Taxation in the Czech Republic

The sale of goods, provision of services and imports is taxed using the VAT just like in all EU countries.[3] There are three VAT rates in Czech Republic with the standard rate at 21%. This rate is applied to all goods and services which are not listed on a special roster for reduced taxes. The First reduced rate is 15% and is applied on the things listed on Annex 3 to the Law No. 235/2004 Collection. Examples of goods taxed by 15% are grocery and non-alcoholic beverages, plants and animals, music notes, books and some drugs. The second reduced rate is 10%. Under this tax falls for example baby food and radiopharmaceuticals.[4][5] In the case of imported goods the standard rate is usually used, when at least one type of good fits into Harmonized description and number labeling system and when there is a uniform duty rate.[6] The exception is when the goods value is lower than 22 EUR, than it is exempted from tax - according to § 71, Law No. 235/2004 Coll.[7]

Objects of the excise tax in the Czech Republic are engine oils, alcoholic beverages as wine and beer and other distillates and tobacco products. The excise tax is usually a fixed amount per the label of good. The difference between excise tax and VAT is that VAT is imposed on every good while excise tax is imposed just on goods that are harmful for our health, morally hazardous or are harmful or costly for society. Another name for this tax is a "sin tax".[8] From excise tax are exempted tobacco products destined for test of quality and samples taken by customs office.

The excise tax is collected by selling stamps. These stamps are used for marking alcohol and cigarettes and it's forbidden to sell it without stamps.

Ecotaxes were accepted as a part of Czech law system on 1 January 2008 as a consequence of being a part of the EU.They are modified in the law no. 261/2007 Coll. (Slightly changed on 1 October 2013 by the law No. 169/2013 Coll.) Objects of the ecotax are natural gas, black and brown coal, coke and other hydrocarbons peat and electricity.

Energy Tax is one of the ecotaxes and it is imposed on natural gas and other gases, electricity and solid fuels. The tax is levied to the sellers of energy or the operators of distribution or transmission systems.[9]

Legal Entities residing in the Czech Republic need to pay corporate income tax on their worldwide income. Foreign companies are taxed on income that is sourced in Czech Republic only. The standard corporate tax rate is 19%. Investment funds have a special tax rate of 5% and for pension funds the rate is 0%. A 15% rate is levied on dividend income of Czech tax resident entities from non-resident entities.[10]

Individuals that are considered as tax residents in the Czech Republic are levied a flat personal income tax rate of 15% from super-gross income (super-gross income is calculated as gross income plus employer social security contributions (33.8%)) and for individuals with yearly incomes exceeding 48 times the average monthly salary within the calendar year there is a solidarity surcharge of 7%. Non-tax residents are levied only for income sourced in Czech Republic. Taxable income includes income from employment, entrepreneurial income, capital (interest, dividends, etc.), rent and other forms of income.[11]

In Czech Republic, all workers are liable to Czech social and health insurance payments. State social security system covers health care provisions; pensions, employment insurance and sickness pay as well as child-related benefits and other social services. Both employers and employees contribute to the social security system.[12]

Social Security Contributions 2019[13]

Tax is levied on land as well as buildings and units. Real Estate Tax is paid annually, usually levied to the owner and in special instances to the lessee. The tax on buildings is based on the area of land occupied. The Building and unit tax ranges from CZK 2 to CZK 10 per square meter and in some cases can increase by 0.75 CZK per square meter with every floor exceeding 1/3 of the building built up area. The levy on agricultural land is 0.75% of its value. Other types of land are levied based on their area ranging from CZK 2 to CZK 5 per square metre for business activities and CZK 0.20 in other cases. Perviously there was also an acquisition tax that was levied to the buyer at a flat rate of 4%. This was abolished as of 18 September 2020. Cms Law

Gift tax is transferred from free transfer of property (both movable and immovable). It is levied on a person who was given a property. The tax rates are based on the scheme where there are illustrated groups of kinship and on the size of property.[14]

The object of this tax is movable and immovable property inherited by law or by will. The taxpayer is the individual heir, who has acquired the inheritance thanks to the decision of the court. Heirs are divided into three groups depending on their relation with the deceased. First group is formed by the closest relatives—husband or wife, kids, grandchildren, parents and grandparents. Second group is formed by side-lined relatives (siblings, aunts and uncles, nieces and nephews and persons living together in household for more than one year. Third group is formed by persons without any kinship.[15]

Road Tax is a tax, that is supposed to be paid by everyone who uses his/her car or another vehicle, registered and operated at the territory of the Czech Republic, for a business purpose. It's one-off fee. The level of tax is determined by the engine capacity, maximum authorized weight weight per axle, the number of axles for lorries and so on. Exceptions are so-called ecological cars (electric, gas,...) and some are totally exempted from the fee.

Tax Offices are placed on the first level of the financial organisational hierarchy. Their main role is based around performing the administration of particular taxpayers and taxes. They transfer collected tax incomes and have several other roles surrounding the control, monitoring and supervision of the tax system and specific regions within the economy to prevent issues. A specialized tax office administers taxes of the law-stipulated tax subjects. There are also Territorial Branches that are organisational units of Tax Offices and their role corresponds to the same activities of Tax Offices.[16]

"Appellate Financial Directorate (AFD) was established by Act No. 456/2011 Coll., on the Financial Administration of the Czech Republic as of 1. 1. 2013. The Appellate Financial Directorate carries out its activity for the whole territory of the Czech Republic and the seat of the Appellate Financial Directorate is in Brno. The Director of the Appellate Financial Directorate is appointed and removed by the Director General of the General Financial Directorate."[17]

AFD is responsible for performing the role of an administrative body and methodical management of the tax authorities. It follows up and makes decisions on the proceedings and appeals about administrative offences.[16]

The main role of the Ministry of Finance in the tax system is to supervise other lower tax authorities, because it is on the top of the administrative hierarchy.[18] Otherwise the Ministry has more functions—not just supervising taxes. Its organisation chart is divided into eight sections. Each section takes care of one area e.g. there is a section specializing in Financial management and audit, Public Budgets, International Relations and Financial Markets etc. The Ministry is also responsible for the state budget, the state final account and foreign-exchange policy.

The Ministry was established according to the Act No. 2/1969 Coll.