Czech Republic Income Tax

Individuals are considered tax resident in the Czech Republic and are taxable on their worldwide income if they have a permanent home in the Czech Republic, or if they stay in the country for at least 183 days in a calendar year. Non-residents are taxed on their Czech source income only. Non-residents who are employed by a foreign company without a permanent establishment or a deemed place of business in the Czech Republic are exempt from Czech taxation. If the individual is assigned by a foreign employer to the Czech Republic and works for and under the instruction of a Czech resident company or individual, however, he is deemed to be employed by that company, and therefore Czech income tax has to be withheld from the employment income.

Employment income, including salaries, bonuses and other benefits, is taxable income. Contributions by the employer to a supplementary state pension fund which do not exceed 5% of the gross remuneration and premiums of up to CZK 24’000 paid by the employer for a private life insurance whose benefits will only be paid after 60 months and not before the individual is 60 years old are exempt from taxable income. The employee can make the following deductions from his taxable income: donations to approved charitable, educational and political organizations (the deduction has to be at least 2% of the income or CZK 1’000, but cannot be more than 10% of the income); mortgage interests for the main residence up to CZK 300’000 per year; premiums of up to CZK 12’000 paid by the employee to a private life insurance  whose benefits will only be paid after 60 months and not before the employee is 60 years old; and contributions by the employee to a supplementary state pension fund up to a maximum of CZK 12’000 if they exceed CZK 6’000. 

Resident and non-resident taxpayers, if at least 90% of their income is from Czech sources, may offset the following main tax credits against their tax liability: a basic personal tax credit of CZK 24’840 for 2008 (CZK 16’560 as of 2009); CZK 24’840 for 2008 (CZK 16’560 as of 2009) for a spouse living in the same household if her or his income does not exceed CZK 38’040 and CZK 10’680 for 2008 (CZK 10’200 as of 2009) per dependent child living in the same household.  If the tax credit exceeds the taxes due and the taxpayer’s income is derived only from employment, business, capital and rents and exceeds CZK 48’000 in 2008, the difference is refunded to the taxpayer up to a maximum of CZK 52’200.

The Czech Republic has introduced a flat tax rate of 15% for the year 2008. This will be reduced to 12.5% as of the year 2009. Tax returns have to be made by 31 March in the year following the tax year.