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Legal entity income tax

 
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Basic information about who is and who is not obliged to pay legal entity income tax and information regarding the subject of such tax and the manner of submitting a tax return.

 
 

Taxpayers of legal entity income tax

The following are taxpayers of legal entity income tax :

  • Persons who are not individuals
  • The organizational components of the state according to special legal regulation

Taxpayerswho havetheir registered office or management place (defined as the address of the place from where the taxpayer is managed) in the Czech Republic shall have a tax duty that shall apply to both income following from sources in the territory of the Czech Republic and to income following from sources located abroad.
Taxpayerswho do not have theirregistered office in the territory of the Czech Republic shall have a tax duty that shall apply only to income from sources in the territory of the Czech Republic (according to the §17 of Income Tax Act No. 586/1992 Coll., as amended).

When foreign legal entities are taxed, international treaties preventing double taxation must be taken into consideration. According to §37 of the Income Tax Act, the provisions of this act shall only apply when an international agreement binding upon the Czech Republic does not stipulate.  

Note : The CzechRepublic has signed international bilateral agreements regarding the avoidance of double taxation with many countries such as Belarus, China, Estonia, Croatia, Kazakhstan, Latvia, Lithuania, Moldova, Mongolia, Russia, Ukraine, Vietnam and others.The overview of bilateral agreements regarding the avoidance of double taxation can be found on the Internet.  

Taxation period

The taxation period shall be defined as a calendar year or an economic year or a period from the decisive day of a merger or transfer of assets to an associate or division of a business company or a cooperative to the end of the calendar or economic year in that the merger or transfer of assets to an associate or division were registered with the Commercial Register or
an accounting period if this accounting period is longer than 12 consecutive calendar months (§17a, Income Tax Act). 

The subject of the tax

The subject oflegal entity income tax shall be defined as income (proceeds) from all activity and from dispositions of all property unless this act further provides otherwise.

The following kinds of income shall not be subject to the ta income gained by the acquisition of shares according to a special act (No. 92/1991 Coll.), by the inheritance or donation of real estate property or a movable thing or ownership rights except for income following therefore. Neither is such income subject to the tax that follows from the fair satisfaction or peaceful settlement of a matter awarded by the European Court of Human Rights or which, and in the amount, the Czech Republic is due to pay.  

In the case of taxpayers who have not been founded or established for the purpose of business (such as civic associations, foundations, endowment funds, public benefit associations, contributory organizations) the following is not subject to the ta

  • Income from activities following from their mission provided that costs (expenses) spent in connection with the execution of these activities are higher
  • Income from subsidies and other forms of state support (provided that they have been granted according toAct No. 218/2000 Coll. on Budget Rules)
  • Income from interest from deposits in current accounts

More information about what is and what is not the subject of legal entity income tax can be found in § 18 of the Income Tax Act.  

Income exempted from tax

According to §19 of the act, the following types of income are exempt from ta membership contributions according to statutes, status, establishment or foundation deeds received by the interest associations of legal entities, professional chambers with voluntary membership, civic associations including trade unions, and political parties, and income following from the rent of real estate that is part of foundation assets and is registered in the Foundation Register, income from the rent of own real estates, income received in connection with the performance of voluntary services, etc.The list of all types of income exempt from tax can be found in §19 of the Income Tax Act.  

Tax relief

According to §35 of the act, the tax income base may be reduced by the following sums (or their proportion):

  • the sum of CZK 18,000 for every disabled employee (with the exception of employees with a more severe handicap);
  • the sum of CZK 60,000 for each employee with a more severe handicap;
  • half of the tax in the case of legal entities who employ at least 20 employees if the proportion of disabled employees exceeds 50 % of the pro-rated annual average number of employees.

Exceptions to tax relief are stated in the Income Tax Act.

Tax rate

This tax rate applies to the tax base reduced by items deductable from the tax base and items reducing the tax base (according to §21, Par. 1 of the Income Tax Act).

Special tax rates

Special tax rates from income following from sources in the territory of the Czech Republic for taxpayers who do not have their seat of business in the Czech Republic (does not apply to those who have a permanent workplace in the Czech Republic) are stated in §36 of the Income Tax Act.

Advance tax payments

Advance tax payments are paid in the course of the advance period. The advance period is the period from the first day following the lapse of the last day of the period for submission of the tax return for the previous tax period to the last day of the period for submission of a tax return for the following tax period. The sum and frequency of advance payments shall be laid down according to the last known tax duty. Advance payments are not paid by taxpayers whose last known tax duty did not exceed CZK 30,000 and by municipalities and regions (according to §38a, Par. 1 and 2 of the Income Tax Act).

The legal entity income tax return

Such persons who are not natural persons have the obligation to submit a legal entity income tax return. Taxpayers have the obligation to submit a tax return after the end of the tax period or its part for which the tax is assessed and are obliged to do so even if the taxpayer reports a zero tax base or a tax loss.  

Such taxpayers do not have the obligation to submit the tax return who have not been established or founded for the purposes of business, who do not have income subject to the tax or who only have income exempted from tax (§19) and income from which the tax is collected by deduction according to the special tax rate (§36, Par. 2); general commercial partnerships (however, their obligation to submit a tax return if requested by the tax administrator is not affected) and winding-up commercial companies or cooperatives for the period from the decisive day of transition to the day of the entry of such a transition in the Commercial Register (according to §38m, Par. 8, of the Income Tax Act).

The legal entity income tax return must be submitted no later than three months from the end of the taxation period(by March 31 of the following year).

If the taxpayer is obliged on the basis of a special law to have their financial statement audited of if their tax return is submitted by the tax consultant, such a tax return must be submitted no later than six months after the end of the tax period (by June 30 of the following year). The condition for such an extension of the time limit is that the relevant proxy for representation is submitted to the tax administrator before expiration of the unextended time limit (i.e. by March 31 of the following year).

Tax return forms are available in hard copy at the filing rooms of tax authorities or on the website of the Ministry of Finance of the Czech Republic in electronic form.  

The tax return is submitted to the locally competent tax administrator (i.e. the tax authority) in whose district of competence the taxpayer’s seat of business is located either personally or via the Internet (the format of the tax return as published by the Ministry of Finance must remain unchanged, including attachments).

A legal entity has the obligation to pay the whole tax within three months after the end of the tax period (by March 31 of the following year). The tax is paid to the relevant tax administrator in Czech currency. Each payment must be defined as to which tax it is intended for.

The tax may be paid either by wire transfer from a bank account to the relevant tax administrator’s bank account or in cash via a bank or Czech Post to the relevant tax administrator’s bank account.

For easier and trouble-free tax payment, it is necessary to know the bank account number of the relevant tax authority (the account number is published on the websites of tax authorities).

Tax payment in cash:

The Czech Post uses postal orders (“payslips”) of type “A” for sending cash amounts to be credited to the recipient’s account.If the taxpayer (payer) collects a postal order (payslip) at their locally competent tax authority in order to pay tax, such a postal order has all relevant data pre-printed on it. If it is inconvenient for any reason for the taxpayer to collect the pre-printed postal order, they can use a type “A” postal order available at Czech Post. All boxes in the payslip must be filled out with correct and complete information (in this case, it is necessary that the numbers be easily identified - it is best to use black lettering).  

Tax payment by wire transfer:

The taxpayer can also send the payment via a bank payment order from their account with the bank.It is essential that the correct number is entered in the box for the recipient’s account number.  

The payment day for wire transfers from bank accounts is such a day when the taxpayer’s bank account was debited; for payments in cash it is such a day when a bank, post office or other authorised person accepted or received the cash.

 The time limit for tax payment may be extended by several ways :

  1. By putting off the time for submitting the tax return (it is necessary to submit by March 31 of the relevant year to the financial authority a proxy authorizing the tax counsellor to fill out the tax return)
  2. By submitting a written request to the relevant tax authority for the postponement of the tax (it must detail the reasons why the taxpayer is requesting such postponement – e.g. a case when the regular fulfilment of the tax duty would lead to a serious property loss – for example a forced sale of property)
  3. By submitting a written request to the relevant tax authority to divide the payment of the tax into instalments.

If the tax authority approves such tax postponements or instalments, the tax shall be subject to interest in the amount of 140% of the discount rate of the Czech National Bank (in such a case, this is not classified as a penalty).

If the tax authority does not approve such tax postponements or instalments, the taxpayer must pay the tax as quickly as possible to avoid the risk of penalization.  

Tax arrears and penalties

The taxpayer is in default when they fail to pay the due tax amount or advance tax by the due date at the latest. A penalty is calculated for each day in default commencing on the day following the due date up to and including the day of payment from the original due date.The tax debtor is obliged to pay a penalty in the amount of 0.1% from the tax arrear for each day in default.Such a penalty is applied for no longer than 500 days in default; for each subsequent day in default a penalty shall apply in the amount of 140% of the discount interest rate of the Czech National Bank as current on the first day of the calendar quarter (according to §57-§63, of Act No. 337/1992 Coll. on Tax and Charge Administration, as amended).

Legal regulations:

  • Act No. 586/1992 Coll. on Income Tax, as amended.
  • Act No. 337/1992 Coll. on Tax and Charge Administration, as amended.
  • Act No. 563/1991 Coll. on Accounting, as amended.


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Added: 18.01.2010
 
 
 

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