linhart - tax system
DESCRIPTION
TRANSCRIPT
Tax System
in the Czech Republic
Jan Linhart
27 May 2014
Agenda
Introduction
Corporate Income Tax
Transfer Pricing
Personal Income Tax
VAT
International Taxation / Holding Structures
Introduction
3© 2014 KPMG Česká republika, s.r.o., a Czech limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International“), a
Swiss entity. All rights reserved. Printed in the Czech Republic.
Taxes in the Czech Republic
Indirect taxes Direct taxesOther
taxes
Income taxes Taxes on property
■ Corporate income tax
■ Personal income tax
■ Real estate tax
■ Real estate transfer tax
■ Road tax
■ Value added tax
■ Excise duties
■ Energy taxes
■ Social security and
health insurance
■ Withholding tax
4© 2014 KPMG Česká republika, s.r.o., a Czech limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International“), a
Swiss entity. All rights reserved. Printed in the Czech Republic.
General comments
■ Basic principles are similar to other European countries
■ Tax system is based on Czech Law
■ In limited areas, possibility to obtain ruling exists (eg. transfer pricing,
utilization of losses carried forward), otherwise the tax authorities do not have
the power to evaluate tax treatment in advance
■ Court decisions are not binding, but over the past few years have significantly
influenced the decision making process of the tax authorities (mostly
improving position of taxpayers)
■ VAT and customs duties harmonized within EU
■ OECD Transfer pricing rules are followed
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Swiss entity. All rights reserved. Printed in the Czech Republic.
Tax rates
Tax type Tax rate
Corporate income tax 19%
Personal income tax 15% - 22%
Real estate transfer tax 4%
Social insurance
employee6.5%
(subject to maximum limit)
employer25%
(subject to maximum limit)
Health insuranceemployee 4.5%
employer 9%
Withholding tax15%
(standard rate, may be modified by Double Tax Treaties)
Value added tax 21% (standard), 15% (reduced)
Excise duties Different rates
Corporate Income Tax
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Swiss entity. All rights reserved. Printed in the Czech Republic.
Corporate Income Tax
■ Tax base is based on the accounting profit stated in the statutory financial
statements, subject to a number of adjustments (non-deductible expenses,
non-taxable income, tax deductions etc.).
■ Taxable period is the calendar year, though it can be changed into a fiscal
year (non-calendar year-end) if a request is filed in advance to the tax
authorities.
■ The deadline for submission of a tax return is 3 months from the end of the
taxable period. This deadline is extended by a further 3 months if:
– the taxpayer is subject to a statutory audit, or
– the taxpayer engages a registered tax advisor to submit the tax return on its
behalf.
8© 2014 KPMG Česká republika, s.r.o., a Czech limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International“), a
Swiss entity. All rights reserved. Printed in the Czech Republic.
Corporate Income Tax
Examples of tax
non-deductible costs
Examples of tax
deductible costs
Accounting depreciation of assets Tax depreciation of the assets
Most adjustments (provisions) and reserves Rental fees
Representation / entertainment costs Salary costs and most of employment benefits
Dividends Consumption of material
Inventory shortages
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Swiss entity. All rights reserved. Printed in the Czech Republic.
Tax Depreciation of Assets
■ For tax purposes, accounting depreciation is not relevant, but special
rules for tax depreciation should be applied.
■ In the case of tax depreciation of tangible assets, either straight-line
or accelerated (reducing balance) depreciation can be used.
■ Tangible fixed assets are divided into 6 categories (3-50 years), broadly
reflecting the expected useful life, though in reality tax depreciation is
usually faster than accounting depreciation.
■ Tax depreciation of intangible assets can be straight-line only.
10© 2014 KPMG Česká republika, s.r.o., a Czech limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International“), a
Swiss entity. All rights reserved. Printed in the Czech Republic.
Corporate Income Tax – Other Rules
■ Thin capitalization rules apply in case of intercompany financing
■ No corporate tax grouping (legal entity approach)
■ R&D deduction – possibility to claim R&D expenses of own R&D centre
twice for tax purposes
■ Mergers are generally tax neutral, but subject to fulfillment of certain
criteria
■ Tax losses can be carried forward for 5 years
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Swiss entity. All rights reserved. Printed in the Czech Republic.
Investment Incentives and Subsidies
Supported Activities
■ Manufacturing companies
■ Research and development centers
■ Shared service centers, software development centers
Forms of State Aid
■ Tax holiday (corporate tax relief over 10 years)
■ Cash grant for creation of new jobs and training of employees in selected regions
■ Cash grant of 5-7% for investment in large (strategic) manufacturing or R&D projects
■ Sale of land for a favorable price
Other Subsidies
■ Other cash grants or subsidies available for certain types of activities (eg. R&D,
innovations, trainings etc.).
Transfer Pricing
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Swiss entity. All rights reserved. Printed in the Czech Republic.
Transfer Pricing
■ Prices agreed between related parties should be in compliance with those
concluded between independent parties, i.e. using the arm‘s length
principle.
■ OECD Transfer Pricing Guidelines are generally accepted.
■ Recommended documentation scope is set in the “Instruction of the Czech
Ministry of Finance.”
■ Attention of the tax authorities to transfer pricing is gradually increasing
■ Possibility to apply for Advance Pricing Arrangements (APA).
Personal Income Tax
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Swiss entity. All rights reserved. Printed in the Czech Republic.
Personal Income Tax
Tax Rate
■ 15%
■ Employment and/or business income in excess of 48 times the average wage in
2013-2015 (annual income of CZK 1,245,216 in 2014) is subject to additional 7%
solidarity tax.
Employees
■ Tax on employment income is calculated on the “super-gross salary”, which is the
gross salary increased by social security and health insurance contributions
payable by the employer.
Self – Employed Persons
■ Income of self-employed persons may be reduced by actual expenses or by an
optional lump-sum deduction ranging from 30 to 80 percent of gross income.
■ Social security and health insurance contributions cannot be deducted from the
tax base.
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Swiss entity. All rights reserved. Printed in the Czech Republic.
Taxation of Individuals – Summary
2014
Tax rate15 % of super-gross salary
(approx. 20% effective tax rate)
Solidarity tax (2013-2015)7 % of income exceeding
CZK 103,768 monthly
Social insurance
- employee 6.5 %
- employer 25.0 %
- maximum base CZK 1,245,216
Health insurance
- employee 4.5 %
- employer 9.0 %
- maximum assessment base N/A
Value Added Tax
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Swiss entity. All rights reserved. Printed in the Czech Republic.
Value Added Tax
Basic Principles
■ VAT is mostly harmonized within the EU, only certain rules are specific for
member states.
■ VAT is paid by the supplier on each level of the supply chain.
■ VAT can be claimed back by the customer if the input supply is used for the
provision of taxable outputs.
■ As a result, VAT is cost neutral for most of businesses if done properly, but
represents a cash-flow burden.
■ Certain activities are VAT exempt (eg. healthcare, education, banking), but no
input VAT can be claimed for these activities.
■ A reverse-charge mechanism (self-assessment) is applied in case of supplies
of goods and services within EU – reduction of cash-flow burden.
■ VAT group taxation among the Czech payers can be established if certain
conditions are met.
19© 2014 KPMG Česká republika, s.r.o., a Czech limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International“), a
Swiss entity. All rights reserved. Printed in the Czech Republic.
Value Added Tax
Tax Rates
21% - Standard rate
15% - Reduced rate
– Food, books, certain services etc.
0% - Zero rate or exempt
– Export of goods and services, supplies within EU, international transport, financial services,
etc.
International Taxation
21© 2014 KPMG Česká republika, s.r.o., a Czech limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International“), a
Swiss entity. All rights reserved. Printed in the Czech Republic.
International Taxation
■ Withholding tax of 15% is applied on income of non-residents
– Dividends, royalties, interest, etc.
– Security tax needs to be applied in specific cases instead of withholding tax
■ The rate can be reduced in line with double taxation treaties.
– Wide network of Double Tax Treaties (approx. 80)
■ The withholding tax rate can be increased to 35% for certain transactions with
companies from non-treaty (DTT or exchange of information) countries
■ EU Interest-Royalty Directive
– Interest and royalties are not subject to withholding tax in the Czech
Republic provided that certain conditions are met (minimum shareholding,
holding period, residency, etc.)
22© 2014 KPMG Česká republika, s.r.o., a Czech limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International“), a
Swiss entity. All rights reserved. Printed in the Czech Republic.
International Taxation
■ EU Parent-Subsidiary Directive
– Dividend paid by a Czech subsidiary to a parent company may be exempt
from withholding tax under certain conditions (minimum shareholding,
holding period, residency, legal form, etc.)
■ Participation exemption
– Income from the transfer of shares in Czech companies or cooperatives
is tax exempt if:
■ 10% of the shares of a company have been held by a parent company for more than 12
months;
■ Parent company is an EU resident company or a resident of Norway, Switzerland, or Iceland.
■ Subsidiary is a tax resident of an EU Member State or a non-EU Member State with which the
Czech Republic has concluded a double taxation treaty (subject to certain conditions – e.g.
minimum corporate tax rate).
23© 2014 KPMG Česká republika, s.r.o., a Czech limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International“), a
Swiss entity. All rights reserved. Printed in the Czech Republic.
International Taxation
■ Taxation of dividends, interest, and royalties under Czech-US Double Tax
Treaty
* Shareholding of less than 10% of the voting shares of the company paying the dividends.
** No withholding tax should be applied on ‚cultural‘ copyrights
Type of income Rate
Dividends 5% / 15%*
Interest 0%
Royalty 0% / 10% **
24© 2014 KPMG Česká republika, s.r.o., a Czech limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International“), a
Swiss entity. All rights reserved. Printed in the Czech Republic.
Main advantages
■ Implementation of EU Directives in the
past
■ No taxation upon acquisition of a target
■ No stamp or transfer duties upon the
transfer of shares
■ No exit tax
■ Interest payments are tax exempt
■ Tax exemption applicable on dividends
(if specific conditions are met)
■ Wide network of double tax treaties
Holding Structures
NL
CZ
USA
LUX
CZ
USA
Typical holding structures
KPMG in the Czech Republic
26© 2014 KPMG Česká republika, s.r.o., a Czech limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International“), a
Swiss entity. All rights reserved. Printed in the Czech Republic.
Leading advisor in the area of investment
incentives
KPMG in the Czech Republic since 1990
Audit, Tax, Advisory, and Legal services
■ Biggest among Big 4 firms in the Czech Republic
■ Prague, Brno, České Budějovice and Ostrava
■ 760 people,
– 625 professionals
– 28 partners
– 28 certified auditors
– 106 certified accountants
– 67 registered tax advisors
– 22 qualified foreign practitioners
Thank you
Jan Linhart
Partner, KPMG Czech Republic
+420 222 123 617
© 2014 KPMG Česká republika, s.r.o., a Czech limited
liability company and a member firm of the KPMG
network of independent member firms affiliated with
KPMG International Cooperative (“KPMG
International“), a Swiss entity. All rights reserved.
Printed in the Czech Republic.
The KPMG name, logo and ‘cutting through
complexity’ are registered trademarks or trademarks
of KPMG International Cooperative (KPMG
International).