The country took a medium place of the tax rate level among the countries of the European Union. Its effective taxation system for entrepreneurs allows paying 10% per year. The Czech Republic is a perfect, friendly arena for medium and small businesses from the points of comfortable and cost-effective taxation system and reasonable accounting service.
VAT
The VAT rate is 21%, the discounted VAT is 15%, and the super-favorable one distributed on books, medicines and baby food is 10%.
The EU legislation, the Czech Republic is a part of, establishes the VAT for every country-member which cannot be less than 15% and for the certain type of services and merchandize not less than 5%. The law, however, provides the exceptions when the VAT can be annulled.
Some of the countries-members of the EU deliberately reduce the price of groups of merchandise or the whole business segments. For instance, Croatia and Romania set the VAT for beer in the amount of 10%, while Portugal and Austria reduce the VAT on wine the same way. Other countries, such as the Netherlands, France and Poland, on the contrary, exclude alcohol from the discounted VAT for restaurants. The Czech Republic also considered reducing price for alcohol, but the law was not accepted by the government.
If a person is a VAT payer, one should add the basic rate of the VAT to the taxable deals, no matter if he/she sells merchandise or provides services.
The 21% rate applies to the most merchandise or services in the Czech business.
The 15% rate applies to the services listed in the annex 3 of Law № 235/2004 Sb. When selling a foreign product, the rate specified by the law is applied to it if at least one product in the batch is included to this category.
Income tax for a physical person
Income tax for a physical person in the Czech Republic equals 15% of the income. It is charged from:
- wages;
- a profit of an entrepreneurial or other activity. The income from other businesses in accordance with special regulations includes an activity that requires taking the certain examination: for instance, a lawyer, a tax consultant, a broker or an auditor;
- an income from a capital – in a nutshell, this is the profit that comes from the fact that one keeps any financial assets: cash, shares, securities, receivables on loans and so on;
- an income from renting of immovable or moveable property;
- a profit from a gift/donation – a random income from a gifted immovable or movable property. Tax is not paid if one received a gift from a next of kin or from a person that one lived with at least for 1 year.
- other incomes; this group includes all the incomes that are outside the previously mentioned groups. Mostly, they are incomes from a temporary work, different money transfers, winnings from lotteries or bets, income from inherited intellectual property including the copyright.
The income tax regulation is also a subject for certain deductions, for instance, the mortgage or credits. Income tax is paid after a tax declaration of a physical person is submitted.
Income tax for a company
Legal persons have a certain accounting period: a calendar year, the year since the beginning of the business activity, a period since the date of splitting of a company or transferring the assets, and the accounting period if it was longer than 12 months in a row.
A legal person must register in the Financial Ministry located in accordance with the registered address during the first 15 days after such a legal person started an activity.
All the legal persons whose registered address is in the Czech Republic are subjects of this regulation. A tax resident is obliged to pay taxes on incomes gained both in the country and outside of it.
Income tax for a legal person is 19%. Interesting fact: after the Czech Republic became an independent state in 1993, this percent equaled 45!
Comparison with EU
With regard to taxation, the Czech Republic occupies a place exactly in the middle between the developed western countries and the eastern part of the EU. At the same time, the Czech Republic is one of the most developed new member states of the EU, and only Slovenia can compete with it on an annual growth rate.
| Taxes in EU | ||||
|---|---|---|---|---|
| in % | VAT | VAT (reduced) | Income Tax for individuals | Income tax for companies |
| Poland | 23 | 5-8 | 32 | 19 |
| Netherlands | 19 | 6 | 52 | 25,5 |
| Lithuania | 21 | 5-9 | 20 | 15 |
| Germany | 19 | 7 | 45 | 15 |
| Ireland | 21 | 16/45 | 41 | 12,5 |
| Britain | 20 | 5 | 40 | 28 |
| Hungary | 25 | 5.18 | 32 | 19 |
| Austria | 20 | 10 | 50 | 25 |
| Greece | 23 | 1/2 | 40 | 25 |
| Slovakia | 20 | 10 | 19 | 19 |
| Slovenia | 20 | 8,5 | 41 | 20 |
| Spain | 18 | 4.8 | 45 | 30 |
| Sweden | 25 | 6.12 | 25 | 26,3 |
| Malta | 18 | 5 | 35 | 35 |
| Estonia | 20 | 9 | 21 | 21 |
| Latvia | 22 | 12 | 26 | 15 |
| Luxembourg | 15 | 3,6 or 12 | 38 | 21 |
| Italy | 20 | 4-10 | 43 | 27,5 |
| France | 19,6 | 3-11 | 40 | 33,3 |
| Belgium | 21 | 6-12 | 50 | 33 |
| Bulgaria | 20 | 7 | 10 | 10 |
| Denmark | 25 | – | 51 | 25 |
| Cyprus | 15 | 5-8 | 30 | 10 |
| Romania | 24 | 5-9 | 16 | 16 |
| Portugal | 23 | 6-13 | 42 | 25 |
| Finland | 23 | 9-13 | 30 | 26 |
The first six countries listed in the table are popular for opening firms by foreign founders. As already mentioned above, Czech law exposes the activities of individuals to a tax of 15%, and legal – to 19%, which provides one of the most comfortable conditions for doing business in the EU, especially in comparison with countries that are of interest to foreign businessmen.
