Taxation of International Assignees – Czech Republic
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www.pwc.cz Global Mobility Services: Taxation of International Assignees – Czech Republic People and Organisation Global Mobility Country Guide (Folio) Last Updated: January 2018 This document was not intended or written to be used, and it cannot be used, for the purpose of avoiding tax penalties that may be imposed on the taxpayer. 2 Country: Czech Republic Introduction 4 Step 1: Understanding basic principles 5 Step 2: Understanding the Czech tax system 8 Step 3: What to do before you arrive 13 in Czech Republic Step 4: What to do when you arrive 19 in Czech Republic Step 5: What to do at the end of the year 20 Step 6: What to do when you leave 22 Czech Republic Step 7: Other matters requiring consideration 23 Appendix A: Overview of personal tax deductions 24 and income tax rates Appendix B: Tax computation for 2018 25 Appendix C: Double-taxation agreements 26 Appendix D: Social security agreements 27 Additional Country Folios can be located at the following website: Global Mobility Country Guides 3 Introduction: International assignees working in the Czech Republic This booklet is designed to provide foreign nationals planning to work in the Czech Republic with a general background of Czech tax law and related issues. It reflects the tax law and practice as of January 2018. This booklet traces a Czech assignment through seven steps. These steps address the specifics of what to do before you arrive in the Czech Republic, what to do when you are in the Czech Republic and what to do before you depart from the Czech Republic. Familiarity with these issues will make your assignment easier and more enjoyable. This booklet is not intended to be a comprehensive or exhaustive study of Czech tax law. It should be used as a guide as you prepare for your assignment in the Czech Republic. We advise you against making any decisions without first seeking professional advice, as laws and interpretations in the Czech Republic are still subject to relatively frequent changes without much prior notice. This booklet will give you the preliminary information you can use to define the issues that are relevant to your situation. If we can be of assistance please contact us at: PricewaterhouseCoopers Česká republika, s.r.o. Prague Brno Hvězdova 2c, Náměstí Svobody 20, 140 00 Prague 4 602 00 Brno Czech Republic Czech Republic Tel.: +420 251 151 111 Tel.: +420 542 520 111 Fax: +420 251 156 111 Fax: +420 542 214 796 4 Step 1: Understanding basic principles The scope of taxation included in the tax base This includes the days of arrival in the Czech Republic of the previous year. and departure. If the individual A foreign national working is considered resident in more in the Czech Republic is likely to be Determination of tax residency than one country, his final tax subject to Czech taxation. Income An individual is considered residency is determined based tax is the main tax to which a resident for tax purposes on the applicable double-tax expatriates are subject, although in the Czech Republic if either treaty. Most double-tax social security, health insurance of the following conditions is met: treaties define an individual contributions, and other taxes may as a Czech tax resident if he/ also apply. she has a permanent home a) The individual is a permanent in the Czech Republic, The tax year resident in the Czech Republic, a strong personal and/or For individuals, the tax year i.e., possesses a permanent economic connection corresponds to the calendar year. home in the Czech Republic. to the Czech Republic, For income tax purposes, income is The possession of a long-term a habitual place of residence taxed in the year when payment is visa does not by itself make in the Czech Republic or Czech actually received or, in the case of an individual a tax resident citizenship. An individual not nonmonetary benefits, in the year in the Czech Republic. meeting the conditions when the benefit is received. of Czech tax residency is Employment income received in b) The individual is present considered Czech tax January relating to work performed in the Czech Republic for 183 non-resident. in the previous year must be or more days in a calendar year. 5 In the Czech Republic, as in tax legislation, a permanent contractual obligations regarding most countries, the “183-day establishment is understood the final result of the services rule” assumes that a Czech tax as a facility located in the Czech rendered. The foreign employer’s non-resident present in the Republic. A “deemed” permanent contractual obligation is limited country for less than 183 days establishment of a foreign entity to that of providing manpower in any consecutive 12-month is created in the Czech Republic to the Czech employer, where period is not subject to local if any commercial, managerial, the work is provided under income tax. However, additional advisory or other services are the supervision of the Czech aspects must be taken into provided by employees of the employer. account (work for a permanent foreign company in the Czech establishment or hiring out Republic for more than six The expatriate’s Czech tax of labour). months in any 12 successive liability is then incurred from calendar months. This time limit the first day of his physical Deemed permanent can be modified by the relevant presence in the Czech Republic. establishment double-tax treaty that the Czech For the determination Republic has concluded with the In such a situation, the Czech of the creation of a deemed country of residence of the company using international permanent establishment foreign entity (e.g., to nine hiring-out of labour is deemed of a foreign company, months in any 12 months in case the economic employer of the the six-month rule applies of the US entities). expatriate. Thus, the salary paid to any consecutive to the expatriate by the foreign 12-month period. The days International hiring entity would be subject to Czech of presence in the Czech of labour income tax as if it were paid via Republic of all expatriates Special rules may apply when a Czech payroll. Depending employed an employee of a foreign on the specific conditions the by the same foreign employer company is hired to perform foreign employer may need are taken into account. work for a Czech employer. a special “labour agency” license Consequently, an expatriate may The hiring-out of labour is issued by the Czech Ministry be subject to Czech income tax deemed to exist if the foreign of Labour and Social Affairs. even if present in the country for employer has no less than 183 days. Under Czech 6 Method of calculating losses arising from capital, Payment in foreign income tax entrepreneurial, rental or other currency Taxable income is calculated by sources against employment Individuals employed directly adding together all (taxable) income. Appropriate deductions by foreign entities can be paid sources of income. In order to are then made and the result is in a currency other than Czech calculate the annual tax rounded down to the nearest crowns; individuals employed base, annual income from CZK 100. by local companies or directly by employment plus the employer’s branches of foreign companies part of the health insurance and A flat tax rate of 15% is then can also be paid in a non-Czech social security contributions applied to arrive at the tax currency, if their employment (either Czech actual or fictive) liability. Employment income contract is governed by foreign are added to other income, e.g., and income from independent labour law. If governed by Czech profits from entrepreneurial services over certain limit are labour law, however, they are activities, capital income and subject to solidarity surcharge required to be paid in Czech rental income. The annual tax of 7%. In 2018 such solidarity crowns (although the amount base does not include Czech surcharge is computed from of salary payable can be pegged source income from which tax is annual employment income to a fixed amount in a foreign withheld at source, e.g., and/or entrepreneurial taxable currency). Czech dividends, interest and base exceeding CZK 1,438,992. share of profits. Losses arising from one source of income may, under certain conditions, be offset against income from other sources, with the exception of employment income. In other words, it is not possible to offset 7 Step 2: Understanding the Czech tax system Taxable income Residing entrepreneurs are taxed Taxable income under the Czech on their total self-employment income. Income Taxes Act includes the Broadly speaking, expenditures following: required to “attain, secure and maintain” the taxpayer’s income are • Income from dependent services deductible when calculating taxable (employment) income. Deductible expenditures • Income from independent services can be determined either as actual (entrepreneurial and other expenses or as a lump-sum percentage profitable activities) of taxable income (between 30% • Income from capital (interest, to 80% depending on the type of dividends, etc.) activity). However, annual lump-sum • Rental income expenses are limited to certain amount • Other income depending on the type of activities. Employment income Income from capital Income from dependent services Income from capital, i.e., dividends includes income and related and other yields from securities, remuneration from employment. limited liability companies or limited Taxable remuneration from partnerships, and interest and profit employment includes all remuneration, shares from silent partnerships, is both monetary and nonmonetary, and taxable income and is generally treated benefits in kind given to or provided as a part of the total annual tax base.