Taxation in the Czech Republic

Czech Republic’s current tax system was put into administration on 1 January 1993. Since then, an updated VAT act was introduced on 1 May 2004 when Czech Republic joined the EU and the act had to correspond to EU law. In 2008, the administration also introduced Energy Taxation. Changes to tax laws are quite frequent and common in the Czech Republic due to a dynamic economy. Highest levels of revenue are generated from income tax, social security contributions, value-added tax and the corporate tax. In 2015, total revenue stood at CZK 670.216 billion which was 36.3% of GDP. The tax quota of the Czech Republic is lower than the EU average.[1]

Tax Structure

Compared to the averages of the OECD countries, revenues generated from taxes on social security contributions, corporate income and gains and value added taxes account for higher proportions of total taxation revenue. Personal income tax lays on the other end of the spectrum where the revenue is proportionally much lower than the OECD average. Taxes on property also account for lower levels of revenue.[2]

Levels and Types of Taxation

Value Added Tax

The sale of goods, provision of services and imports is taxed using the VAT just like in all EU countries.[3] There are three VAT rates in Czech Republic with the standard rate at 21%. This rate is applied on most taxed goods and services. The First reduced rate is 15% and the second reduced rate is 10%. Both of the reduced rates are subject to specific and different taxable goods and services.[4]

Corporate Income Tax

Legal Entities residing in the Czech Republic need to pay corporate income tax on their worldwide income. Foreign companies are taxed on income that is sourced in Czech Republic only. The standard corporate tax rate is 19%. Investment funds have a special tax rate of 5% and for pension funds the rate is 0%. A 15% rate is levied on dividend income of Czech tax resident entities from non-resident entities.[5]

Personal Income Tax

Individuals that are considered as tax residents in the Czech Republic are levied a flat personal income tax rate of 15% and for individuals with incomes exceeding 48 times the average salary within the calendar year there is a solidary surcharge of 7%. Non-tax residents are levied only for income sourced in Czech Republic. Taxable income includes income from employment, entrepreneurial income, capital (interest, dividends, etc.), rent and other forms of income.[6]

Social Security Contributions

In Czech Republic, all workers are liable to Czech social and health insurance payments. State social security system covers health care provisions; pensions, employment insurance and sickness pay as well as child-related benefits and other social services. Both employers and employees contribute to the social security system.[7]

Social Security Contributions 2017[8]

Insurance Policy Employee Employer
Pension Insurance fund 6.5% 21.5%
Sickness Insurance fund 0.0% 2.3%
Employment Insurance 0.0% 1.2%
Health Insurance 4.5% 9.0%
Total in % 11.0% 34.0%

Real Estate Tax and Real Estate Acquisition Tax

Tax is levied on land as well as buildings and units. Real Estate Tax is paid annually, usually levied to the owner and in special instances to the lessee. The tax on buildings is based on the area of land occupied. The Building and unit tax ranges from CZK 2 to CZK 10 per square meter and in some cases can increase by 0.75 CZK per square meter with every floor exceeding 1/3 of the building built up area. The levy on agricultural land is 0.75% of its value. Other types of land are levied based on their area ranging from CZK 2 to CZK 5 per square metre for business activities and CZK 0.20 in other cases. There is also an acquisition tax that is levied to the buyer at a flat rate of 4% of the higher of the sale price and the reference value of the property.[9]

Excise Tax

Entities that produce or import certain goods such as hydrocarbon fuels and lubricants, alcohol and spirits, beer, wine and tobacco products need to pay an excise tax. The tax is levied on the importer as a fixed per unit amount.[10]

Energy Tax

Energy Tax is imposed on natural gas and other gases, electricity and solid fuels. The tax is levied to the sellers of energy or the operators of distribution or transmission systems.[11]

Tax Administration

There are several levels of administrative bodies within the financial administration in Czech Republic.

Tax Offices and Specialised Tax Offices

Tax Offices are placed on the first level of the financial organisational hierarchy. Their main role is based around performing the administration of particular taxpayers and taxes. They transfer collected tax incomes and have several other roles surrounding the control, monitoring and supervision of the tax system and specific regions within the economy to prevent issues. A specialized tax office administers taxes of the law-stipulated tax subjects. There are also Territorial Branches that are organisational units of Tax Offices and their role corresponds to the same activities of Tax Offices.[12]

Appellate Financial Directorate

This tax directory is responsible for performing the role of an administrative body and methodical management of the tax authorities. It follows up and makes decisions on the proceedings and appeals about administrative offences.[13]

Ministry of Finance of the Czech Republic

The Ministry lies on top of the administrative hierarchy and its main activities lie internally managing the lower level tax authorities. The ministry supervises the activities the scope of activities within the tax system.[14]

History

During the Austrian Empire in the 18th and 19th centuries, the Bohemian Kingdom (what is now the Czech Republic) carried a significant part of the tax burden, as one of the most industrialised parts of the empire, paying 32% of all taxes in the Austrian territories in 1750.[15]

Since the break with the Soviet Union, multiple reforms have been done to bring the economy from a government run economy to a free market economy. This also brought a long range of tax reforms, including the introduction of a flat tax, and shift from direct taxes over to indirect taxes and large amounts of tax simplifications. In 1990, the Czech Republic introduced a long range of environmental charges, including air emission charges, CFC product charges, water extraction and pollution charges, sewage charges, charges for waste disposal, land conversion charges, and an airport noise tax.[16]

References

  1. "The Annual Report of the Financial Administration of the Czech Republic in 2015" (PDF).
  2. "Revenue Statistics 2016 - the Czech Republic" (PDF). Retrieved 18 May 2017.
  3. "What is VAT?".
  4. "Czech Republic VAT compliance and rates".
  5. "International Tax Czech Republic Highlights 2017" (PDF). Retrieved 17 May 2017.
  6. "International Tax Czech Republic Highlights 2017" (PDF). Retrieved 17 May 2017.
  7. "Your social security rights" (PDF). Retrieved 17 May 2017.
  8. "Taxation" (PDF). CZECHINVEST. Retrieved 19 May 2017.
  9. "Taxation" (PDF). CZECHINVEST. Retrieved 19 May 2017.
  10. "Taxation" (PDF). CZECHINVEST. Retrieved 19 May 2017.
  11. "Taxation" (PDF). CZECHINVEST. Retrieved 19 May 2017.
  12. "Financial Administration Bodies". Retrieved 18 May 2017.
  13. "Financial Administration Bodies". Retrieved 18 May 2017.
  14. "Financial Administration Bodies". Retrieved 18 May 2017.
  15. The Rise of Fiscal States: A Global History, 1500-1914.
  16. "Economic Instruments: data about new charges". Retrieved 18 July 2014.
This article is issued from Wikipedia. The text is licensed under Creative Commons - Attribution - Sharealike. Additional terms may apply for the media files.