The following article provides a brief overview of the determination of personal income and the resulting taxation under the tax laws of the Czech Republic. The insights provided focus on the taxation of employment income, including the various related elements, remuneration paid to directors and members of statutory bodies, capital gains, dividends and interest, as well as rental income.<\/p>\n\n\n\n
In the Czech Republic, resident individuals are generally taxed according to the basic cash principle, with a few exceptions provided for by law. According to this principle, only income actually received between 1\/1 and 31\/12 becomes taxable.<\/p>\n\n\n\n
The taxable income of employees includes all wages, salaries and bonuses paid and benefits in kind (so-called fringe benefits) received in return for work performed. These benefits are valued, in principle, according to the ‘market value’ method. Some particular cases concern:<\/p>\n\n\n\n
In addition to these, there are benefits <\/strong>defined as ‘non-monetary’, <\/strong>including:<\/p>\n\n\n\n Remuneration intended and actually paid by Czech entities to directors and other members of statutory bodies who are tax residents in the Czech Republic is taxed according to the rules for employees’ salaries. Thus, theoretically, a director who receives only his income as a director or member of a statutory body is not required to file an annual tax return (in Czech DPFO) with the competent office. However, both resident and non-resident directors of EU Member States and other countries of the European Economic Area may still voluntarily file tax returns in order to take advantage of their personal tax deductions.<\/p>\n\n\n\n Conversely, remuneration paid to directors and members of other statutory bodies not resident in the Czech Republic is subject to a withholding tax at different rates: for residents of the European Union, the European Economic Area (EEA) or a DTT country (or a country with which the Czech Republic has entered into an agreement on the exchange of tax information) the rate is 15%, and for other countries not previously considered 35%.<\/p>\n\n\n\n No further taxes are due in the Czech Republic on this income. Double tax treaties regulate the case of possible ‘cumulation’ of income in the state of tax residence.<\/p>\n\n\n\n In the Czech Republic there is no separate tax on capital gains. Amounts received in this capacity constitute income that simply forms part of the overall tax base of gross individual income, subject to the two progressive PIT rates (15% and 23%) depending on the corresponding income bracket.<\/p>\n\n\n\n However, the legislation provides for several special cases of exemption from capital gains taxation, which mainly derive from the period of ownership. More precisely, capital gains related to the purchase and sale of assets and real estate are exempt if the possession by the individual exceeds the time limits specified by law:<\/p>\n\n\n\n It should be noted that the exemptions detailed above are only applicable to capital gains realised on assets that do not form part of the business assets of the individual acting as a sole entrepreneur. Capital gains on assets of an entrepreneurial (business and\/or professional) nature are taxed according to the same taxability criteria that apply to corporate income.<\/p>\n\n\n\n Investment income including dividends paid by corporations, returns on securities issued by corporations, and interest received for any reason on assets held personally and not as a business, is financial income to be treated as taxable income and generally treated as part of the total annual tax base, subject to the normal PIT rates.<\/p>\n\n\n\n Dividends, returns and interest paid by a Czech resident entity to a Czech tax resident taxpayer are all subject to a 15% withholding tax. The same withholding tax rate also applies to capital income paid to persons residing in EU\/EEA states or in a state that has concluded a DTT or a tax information exchange agreement with the Czech Republic. In other cases, the tax rate for this type of income is 35%. However, double tax treaties may limit or eliminate withholding taxes in the exchange of transnational capital income.<\/p>\n\n\n\n The only exception to the principle of being subject to the ordinary PIT rates concerns capital income from dividends and interest that a Czech resident taxpayer receives from foreign entities: these may be included in a separate specific tax base, subject to a fixed rate of 15%.<\/p>\n\n\n\n Revenue from the collection of rental income from real estate, as well as rental fees from movable property, is another subgroup of the total taxable income on which the progressive rates of 15% and 23% are to be applied.<\/p>\n\n\n\n In determining the tax base, the taxpayer may deduct allowable expenses by adopting an analytical “footnote” method, or opt for the flat deduction scheme, corresponding to 30 percent of income. This option is subject to a maximum deductibility limit set at CZK 600,000 per year, applicable indiscriminately to both deduction methods.<\/p>\n\n\n\n Prepared by Savino & Partners a.s., based on source PWC Czech Republic, February 2024. <\/p>\n\n\n\n Image source: https:\/\/vivereincechia.com\/tasse-repubblica-ceca\/<\/p>\n\n\n\n\n
Miscellaneous Income: assets and real estate capital gains<\/strong><\/h2>\n\n\n\n
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Capital income: dividends and interest<\/strong><\/h2>\n\n\n\n
Rental income<\/strong><\/h2>\n\n\n\n