Outline of the Czech Tax System

Type of Tax	Tax Rates

Corporate Tax	26% in 2005 (to reduce to 24% in 2006)

Personal Income Tax	Progressive tax rates starting at 15% rising to 32% for taxable income exceeding CZK 331,200

Value Added Tax (VAT)	Standard Rate of 19% for most goods and services Reduced Rate of 5% for certain specified supplies

Withholding Tax on dividends Withholding Tax on interest Withholding tax on royalties	0% to 15% (subject to terms of double tax treaty) 15% (subject to terms of double tax treaty) 25% (subject to terms of double tax treaty) Companies tax resident in the Czech Republic and EU may be exempt (subject to certain conditions)

Social & Health Insurance Contributions	Employer´s contributions: 35% of gross salary Employee´s contributions: 12.5%

Road Tax	CZK 1,200 – CZK 4,200 for passenger cars CZK 1,800 – CZK 50,400 for lorries

Real Estate Transfer Tax	3% of the higher of actual sales price or independent valuation

Real Estate Tax	Depending on the location, basic tax rates : – tax on land (CZK 0.10 – 5 per m2) – buildings tax (CZK 1-50 per m2 and higher)

· In order for expenses to be tax deductible, they must be incurred to generate, maintain and assure the taxable income of the company. Types of allowable expenses include, for instance, depreciation, lease payments (except for finance leases where the assets are subsequently acquired), expenses for business trips and reimbursement of travel expenses (up to certain statutory limits). Certain types of expenses are disallowed, for instance, interest payments on loans between related parties are tax allowable up to the limit set by thin capitalisation rules (for tax purposes the debt:equity ratio is normally 4:1) plus the interest rate must be at arm’s length. In the case of loan interest payable by an individual (not using double-entry book-keeping), it is only tax deductible in the period it is paid.

· Everybody working in the Czech Republic is liable to Czech social and health insurance payments. It is only in the case of short-term secondments that non-Czech nationals may be exempt from contributions to the Czech system. The employer is obliged to deduct tax advances under a payroll deduction scheme and at the end of the fiscal year, any differences between the amount due and amount advanced would be settled the following tax year. It is possible following the end of the tax year to claim tax relief for certain payments such as mortgage interest and life insurance (if the individual´s Czech income exceeds 90% of his/her world-wide income). If the employee received any additional income exceeding CZK 6,000 (except exempt income or, for example, dividends), then he would be obliged to file an income tax return.

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ETHER Consulting s.r.o. is an
independent company that was established with the sole objective of providing a
one-stop service aimed at small and medium sized companies as well as
individuals interested in either establishing a business presence or acquiring
real estate in the Czech Republic. We can also assist foreign
direct investment clients in the search for local business partners as well
as provide other services relevant in any acquisition or joint-venture deal
depending on your financing requirements.