Taxation of individuals

Taxation of individuals affects residents for income generated wherever they are produced, while for non-residents taxation is limited to income from Czech sources and the rule applies to both citizens and foreigners. To be considered a resident, you must have permanent residence in the Czech Republic (e.g. for owning a home) or be present in the country for at least 183 days a year, including the day of arrival and departure.
For employees, taxable income also includes social security and welfare contributions to be paid by the employer. This increase is always applied even if the employer does not adhere to national pension schemes.
Income from the sale of properties owned for at least 5 years (or in which one has resided for at least two years), social transfers and pensions up to 331,200 crowns are exempt from taxation.
Capital gains, interest and dividends are included in the total income and treated at the ordinary rates. Real estate rental income is considered net of the related expenses actually incurred or of a value equal to 30% of this income and in any case not exceeding 600 thousand crowns.
The following tax deductions and allowances are available for residents and for non-residents only if they have at least 90% of their worldwide income from Czech sources.
Until 2020, the tax rate was set at 15% while a solidarity contribution of 7% was envisaged for the part of income from dependent and self-employed work that exceeds 1,569,552 crowns.

As of 2021, the Czech Republic has returned to progressive taxation, with the introduction of a marginal rate of 23%, as follows:

Gross income up to the maximum social security ceiling (threshold for 2021 of 1,701,168 crowns and for 2022 of 1,867,728 crowns) is subject to a rate of 15%.
Gross income in excess of this threshold is subject to a tax rate of 23%.
Since the progressive tax rate is applicable to all types of income, some passive income, such as capital gains or rental income (along with employment income), may be subject to a higher tax burden. However, for most people with only salaried income, this change leads to an effective reduction in labor taxation.

The solidarity surcharge of 7% for high-income workers was abolished as of 2021. 
The employer is obliged to make the withholding tax on the wages paid and any surpluses are calculated in the following tax year.

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Social Contribution  

Social contributions are mandatory for a person employed in a Czech company. 

Social security contributions finance three separate funds: pensions, unemployment and sickness benefits (along with other benefits). Entrepreneurs can choose whether to contribute to the health insurance fund.

Health insurance covers medical treatment. An individual can choose the authorized company to which to pay health insurance contributions.

Mandatory contributions are calculated from gross earnings, including most benefits and allowances. Income subject to income tax is generally subject to contributions into the social security and health care system.

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. Payments are made by the employer (both for the part of the employee's and the employer's contributions).

The maximum annual tax base for the calculation of contributions to the social security system is 48 times the average monthly salary (i.e. 1,701,168 crowns for 2021 and 1,867,728 crowns for 2022). This limit applies to both employees and entrepreneurs.

As of 2013, there is only a cap for social security contributions, in fact the limit for the payment of insurance premiums for public health insurance has been canceled.

Taxation of legal persons

The tax affects the income produced everywhere for resident companies and only those of Czech source for non-resident ones. A resident is considered to be if the company is established under the laws of the Czech Republic or if it is effectively managed and controlled there.
The rate in force is 19% while a rate of 5% is applied for income from investment funds; pension funds are exempt. The tax affects income determined according to tax rules, i.e. taking into account non-deductible costs and non-taxable income. Expenses are considered deductible when inherent to the production of income: for example, write-downs, rental fees (excluding leasing), business travel expenses. Expenses relating to research and development projects can be deducted from income up to double their value if duly indicated in the financial statements. An additional 10% deduction is foreseen for the excess of these costs compared to those of the previous year. Concessions are provided in the event of employee training costs. In particular, fixed assets used for training can be deducted twice in the same year of acquisition and through annual depreciation. The companies can also deduct a fixed amount for each hour of training activity carried out. Fixed assets are classified by law into six categories, each of which corresponds to a period of useful life of the asset and therefore the depreciation rate. The taxable person can choose the ordinary or the accelerated method but cannot change it over the useful life of the asset. If the fixed asset is sold to third parties, the buyer must respect the depreciation method of the original holder.
On the other hand, certain types of expenses are non-deductible, for example interest on loans between related parties if they exceed the limits set by the rules on thin capitalization, i.e. six times the share capital if the lender is a bank (or insurance) and four times the share capital in the other cases.
Operating losses can be carried forward within the fifth subsequent year. Particular restrictions are adopted for the use of losses in the event of a significant change in the shareholding structure or merger.
Dividends and capital gains on equity investments are taxed at 15% unless they meet the participation exemption requirements.
In general, the withholding tax for the payment of dividends, interest and royalties is 15%. Payments to taxpayers resident in the European Union (or the European Economic Area) are exempt. According to the Parent-daughter Directive, the exemption applies to dividends if a resident company owns at least 10% of another resident company for at least 12 months. Dividends paid to companies resident in countries with which the Czech Republic has agreements against double taxation, which comply with the conditions for the exemption of the mother-daughter directive and are subject to income tax at a rate of at least 12% are also exempt. The rate is instead increased to 35% if dividends are paid to residents of countries with privileged taxation.
Capital gains are considered ordinary income and therefore subject to the rate of 19% .
The tax return must be filed within three months of the end of the tax period, if the taxpayer makes use of an authorized tax consultant, the term is postponed   for a further three months. 

 
Value Added Tax - VAT

VAT is generally charged at 21% on supplies of goods and services within the Czech Republic.

Certain supplies (e.g. groceries excluding most of drinks, medicaments, drinking tap water, construction works related to social housing, hotel accommodation and admission to cultural, sport, theatre, or similar facilities, catering services, heat and cold) are taxed at a rate of 12% starting January 1, 2024.

There is no VAT on books in printed or electronic form starting January 1, 2024.

Exports are generally exempt from VAT with a credit. Some supplies are exempt without a credit, including the lease of real estate (with certain exceptions), financial and insurance services, education, health, and welfare.

VAT deduction on personal cars is limited to CZK 420.000.

VAT registration

Companies seated in the Czech Republic whose turnover exceeds 2 million Czech korun (CZK) in any consecutive 12-month period must register as a VAT payer with the tax authorities.

For non-resident companies, there is no registration threshold, but they must register as a VAT payer if they:

• make any supply subject to Czech VAT (unless the liability to declare and pay VAT is shifted to the recipient of the supply), or

• supply goods from the Czech Republic to another EU member state.

A company can register as a VAT payer voluntarily even if its turnover does not reach the threshold if it renders or is going to render taxable supplies or VAT exempt supplies with credit in the Czech Republic.

Under certain circumstances, companies not registered for VAT to whom VAT liability arises due to acquired goods or services become persons identified for VAT. A person identified for VAT only pays VAT from received supplies without being entitled to recover related input VAT in its VAT return.

VAT returns and payments

The VAT return must be filed and tax paid within 25 days after the end of the taxable period. The taxable period is a calendar month (or calendar quarter under certain circumstances). All VAT payers registered in the Czech Republic have to submit a report, a so-called ‘control statement’. In the control statement, the VAT payers have to give detailed evidence of data from invoices that have been issued and received, so that the Czech Financial Administration can compare and check transactions with business partners. The control statement does not substitute for a VAT return. Legal entities have to file the report every calendar month, and the deadline for submission of the control statement is no later than 25 days after the taxable period. VAT payers have to submit all VAT reports to the Czech tax authorities electronically.