Czech Income Tax Returns

Spring is coming and together with it, the deadline for filing your 2008 Czech personal income tax return is looming large for many individuals. Generally, this tax return must be filed by March 31, 2009. If it is prepared by a registered Czech tax adviser and a Power of Attorney in favour of this adviser is filed with the tax authority within the original deadline, the filing deadline can be extended to June30, 2009.

If you are not sure whether you should file your 2008 Czech income tax return; below are three reasons why it might be advisable to do so.

Generally, an individual whose taxable income in the Czech Republic exceeds the amount of CZK 15,000 during the calendar year is always liable to file his Czech personal income tax return. This duty is furthermore stipulated also for an individual who generated a lower amount of taxable income, but received a type of income against which relevant costs can be deductible (for example, self-employment income, rental income) and due to this fact he generated a loss for Czech tax purposes.

There is only one special exemption from the above rules designed for employees. Employees are, under certain conditions, permitted to not file their Czech personal income tax return and instead, their Czech taxes are reconciled by their employer. The conditions which must be met by an employee in order not to have a Czech tax filing obligation are as follows:

The employee who fulfils all these conditions may ask his employer for annual tax reconciliation in which he may apply certain tax reliefs; however, this could have been done for the 2008 calendar year only until February 15, 2009. If not, the employee is entitled to consider his tax liability to be fully covered by the tax advances withheld by the employer. Nevertheless, in such case, the tax payment is usually higher than when the reconciliation is made or tax return filed.

The income which is taxable in the Czech Republic is always income paid out by Czech entities to their employees for work performed in the Czech territory; income from self-employment activities performed in the Czech territory or income from the rent of immovable property located in the Czech Republic. However, employment income paid out by a foreign entity, or dividends and interest from foreign sources might under certain conditions become subject to Czech taxation as well, even if they are received by an expatriate working in the Czech Republic or by a foreign individual performing here his self-employment activities. The magic number of “183 days stay” widely spread among expatriates as the only rule decisive for their taxation is, based on our experience, often interpreted incorrectly. Various types of income which should be taxed in the Czech Republic are sometimes not declared and taxed at all, what might lead to inconveniences for the particular expatriate in the future.

If a tax return is not filed, the tax authority may assess a penalty in the amount of up to CZK 2,000,000. If it is filed after the legal deadline, a penalty of up to 10% of the tax liability may be assessed. Late payment of tax is also subject to heavy penalization.

Your spouse and kids do not only cost you money, you can save on taxes due to an application of tax credits. These tax credits are deducted from your final tax, i.e. they directly decrease your tax liability. The amounts are as follows:

So if you have a spouse at home with two kids, you may save CZK 46,200 on tax.

You are entitled to apply these tax credits if you are a Czech tax resident or a Czech tax non-resident, but with more than 90% of your total worldwide income taxable in the Czech Republic. In the latter case, the tax credits may be applied only via a tax return. In the former case, they could have been applied via annual reconciliation prepared by your employer; however, this should have been done before 15 February 2009.

Let´s assume that you are an employee not liable to file his 2008 Czech personal income tax return and you wanted to apply for the annual tax reconciliation with the payroll administrator of your employer. However, if you have not applied for this reconciliation before 15 February 2009 (or you did so, but you did not deliver all necessary documents before this date), your employer is not allowed to prepare this annual reconciliation for you.

Payroll administrators are strictly bound by legal regulations as to what documents and before what deadline you are liable to present in order to prove your entitlement for various tax deductions and reliefs. On the other hand, the tax administrator at the financial authority can accept proof of various facts later and also in a different form. Therefore, if you file a Czech personal income tax return, you can extend the deadline for obtaining the various documents and you can also agree with your tax administration that another way will be used to prove the relevant facts.

Among these tax reliefs, you can decrease your tax base e.g. by the contributions paid for certain types of life insurance or by mortgage interest paid during the relevant calendar year, if you or some of your family members live in the relevant house or flat.

If you are still not sure whether you are liable to file a 2008 Czech income tax return or you would like to know whether such tax return filing might be advantageous for you, you should contact a tax expert who will analyze your situation and advise you of the best approach.