As of 2021, the Czech employment tax base is changing and will now be based only on gross income.
The taxable income of employees includes all wages, salaries, bonuses paid, and any benefits in kind (subject to minor exceptions) received as a result of employment. Benefits in kind are valued in principle at open-market values, although a fixed rate of 12% per annum of the purchase price is applied to cars provided by the employer to the employees for both business and private use. The reimbursement of travel expenses in excess of fairly low statutory limits is also a taxable benefit for the employee. Certain non-monetary educational, sporting, and health benefits are non-taxable, provided that other conditions are met. Temporary accommodation provided by an employer as a non-monetary benefit is not taxable up to CZK 3,500 per month if arrangements are properly structured. A cash accommodation allowance is taxable. Since 2021, employers may provide tax exempt cash catering allowance up to a limit of CZK 75.60 per work shift. This benefit is being introduced in addition to already existing meal vouchers or company canteen as alternative forms of tax-advantaged catering support.
Non-resident directors’ fees and fees payable to non-resident members of other statutory bodies of Czech companies are subject to a withholding tax (WHT) of:
- 15% for residents of the European Union, European Economic Area (EEA), or a DTT country (or a country with which the Czech Republic has an agreement on exchange of tax information in place).
- 35% for the rest.
No further tax is payable on this income.
When paid to tax residents, directors’ fees and fees to members of other statutory bodies of Czech companies are taxed under the payroll administration rule. All resident and non-resident directors from EU member states and other countries from the European Economic Area may, however, file the tax return when they utilise their personal tax deduction(s).
There is no separate capital gains tax in the Czech Republic. Capital gains constitute part of the aggregate individual income tax base subject to progressive PIT rates depending on the overall level of gross income.
Gains on the sale of property are exempt if the individual has owned the property for longer than the specified time limit.
The main time limits are as follows:
- Three years for direct ownership in a joint stock company or a fund. *
- Five years for shares in other companies.
- Two years for one’s personal residence used for living immediately prior to the sale (five years for real estate in other cases - purchased until 2020).
- Ten years for real estate not stated above (this limit does not apply if one uses the funds to provide for one's own housing needs) - applicable for real estate purchased as of 2021.
- One year for cars, ships, and planes.
Note that the above applies to gains on property that do not form part of the individual's business property. Gains on business property are taxed based on principles similar to those that apply to companies.
* Gross proceeds from the sale of shares below the limit of CZK 100,000 per taxable period are exempt from taxation.
Dividend and interest income
Income from capital (i.e. dividends and other yields from securities, limited liability companies or limited partnerships, and interest and profit shares from silent partnerships) is taxable income and is generally treated as a part of the total annual tax base.
Dividends and other yields from securities or partnerships from limited liability companies or limited partnerships, profit shares from silent partnerships, and interest from deposit certificates and bonds paid by a Czech resident entity to a Czech tax resident are all subject to WHT of 15%. A WHT rate of 15% applies to income received by resident individuals from interest and other yields from savings on deposit accounts.
The rate of 15% also applies to income paid to Czech tax non-residents residing in EU/EEA states or in a state having concluded a DTT or an agreement on exchange of tax information with the Czech Republic. In other cases, the tax rate for this type of income is 35%.
WHT may be reduced under the applicable DTT. Several of these treaties further reduce the rate of WHT. Reduced WHT rates are only applicable if the individual remains tax resident in another jurisdiction (i.e. the other party to the DTT) and is not treated as a Czech tax resident as defined under the treaty.
Income from the lease of real estate or the lease/rental of movable property represents another subgroup of taxable income. Deductible expenditures can be determined either as actual expenses or as a lump-sum percentage of taxable income (30%). Annual lump-sum expenses are limited to CZK 600,000.