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TAXATION OF COMPANIES IN THE CZECH REPUBLIC

TAXATION OF COMPANIES IN THE CZECH REPUBLIC. Corporate taxpayers are subject to corporate income tax. Corporate income tax is governed by the Income Tax Code. There are rules applicable only to companies or only to individuals and there are also common rules applicable to both.

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TAXATION OF COMPANIES IN THE CZECH REPUBLIC

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  1. TAXATION OF COMPANIES IN THE CZECH REPUBLIC TAXATION

  2. Corporate taxpayers are subject to corporate income tax Corporate income tax is governed by the Income Tax Code. There are rules applicable only to companies or only to individuals and there are also common rules applicable to both. TAXATION

  3. Type of tax system In principle, corporate profits are taxed both at the company level and at the shareholder ‘s level.At the shareholder level, dividends are not subject to corporate or individual income tax but only a final withholding tax. An exemption from the withholding tax is available to corporate shareholders. TAXATION

  4. An exemption from withholding tax applies to certain qualifying redistribution, like resident companies. The shareholder must at least hold 10% of the shares. TAXATION

  5. Taxable subjects • Joint-stock companies: akciová spoločnost (a.s.) • Limited liability companies: společnost s ručením omezenỹm (s.r.o.) • Branches • Cooperative enterprises. TAXATION

  6. General and limited partnerships are also legal entities for corporate income tax purposes. However, general partnerships as such are taxed only on income that is subject to withholding tax (15% or 35%). All other income is taxed in the hands of the general partners. TAXATION

  7. In general, non-profit associations, foundations and other public organizations are subject to corporate income tax with respect to income derived from advertisements, membership fees and leasing. TAXATION

  8. Residence A company is treated as resident if it has its legal seat or place of management in the Czech Republic. Note: Cases Prevost/Indofood TAXATION

  9. Taxable income Resident companies are taxable on their worldwide income. Taxable income is the difference between income and expenses incurred in obtaining that income. The taxable income is computed on the basis of the accounting profits and is adjusted for several items as described in the tax law. TAXATION

  10. Taxable income of taxpayers using double-entry bookkeeping is assessed on an accrual basis, while that of taxpayers using single-entry bookkeeping is assessed on a cash basis. TAXATION

  11. Deductions Expenses incurred in generating and maintaining taxable income are deductible, unless they are listed as non-deductible income.Note: Corporate income tax paid abroad if the underlying income is included in the Czech taxable base or separate taxable base, provided that no tax treaty applies. TAXATION

  12. Losses a. Ordinary losses b. Capital losses. TAXATION

  13. Ordinary lossesLosses may be carried forward for5 years. In the case of a limited partnership, the partnership’s tax loss must be reduced by the amount due to its general partners. No carry-back of losses is allowed. TAXATION

  14. b. Capital lossesCapital losses are generally not deductible with the exception of:- Acquisition costs of options and securities. TAXATION

  15. Rates The general rate of corporate income tax is 19%. Profits of investment funds are subject to a special rate of 5%. As of 2015 0%. A final withholding tax of 15% is levied on dividend distributions TAXATION

  16. ANTI AVOIDANCE General The law on tax administration contains a general anti-avoidance clause. This substance-over-form provision entitles the tax authorities to look through any transaction and access tax according to the real substance of the transaction. TAXATION

  17. Transfer Pricing If the agreed price for a transaction between persons associated either economically or personally or otherwise is different from the fair market price, and this difference cannot be satisfactorily explained, the fair market price will be substituted for tax purposes. TAXATION

  18. Thin capitalization According to the thin capitalization provision of the Income Tax Code, interest paid on credits or loans provided by related parties in excess of the ratio 4:1 between the aggregate value of foreign debt and all equity of the company is not deductible for tax purposes. The ratio for banks and insurance companies is 6:1. TAXATION

  19. The debt/equity provisions do not apply in the year of a company’s foundation or in the subsequent 3 years. Loans for the acquisition of fixed assets and any interest-free loans are not treated as debt for thin capitalization purposes. TAXATION

  20. Controlled Foreign Company There is no CFC legislation. TAXATION

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