Corporate income tax is levied mainly on corporate entities including e.g. joint-stock companies (a.s.), limited liability companies (s.r.o.) and limited partnerships (k.s.).
Legal persons with their registered office or place of management in the territory of the Czech Republic are subject to tax liability, which is related to income resulting from both resources in the Czech Republic and resources abroad. Legal persons having neither registered office nor place of management in the Czech Republic are subject to tax liability relating only to income from resources in the territory of the Czech Republic.
Taxable period
The taxable period for corporate income tax is generally a calendar year or a business year, which shall start on the first day of a month other than January and run for twelve successive months.
Tax base
Taxable profit is based on accounting profit, which is calculated according to Czech accounting laws and practice. The accounting profit is then subject to adjustments under the Income Taxes Act. In the course of these adjustments the amount of e.g. tax depreciation, provisions and adjustments to receivables is taken into account.
Tax rate
The corporate income tax rate is gradually decreasing in time. The tax rate is 21 % in 2008, and this rate also applies to economic years that began in 2007 and finished in 2008. In 2009, the tax rate will amount to 20 %. The tax rate will then further decrease to 19 % in 2010.
Carrying forward of tax losses
Tax losses incurred in the taxable period prior to 2004 may be carried forward and offset against profits made in the following seven tax periods. For losses generated in 2004 and onwards, carry-forward is possible only in the subsequent five years under fulfilment of certain conditions (e.g. it may not be possible to deduct a non-applied tax loss from the tax base if the composition of persons directly participating in the capital or control of the company significantly changed).
Taxation of Foreign Corporations
Trading branches of foreign corporations are usually taxable on actual profits as is recorded in their bookkeeping, in the same manner as Czech companies. Non-trading branches of foreign companies may be liable to corporate income tax on anticipated profits. The basis on which anticipated profits are calculated must be negotiated in advance with the local Tax Authority.
Dividends, interest, royalties and rental payments paid by a Czech subsidiary to foreign parent companies are generally subject to withholding tax, except where these payments are exempt under the EU Directives regime or Double Tax Treaties.
Dividends are generally subject to 15% withholding tax. However, dividends from EU subsidiaries are exempt on condition of at least 10% share of capital for at least 12 months. On meeting certain conditions even the dividends from non-EU subsidiaries can be exempt.
Ditta Hlavackova
Tax Advisor and Partner
HLB PROXY
Audit & Tax Services
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