Czech tax legislation has been
amended with consequences for foreign businessmen. Act No.2/2009 Coll., mainly amending Act No. 586/1992 Coll.,
on Income Taxes, Act No. 593/1992 Coll., on Reserves for Ascertaining the
Income Tax Base and Act No. 589/1992 Coll. on Social Security and Employment
Policy Contributions, was published in the Collection of Laws of the Czech
Republic and took effect on 1 January 2009. Simultaneously, Act No.1/2000 Coll.,
which amends Act No. 33/1992 Coll., on Real Estate Tax, took effect.
The most important amendments to the Income Taxes Act and the Social
Security Act
Personal income tax changes
The unified personal income tax rate of 15 percent remains unchanged in
2009 (the Public
Finance Stabilisation Act stipulated a reduction to 12.5 percent). The maximum
assessment basis for social security and health insurance premiums for 2009 is
CZK 1,130,640. Consequently,
supergross wages will be calculated in 2009 only from wages up to this limit.
Simultaneously, as compensation for
the unchanged personal income tax rate, the rate for calculating social
security insurance was reduced from 7.9 percent to 6.5 percent from the assessment
base of employees. The rate applied to the calculation of pension insurance premiums
and the employment policy contribution of the self-employed dropped from 29.6
percent to 29.3 percent. Sickness
insurance, which is optional in this case, dropped from 2.4 percent to 1.4
percent from the assessment base.
Compared to 2008 the tax discount of
CZK 24,840 for a spouse without their own income remains unchanged in 2009. Now,
however, a spouse without their own income is a person whose own income in the
tax period does not exceed CZK 68,000.
The so-called “supergross” wages,
meaning gross wages increased by the theoretical social and health insurance
under Czech legislation, will now be calculated also for employees whose
employer is not obliged to pay the insurance premium, meaning persons who are
obligatorily subject to systems other than the Czech health and social security
system. The supergross wages will also be calculated for tax non-residents
whose employment tax is collected based on a special tax rate (sportsmen,
artists, members of statutory bodies).
Corporate income tax changes
Under the Public Finance
Stabilisation Act the trend to reduce
corporate income tax rates continues and in 2009 the rate drops to 20
percent.
The withholding income tax rate
applied to Czech tax non-residents remains the same as in 2008, meaning 15
percent (originally a reduction to 12.5 percent was approved).
However, the definition of the
income of tax non-residents which is considered income generated from a source
in the Czech Republic is extended to include penalties from obligation
relationships paid to these persons by tax residents or permanent establishments
of tax non-residents in the Czech Republic (unless the relevant double taxation
treaty stipulates otherwise). At the same time, from 1 January 2009 tax
non-residents’ income from the transfer of shares in trading companies or
cooperatives with a registered seat in the Czech Republic is subject to tax in
the Czech Republic irrespective of who pays it (unless the relevant double
taxation treaty stipulates otherwise).
The tax exemption now also applies
to dividends of a parent company paid by its subsidiary, income from the
transfer of a share to a subsidiary, and interest on credits and loans to
related persons, if this income arises to Norwegian and Icelandic tax residents
under the conditions already valid for EU tax residents.
The planned reduced exemption of
income from the sale of shares in real estate subsidiaries was ultimately not
approved. However, as the income of tax non-residents from the transfer of
shares in trading companies and cooperatives with a registered seat in the
Czech Republic is subject to tax in the Czech Republic from 1 January 2009, irrespective
of who pays it, the income is tax-exempt if it arises to a tax resident of another
EU member state. This exemption applies only if further conditions stipulated in
the past for these transactions implemented by parent companies are observed.
The rules of thin capitalisation were
liberalised with effect from 1 January 2009. The financial costs of credits and
loans granted to related persons are tax non-deductible if the total of the
credits and loans exceeds a multiple of two of the debtor’s equity (a multiple
of three, if the credit or loan is granted to a bank). Only financial costs
related to amounts not exceeding this limit are tax deductible. Loans and
credits to non-related persons were eliminated from the thin capitalisation
rules.
Financial costs are never tax
deductible if they arise from credits and loans when the related interest or
revenue and their payment depend entirely or partly on the debtor’s profit.
Financial costs related to credits and loans subordinated to other liabilities
are tax non-deductible.
Simultaneously, the limitation of
tax deductibility of 1 percent of a financial lease was repealed.
New provisions on determining the income tax base in the Act on Reserves
Under this legislation reserves for
repairs of tangible fixed assets created after 1 January 2009 represent a tax
deductible expense if by the deadline for filing the tax return, at the latest,
the tax payer transfers the funds corresponding to the entire reserve to a
separate bank account in a bank located in an EU member state and determined
only for reserves.
Amendment to the Real Estate Act
Under the amendment effective from 1
January 2009 the real estate tax exemption relating to new residential
buildings owned by natural entities, or flats belonging to natural persons in
new residential buildings used for their permanent residence is repealed. If
the entitlement to the exemption arose before the act took effect, the tax
exemption will be applied in 2009 for the last time.
The exemption is also repealed in
relation to structures whose heating has been transferred to environmental
fuels. If the entitlement to the
exemption arose before this act took effect, the tax exemption will be applied
in 2012 for the last time.
Amendment to the Value Added Tax
Under the harmonisation amendment
effected by Act No. 302/2008 Coll., the following essential changes to Act No. 235/2004 Coll., on Value Added Tax
(“VATA”) were introduced.
In respect of foreign entities, the
definition of “establishment” has changed. An establishment is a place with
permanent staff and material equipment through which the entity liable for tax
carries out its economic activities. If a foreign entity founds an
establishment in the Czech Republic under the VATA, the foreign entity becomes
the VAT payer on this day, irrespective of their turnover.
The provisions concerning the place
of supply of intellectual services under s10 of the VATA are amended and the
tax duty is transferred from the provider to the recipient of the service (the reverse
charge). If the recipient of the listed services (consulting, advisory, legal
and advertising services, transfer and assignment of copyright, providing a
labour force, and so on) is a foreign entity or an entity liable for tax whose
registered seat or place of business or establishment is outside the Czech
Republic, the place of supply is the place of residence, business or
establishment of the entity. If under this rule the place of supply is determined
in a third country but the service is rendered for an entity which
simultaneously is a taxpayer registered for VAT in the Czech Republic, the
place of supply is transferred back to the Czech Republic on condition that
this entity actually benefits from the service in the Czech Republic.
The date of taxable supply in
respect of a real estate transfer is now defined and corresponds to the day
when the real estate is transferred to the acquirer for their use, or the day
when a document stating the date of the legal effects of entry in the land
registry is delivered or the day when the change in the title is registered, at
the latest.
Additionally, the tax duties
relating to financial leases are changed on condition that the lease comprises
the lessee’s duty to acquire the goods or real estate. In such a case a
financial lease contract is, with respect to VAT, considered a sales contract
and the lessor pays the tax on the entire lease value at the date when the
right to used the leased object arises to the lessee.
The date of the taxable supply
relating to the acquisition of goods from other EU member states or services
rendered by an entity registered for tax in another EU member state or a
foreign entity has also changed. Under the amendment, the day when the tax
document is raised is the day when the payer completes the document issued by
the supplier of goods or provider of services with the data required under the
VATA. Only after these data are completed does the document issued by the
supplier of goods or provider of services become a tax document.
Furthermore, a special provision on
rebilling services was repealed and currently the general provisions of the
VATA are applied. The entitlement to the tax deduction is no longer conditioned
by accounting for the tax document.
This article is for
information purposes only and under no account can it be considered a legal
opinion. Should you need any further information on the issues addressed in
this article, please contact PETERKA & PARTNERS Law Offices.
Note: €1 = CZK 26.106
(average monthly exchange rate fixed by CNB, December 2008)
