings and according to Act governing additional pension savings.
f) Trust Fund established by the Civil Act.
g) a Unit which is established according to the legal order by the tax payer
Complete list of payers can be found § 17 of the Act.
Subject of taxation (§ 18)
Items subject to taxation are incomes (revenues) from all activities and from the management of all assets ("incomes"), unless specified otherwise herein.
After the revision of the legal act the number of exceptions have grown. The exact list of income items that are not subjected to the taxation is listed in the § 18.
Incomes free of income tax
You can find the complete list of income items including the conditions for items free of income tax in the Act governing the Private Income Tax..
Tax base and items decreasing the tax basis (§ 20)
The definition of the tax base, the method of its enumeration as well as complete calculation of items decreasing the tax base you can find in the § 20 of the Act governing the Private Income Tax .
Tax rate (§ 21)
- The tax rate effective as of 1. 1. 2011 is 19 % (effective prior to 31. 12. 2009 it was 20 %) unless specified otherwise. This tax rate applies to the tax base reduced by the items specified in § 34 and § 20 Para. 7 and 8, which is rounded down to whole thousands of crowns.
- The tax rate is 5 % a) in the case of investment funds according to the Act governing the Investment Companies and Investing Funds. The tax rate applies to the tax base reduced by the items specified in § 34, which is rounded down to whole thousands of crowns and in the case of a Mutual Fund ,b) in the case of an investment fund opened in another EU member state or in Norway or Iceland, on the condition that it offers the securities publicly, accumulates financial assets from the public and if it invests on the principle of distribution of risk (and this information can be determined by the state, by a brochure or by other document published by this fund) as well as on the condition that it is under and institution of surveillance in the state, in which it is authorized (and again (and this information can be determined from the state, by a brochure or by other document published by this fund) or it is accepted by the taxation law of the particular state where authorized as a taxation resident and incomes of this fund are not added to other persons.
- The tax rate is 5 % in the case of funds of pension institution or pension insurance institutions with the exception of the pension companies and .companies administrating funds similar to the pension funds. This tax rate applies to the tax base reduced by the items specified in § 34, which is rounded down to whole thousands of crowns.
- The tax rate of 15 % applies to the separate tax base pursuant to § 20b, rounded down to whole thousands of crowns.
In the case of investment funds which changed their subject of business during the taxation period and ceased to operate as investment funds,16) the 5 % tax rate applies only to the part of the tax base determined pursuant to § 20a.
When determining tax the tax rate specified in the previous sections applies, effective as of the first day of the taxation period or period for which the tax return is filed.
Further information on income tax for legal person
Income tax return for legal persons and deadlines for filing returns
Income tax returns for legal persons for the taxation period specified in § 17a of the law are filed no later than within three months of expiry; if the taxation period is the calendar year of 2011, returns must be filed no later than by Tuesday 1 April 2014.
For taxpayers whose returns are prepared by a tax consultant or taxpayers who are obliged, under special legislation, to have their financial statements verified by an auditor, returns must be filed no later than within six months of the expiry of the relevant taxation period, which for the taxation period of the 2011 calendar year means no later than by Monday 1 July 2014.
Joint provisions for NP and LE
Tax maturity: After the expiry of the taxation period for which the tax is assessed, the taxpayer is obliged to file a tax return, calculate the tax himself and pay it to the local tax authority, or to pay the tax administrator the difference between the advance tax payments made and the tax specified in the tax return, if the tax is higher, by the statutory deadline for filing tax returns. Only advance payments payable before the expiry of the statutory period for filing tax returns will be included to cover the actual amount of tax.
Maturity of tax deposit in 2014
The deposit for the income tax needs to be paid during the deposit period. By the tax deposit period is meant the period from the first day next to the end after the time limit for the tax declaration for the last taxable period to the last day of for the tax declaration for the next period. To define the level of periodicity of the tax deposit it is necessary to base it on the last known tax, defined in § 141 Coll. 1 Act n n. 280/2009.
Instead of the last known tax it is also possible to use the amount which the taxpayer counted on his own and declared in last tax declaration period in order to define the periodicity of tax deposition.
It is necessary to understand that if the calendar year 2014, t is not identical with the taxation period, it is divided to the last part of the past taxation period, beginning on 1 January 2014 and to the part of next taxation period ending by the 31 December 2014 which begins by another day than the 1 January. In practice that means the first day of taxation period of an accounting year ((§ 17a b)) decisive day of the fusion or the transfer of the assets to an associate or by the division of a corporation or a syndicate ((§ 17a c)) or the first day of a taxation period, which is longer than the period of following 12 months. (§ 17a d))
The taxation deposit:
- It is not paid by taxpayers whose last known tax liability did not exceed 30 000 CZK , or by municipalities and regions
- Taxpayers whose last known tax liability did exceed 30 000 CZK but it did not exceed the amount of 150 000 CZK pay the taxation deposit in the level of 40 % of the last taxing obligation, the first tax deposit is known by the 15th day of the sixth month of taxation period and the second is mature by the 15th day of the twelfth month of the taxation period.
- The taxpayers with last known tax liability passing 150 000 CZK have to pay the tax deposit in three month liability of the 1/4 of the last tax liability.
- The first deposit is to be paid by the 15th day of the third month of the taxation period
- The second deposit is to be paid by the 15th day of the sixth month of the taxation period
- The third deposit is to be paid by the 15th day of the ninth month of the taxation period
- The fourth deposit is to be paid by the 15th day of the twelfth month of the taxation period. With the three month periodicity..
In 2014 the deposit is to be paid by : the private person, whose taxation period is a calenday year according to the § 17a a) and also all natural persons if they have the deposit laibility :
- By 17 March 2014 (Monday)
- By 16 June 2014 (Monday)
- By 15 September 2014 (Monday)
- By 15 December 2014 (Monday)
- 1) Act No. 92/1991 Coll., on the Conditions of Transfer of the State Assets to Other Persons, as amended.
- 1a) Act No. 151/1997 Coll., on Valuation of Property and on the Amendment of Certain Acts (Property Valuation Act).
- 1b) § 143a of the Civil Code.
- 1c) Article 37 Para. 1 and articles 39 and 41 of the Convention for the Protection of Human Rights and Fundamental Freedoms, published under No. 209/1992 Coll., as amended by Protocol No. 11 to the Convention for the Protection of Human Rights and Fundamental Freedoms, published under No. 243/1998 Coll.
- 1d) § 141 and 142 of the Civil Code.
- 1e) Council Regulation (EC) No. 1698/2005 of 20 September 2005 on support for rural development by the European Agricultural Fund for Rural Development (EAFRD). Government Regulation No. 69/2005 Coll., laying down the conditions for providing grants in connection with the premature termination of the agricultural activities of agricultural entrepreneurs, as amended by Government Regulation No. 512/2006 Coll.
- 2) E.g. Act No. 403/1990 Coll., on the mitigation of consequences of some property violations, as amended, Act No.119/1990 Coll., on Judicial Rehabilitation, as amended, Act No.87/1991 Coll., on Extra-Judicial Rehabilitation, as amended, Act No. 229/1991 Coll., on the modification of ownership of land and other agricultural property, as amended, Act No. 42/1992 Coll., on the regulation of property relations and settlement of proprietary interests in cooperatives, as amended