Generally, with the exception of employment income, necessary expenses incurred in earning income are deductible from income. Normally, deductions will be based on the actual expenditure incurred; however, for certain categories of income, a fixed percentage of gross income may be claimed as a deduction (e.g. lump-sum deductions of 80% for agricultural income or craft activities, 60% for a limited number of trading and entrepreneurial activities, 40% for activities pursuant to the special statutory provision, 30% for renting a property). However, the lump-sum expense deductions are applicable only up to the maximum amount of the respective percentage out of CZK 2 million (i.e. maximum CZK 1,600,000, CZK 1,200,000, CZK 800,000, or CZK 600,000, respectively).
Tax-deductible expenses are broadly defined in Czech tax law as expenses incurred to ‘attain, secure, and/or maintain’ taxable income, though specific restrictions are placed on certain costs.
No deductions are provided for expenditures incurred in connection with taxable income from employment. However, sums received by way of reimbursement for travel expenses are exempt from tax, provided they do not exceed statutory limits.
Personal tax base and tax deductions are generally available for Czech tax residents. Tax non-residents should have at least 90% of worldwide income from Czech sources to utilise them.
Donations provided to certain organisations or individuals for the purpose of financing science, education, culture, etc. are deductible for an individual up to a maximum of 15% of the tax base*, provided the total value of the donations exceeds 2% of the tax base or is at least CZK 1,000. Blood donation is also considered a form of charitable donation, which is valued at CZK 3,000 per one blood collection.
* For the years 2020 and 2021, the maximum limit was temporarily increased up to 30% of the tax base.
Mortgage interest deduction
For interest paid on a mortgage, a deduction is applicable under several strict conditions up to:
- CZK 150,000 per year for housing needs 'procured' after 1 January 2021.
- CZK 300,000 per year for housing needs 'procured' before 1 January 2021.
Life insurance premiums
For private contributions paid on private life insurance, a deduction is applicable at up to CZK 24,000 per year under certain conditions.
Private pension insurance
For private contributions paid to a private pension insurance fund, a deduction is applicable at up to CZK 24,000 per year under certain conditions.
Unlike other countries that permit personal exemptions and allowances in determining taxable income, the Czech Republic has adopted a system of tax credits (see the Other tax credits and incentives section for more information).
Deductible expenses for an entrepreneur are generally the same as those permitted under the corporate income tax system (see the Deductions section in the Corporate tax summary). For example, fixed assets can be depreciated in accordance with statutory rates.
Czech legislation also allows entrepreneurs to deduct travel expenses (within statutory limits), insurance costs, and research and development (R&D) expenditure.
Losses arising from a source of income are offset against other sources of income in the year in which such income arises, with the exception of employment income. If an overall loss is realised, it can be carried forward and offset against taxable income (other than employment income) arising in the following five years. From 2020, tax losses may be carried back for two years.