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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. for an employee or family member, including director’s fees, except where Dividends and other yields from noted below. The location of the securities or partnerships from payment of salaries, bonuses, etc. does limited liability companies or limited not affect the tax treatment. partnerships, profit shares from silent partnerships and interest from The employer’s mandatory health deposit certificates and bonds paid insurance and social security by a Czech resident entity to a Czech contributions calculated according to tax resident are all subject to the Czech health insurance and social withholding tax of 15%. A withholding security legislation (actual or fictive) tax rate of 15% applies to income are also regarded as employment received by resident individuals from income subject to tax. interest and other yields from savings on deposit accounts. Income from entrepreneurial and other profitable activities The rate of 15% applies also to income Entrepreneurs, independent mentioned above paid to Czech tax consultants and other self-employed non-residents residing in EU/EEA states individuals who are not Czech tax or in a state having concluded a double residents will nevertheless be taxed in tax treaty or an agreement on exchange the Czech Republic on their activities of tax information with the Czech to the extent the income is derived Republic. In other cases the tax rate from a Czech permanent for this type of income is 35%. establishment or for services provided in the Czech Republic.

8 Withholding tax may be reduced another subgroup of taxable are in or are issued by a Czech under the applicable double tax income. Deductible expenditures legal entity and if such shares, treaty. Reduced withholding tax can be determined either participations or securities are rates are only applicable if the as actual expenses or as a lump-sum sold to an entity with its seat in the individual remains tax resident in percentage of taxable income Czech Republic. Income from the another jurisdiction (i.e., the other (30%). Annual lump-sum expenses lease of real estate or moveable party to the double-tax treaty) are limited to CZK 300,000. assets is taxable if the subject of and is not treated as a Czech tax the lease is located in the Czech resident as defined under the treaty. Other income Republic. “Other income” includes income Dividends and interest received from the sale of the individual’s own Taxation of employment from foreign sources form part real estate, moveable property, income of an individual’s taxable income shares, participation, securities, Under Czech legislation, a tax only if the individual is considered occasional income, prizes resident is subject to tax on his Czech tax resident. Individuals can in sporting or advertising or her worldwide income. This credit foreign tax paid on dividends competitions, and prizes from treatment applies in principle to any received from abroad against lotteries. Exemptions are available individual (national or expatriate) their Czech tax liability based for gains that arise from the disposal who has a permanent home in the on the relevant double-tax treaty. of assets that have not been used for Czech Republic or who is present Credit relief is not given for the commercial purposes and have been in the country for 183 or more days “underlying” tax, i.e., tax imposed held for a certain minimum period. in the calendar year. However, if an on the profits of the company from expatriate is present in the Czech which a dividend is paid. A special withholding tax of 15% Republic for 183 or more days but applies to income of up to CZK is a tax resident of a country with In respect of interest income 10,000 monthly for work performed which the Czech Republic has paid within the EU, the rules for Czech newspapers, magazines, concluded a double-tax treaty, of the savings directive have to be television or radio. the determination of tax residency followed. under the treaty applies (subject Individuals who are not Czech tax to Czech interpretation of the Rental income residents are nevertheless liable treaty), and he/she may effectively Income from the lease of real estate to Czech income tax on gains not be taxed only on Czech-source or the lease/rental of moveable exempted as outlined above if the income. property represents shares, participation or securities

9 A non-resident individual present a double-tax treaty, the treaty The maximum daily allowable in the Czech Republic for less rules apply to the calculation limits change regularly. The daily than 183 days in a calendar year of the time period (i.e., generally meal allowances for business may be subject to Czech taxation only days of physical presence trips outside the Czech Republic on Czech-source income only. in the Czech Republic). vary according to the country visited and are updated In principle, no tax is payable by on a regular basis by the decree the non-resident individual if he Artists, sportsmen, of the Ministry of Finance. or she remains on the payroll of performers a foreign company (and is not The above tax exemption does Reimbursed expenses above deemed to be on a local payroll; not apply to income from activity these limits are regarded as part and the employer does not performed personally of the employee’s salary and are have a taxable presence in the and in public by artists, subject to personal income tax Czech Republic via a permanent sportsmen, entertainers and their and health insurance and social establishment). co-performers, or to income from security contributions activities carried out (if applicable). If there is no Czech double in a permanent establishment. tax treaty with the country Tax deductions of residence of the foreign Income of non-resident artists, The following deductions from individual, this exemption sportsmen, entertainers and taxable income may apply: applies to income earned from their co- performers for the • For interest paid dependent activity performed activities performed in the Czech on a mortgage under several by such foreign residents in the Republic is subject to 15% or 35% strict conditions, up to CZK Czech Republic if the time period withholding tax in the Czech 300,000 per year related to the performance of Republic. The rate of 15% applies • For private contributions paid activity does not exceed 183 days to Czech tax non-residents to a state-subsidized in any consecutive 12-month residing in EU/EEA states or supplement pension scheme period. In cases where the Czech in a state having concluded or to a pension insurance Republic has concluded a double tax treaty or an institution within EU/ EEA a double-tax treaty, the treaty agreement on exchange of tax under certain conditions, up rules indicate the conditions for information with the Czech to CZK 24,000 per year a full exemption of income from Republic. In other cases the tax • For private contributions paid Czech income tax. rate for this type of income is on private life insurance 35%. to a life insurance institution Calculation of time period within EU/EEA under certain for taxation of employment Special tax regime conditions, up to CZK 24,000 income No beneficial tax regime for per year When applying the above time foreign individuals exists. • For gifts to persons residing test to determine whether Relevant relief from double in the EU/EEA, whose employment income of a Czech taxation may be applicable recipient and purpose comply tax non-resident is taxable if the foreign individual is a tax with the conditions in the Czech Republic, all days resident in a foreign country. determined by the Czech tax of physical presence in the law. Czech Republic (including days Benefits in kind of arrival and departure) are Taxable income includes The following deductions from included, plus any days the employment income and benefits tax liability may be available non-resident spends outside in kind. For certain benefits to taxpayers for 2018: the Czech Republic during the in kind, a special formula is applied to calculate the taxable Czech assignment. This includes • A general deduction of CZK value (e.g., a company car used Saturdays, Sundays, public 24,840 from the taxpayer’s for business and private holidays, private holidays, final tax liability purposes). and business trips directly related • A spouse deduction of CZK to employment in the Czech 24,840 if the spouse lives Republic. This approach must Reimbursement of expenses with the taxpayer and does always be applied to individuals Special regulations apply not have income in excess from a country with which to certain items of monetary of CZK 68,000 the Czech Republic has not income. For example, the concluded a double tax treaty. reimbursement of travel expenses In cases where the Czech and meals on business trips can be Republic has concluded tax-free only up to certain limits.

10 • For taxpayers in receipt The above deductions are Petrol consumed on private trips of a disability pension, CZK generally available for Czech tax is considered a benefit in kind if 2,520, CZK 5,040 or CZK residents. Tax non-resident paid by the employer and is 16,140 (depending on the taxpayers may utilise the taxable for the individual. severity of disability) deductions only if they reside in • For students, CZK 4,020. an EU/EEA member state, and Housing benefit their Czech taxable income is at Temporary housing provided as A taxpayer may (under some least 90% of their world-wide a nonmonetary benefit is conditions) reduce his/her income. not taxable to the employee up tax liability by dependent to CZK 3,500 per month. The child deduction. The annual Company cars housing provided must be at or deductions is CZK 15,204 If an individual is provided with near the place of work and must for the first child, CZK 19,404 a company car that is available be different from the individual’s for the second child and CZK for both business and private permanent residence. Temporary 24,204 per each further child. use, the taxable benefit to the housing provided over this limit If the total tax is lower than individual is calculated as 1% of is always included in the the respective child allowance, the car’s purchase price for each employee’s taxable income. the taxpayer will receive month the car is available for If, however, the individual is a special tax bonus equal to the private use. The minimum provided with an allowance for difference between the child monthly taxable benefit must be housing or a reimbursement allowances and his/her tax at least CZK 1,000. of his/her housing costs, the liability. However, the maximum The 1% increase of taxable amount of the allowance or the amount of tax bonus is CZK income applies even if the amount reimbursed is included 60,300. company car is used for no in his/her taxable income. private kilometers in a month Documented fees for but the taxpayer had the car School fees kindergarten may be deducted available for private journeys. School fees paid as a non- from tax up to the amount of the monetary benefit directly to the statutory minimum monthly educational institution by the wage per dependent pre-school child.

11 employer are not considered • All individuals hired by This reconciliation, in effect, a taxable benefit to the a Czech company as part replaces the tax return employee as long as certain of international hiring-out of the employee. conditions are fulfilled. of labour. The income If payroll withholding is not of the employee must required, e.g., if the expatriate Payroll withholding tax represent at least 60% works at a deemed permanent The employer must withhold of the amount charged by establishment, the employee is income tax on employment the foreign employer if, personally responsible for Czech income on a monthly basis for in addition to salary costs, tax registration, for reporting the following individuals: a mark-up is charged by employment income subject the foreign entity as well. to Czech tax and for paying • All employees of a Czech the amount of tax due. company Tax is withheld at source • All employees of a Czech by the employer from the salary branch of a foreign of the employee and should be company registered paid to the appropriate tax inthe Commercial Register, authorities. The employer is including expatriates obliged to operate a payroll assigned to work and is responsible for tax at the branch registration and for correct • All individuals employed payment of tax. Furthermore, in the Czech Republic for if the employee is not obliged longer than 183 days, with to file annual tax return the exception of persons the employer must, if requested providing services through by the employee, also produce a Czech deemed permanent a year-end tax reconciliation establishment on behalf of the employee.

12 Step 3: What to do before you arrive in the Czech Republic

Entry formalities EU citizen within 30 days Czech Republic, as a Member state if their EU citizen within 30 days if of the European Union their stay would be longer than 30 (EU)/Schengen, is bound by days in a row). The Expatriate common regulations. EU citizens must provide following details can freely enter the Czech for purpose of registration: date Republic holding passport of arrival, expected length of stay or a national identity card; non-EU and address in the Czech Republic. citizens, unless they come from Besides the passport, visa-waived country, need to the Expatriate will need to provide obtain a visa from a Czech the Foreigner’s Police Office with embassy abroad, in order to enter a valid travel insurance with the Czech Republic/ Schengen a minimum coverage of EUR Area, unless they hold a valid visa 30,000 (for short-stay) or EUR or a residence permit issued 60,000 (for long-stay) covering by of one of the Schengen states. whole stay in the Czech Republic. If staying in a hotel, Citizens of certain visa-waived the registration is done on behalf countries such as US, Japan, of the foreign guest by a hotel Canada, Australia, Ukraine, management. countries of former Yugoslavia and most of South American Please note that the Czech countries, do not need to hold Republic’s accession a visa to enter the Czech Republic/ to the Schengen area has resulted Schengen area for a short-term in a stricter regime for visa-free period (i.e., three months in any foreigners, who are allowed to stay 180 days period). Visa waiver in the Czech Republic for regime is primarily meant for a maximum of 90 days within any purpose of tourism or business. 180 days. Nevertheless for purpose of work, irrespective of length Immigration requirements of stay or nationality, there is for EU citizens and their always need of work visa. We family members highly recommend you to contact EU citizens coming to work the Czech embassy/Consulate in the Czech Republic have in your home country prior to your the same rights and same free departure to avoid any kind access to job market as the Czech of misunderstandings and to make citizens. Therefore, they do not sure that you will fulfil need to apply for work permit and Czech/Schengen immigration work visa in order to commence requirements. work, as the non-EU citizens do. However, the Czech employer must There is general obligation for all register the EU national with expatriates (incl. EU citizens) the local Labour Office by the first to register in person their place working day of the EU national of stay after their arrival in the at the latest. Czech Republic with the local Foreigner’s Police Office (non-EU citizen within 3 working days,

13 EU nationals planning to stay visa/residence permit in order Such labour market test is not in the Czech Republic for more to be able to work and stay necessary in case the Expatriate than 30 days are obliged legally in the Czech Republic. is seconded to work in the Czech to register their place of stay Republic, i.e., s/he has no local with the local Foreigners’ Police Work and immigration work contract with the Czech Office. If an EU national intends requirements for non-EU company. to stay in the Czech Republic citizens for more than 90 days, s/he may Work stay shorter than 90 days Exemptions from the apply for a Confirmation Generally, all foreign nationals requirement of a work permit of Temporary Residence who intend to work in the Czech There are, however, several at the Ministry of Interior. Republic for a Czech employer, situations when non-EU There are two possible regimes must possess a work permit nationals is exempt from the of long-term stay in the Czech and a visa/residence permit work permit obligation. In such Republic – temporary stay (the latter applies also cases only the registration and permanent residency on visa-free Expatriates), prior to at the Labour Office by the Czech (generally granted after five start of their working activities in employer is requested for years of temporary stay the Czech Republic. Work can be performing working activities. in the Czech Republic). based on direct employment For example, the following contract or on the categories of foreigners, do not Family members of the EU secondment. The foreign need a work permit:holders citizens (including unmarried national is applying for the of Czech permanent residence couples living in a common Schengen visa (also known as permits and their family household) who are not EU a short-stay visa or C-type visa) members, family members of EU citizens themselves and who for the purpose of work. The nationals holding Czech accompany the EU citizen, are general time-limit for processing temporary residence permits; treated preferentially. Up to of the application for a Schengen students and graduates three months after arrival visa is 15 days from submission of a accredited Czech secondary to the Czech Republic (with or date, but the period is often school or university; non-EU without short-term visa shorter. Essential document for nationals who are seconded depending on their visa the application is a work permit. to provide services from obligation), they must apply a company seated in another EU for a Temporary Residence The visa is applied at one member state when holding Permit at the Ministry of the Czech embassies/ work permit from such country; of Interior. The applications Consulates abroad. non-EU nationals with so-called for residence permits to the EU A Schengen visa usually allows “long-term residence status” citizen´s family members are for multiple entries and is valid in another EU Member State. examined thoroughly. Granted for 90 days. It is impossible Such foreigners are still required Temporary Residence Permit is to prolong its validity, a new visa to hold a visa/ residence permit. generally valid for five years has to be applied for. and can be extended repeatedly If the foreign national is at the territory of the Czech The Czech work permit is usually appointed to the Czech Republic Republic. Such family member issued in 30 days, nevertheless as a statutory representative of the EU citizen does not need delays up to 90 days may occur of an entity registered in the the work permit in order to work on the side of the Labour Offices Czech Republic, or as a managing in the Czech Republic. in bigger cities. To obtain a work director (“jednatel”) of a Czech permit for a non EU-national, limited liability company, If the family member of the EU the employer must announce or as a member of the board citizen is not followed by the EU a vacant job position first. of directors of a joint-stock national to the Czech Republic If the position is not engaged by company or as a branch then the family member cannot a Czech or EU national within manager, generally no work enjoy this beneficial residence one month of testing the local permit is needed residence regime. In other labour market, the foreigner is and entrepreneur’s visa is issued. words, such person falls under entitled to apply for the work standard regime for foreigners permit related to the offered from outside EU, which means s/ position. he has to have a valid work permit and relevant

14 However, if such individual also A foreign employee hired locally performs day-to-day tasks (under the Czech employment of the company, then he/she is contract) required to hold a work permit. An application for Employee Card is subject to the initial 30-day labour Work stay longer than 90 days market test and the application must Employee Card fulfil certain criteria as, e.g., An Employee Card is most common the employment contract must type of a residence permit for guarantee minimum salary purpose of work in the Czech and working hours entitlement. Republic for a period longer than The application for the Employee 90 days. For locally hired foreign Card is submitted at the Czech employees it has a dual nature, i.e., Embassy/ Consulate abroad. it combines the residence and work The Ministry of Interior has 60–90 permit in one. Seconded non-EU days to decide about the application. nationals receive non-dual Employee After the positive decision Card, therefore they still apply on granting the Employee Card is for a work permit first and then reached, the process of its issuance is for the Employee Card. For both finalised at the territory of the Czech categories, see the following Republic. For purpose of arrival paragraphs. to the Czech Republic and provision of biometric data for the Employee Card, special entry visa is issued. Upon provision of biometric data at the Ministry of Interior´s Office, the foreigner obtains the Employee Card in the form of plastic biometric residence permit in the size of a credit card.

15 A foreign employee seconded the Employee Card in the form sufficient funds of the breadwinner to work in the Czech Republic of plastic biometric residence to cover their living expenses and (assigned by the foreign permit in the size of a credit family ties. Marriage and birth employer) card. certificates must be properly verified and officially translated The Czech entity in which The Employee Card is valid into Czech. a foreign employee intends according to the validity of the to perform working activities work contract/ assignment The first long-term visa for family together with the foreign letter of the working individual members is issued for maximum employee must apply or for maximum of 2 years. of 1 year. Afterwards these are for the work permit first. Once It can be repeatedly extended extended in the Czech Republic the work permit is issued or, as for up to 2 years at the territory at the Ministry of Interior. soon as the registration number of the Czech Republic. The long-term visa extended of the work permit application is on the grounds of the Czech generated, the application for Generally, the process of Republic is called residence permit the Employee Card could be obtaining the work permit and the family members are submitted at the Czech and relevant visa/residence granted plastic biometrical Embassy/Consulate abroad. The permit is administratively residence permit Ministry of Interior has 60–90 and time consuming. Therefore in the size of credit card. days to decide about the if you plan to be employed The validity of such permit follows application. in the Czech Republic, please the validity of the Employee Card bear in mind, that all permits of the breadwinner. After the positive decision should be secured beforehand on granting the Employee Card is in timely manner. Blue Card reached, the process is then Blue Card is a work and residence finalised at the territory Dependent spouses permit in one for highly qualified of the Czech Republic. or children non-EU citizens who tend to work For purpose of arrival Dependent spouses or children in the Czech Republic and enjoy to the Czech Republic do not apply for the Employee easier working mobility within the and provision of biometric data Cards instead of it they need EU. A Blue Card is commonly for the Employee Card, special to obtain long-term visas for applied at the Czech entry visa is issued. purpose of family reunion Embassy/Consulate abroad, unless at a Czech embassy. the foreigner already resides in the Upon provision of biometric data It is necessary to submit Czech Republic, then s/he can at the Ministry of Interior´s documentation proving apply in the territory. Office, the foreigner obtains

16 Firstly, the Employer must The home employer outside Residence permit for purpose announce a vacant position of the EU member state and host of an investment at the relevant Labour Office. employer in the EU member state If such position is not engaged by have to be capitally connected. The residence permit issued a Czech or EU candidate within The ICT Card application is to be to a foreigner who intends 30 days, it may be offered decided within 90 days of its to carry out a significant to a foreigner from outside submission at one of the Czech investment; either by investment of the EU. Differently to other embassies/Consulates abroad. of the financial means (minimum visa/residence permit Maximum period of stay of 75 mil. CZK) or creating applications; the applicant in the territory based on IT Card certain amount of job positions for Blue Card must submit is three years for managers (min. 20) in the Czech Republic. the valid work contract and specialist. Trainees can When applying for the guaranteeing her/him 1.5 remain just 1 year. Similarly investment residence permit average monthly salary as a Blue Card, the ICT Card number of documents have to be in the Czech Republic. The facilitate mobility of foreigners provided by the applicant, application for the Blue Card is within EU i.e. holders of mainly: business plan (credible, usually processed within 90 days Intra-corporate Transferee feasible and beneficial for the from the submission. permits issued by a first Member municipality, region or state); State then also enjoy the right to bank account statement in the EU The Blue Card is valid according stay and work either short-term or Switzerland, financial reports to the validity of the work or long-term in another Member for past two years, no due contract, but at maximum State within another entity of the certificates of the company, of 2 years and can be repeatedly same group of undertakings origin of the financial means etc. extended at the territory of the under enhanced rules. The Ministry of Industry accesses Czech Republic. the business plan and together Long-term visa for purpose with the Ministry of Interior reach Same as other residence permits, of seasonal employment the final decision on granting esp. Employee Card, the Blue the residence permit for the Card is issued in the form Very specific visa solely intended purpose of investment. of a plastic biometric residence for paid activities related The application for the residence permit in the size of a credit card. to a season. The list of industries permit for the purpose for which this visa can be applied of investment shall be decided New residence permits for is issued by the Czech within 30 days from its lodging as of August 2017 Ministry of Work and Social either at one of the Czech Affairs. Currently it covers areas embassies abroad or branches By way of implementation such as hospitality, agriculture of the Ministry of Interior. of a new EU legislation in mid and forestry, leisure and Such residence permit is valid August 2017 and partially trying entertainment. Work permit for 2 years with possibility to rise competitiveness of the issued by the Labour Office is of extension at the territory Czech economy, the Czech a prerequisite for the seasonal of the Czech Republic. Republic introduced new types employment visa application. For of residence permits for non –EU seasonal work lasting less than 3 nationals for specific purposes months, short-stay visa (Schengen of stay, i.e. Intra-corporate visa) type C is issued. For seasonal Transferee (ICT) cards, visa for work lasting more than 3 months, seasonal workers and resident long-stay visa is issued. This type permits for investors. of visa is strictly time-limited (maximum 6 months) but can be Intra-corporate Transferee extended for another 6 months in Card so called ICT Card the territory of the Czech Republic. The ICT Card is intended for a non-EU national deployed by her/his foreign employer residing outside EU to work in one of the EU member states for more than 90 days on a position of a manager, specialist or trainee.

17 Employment contract Importing your car An expatriate who has It is obligatory to register the car If the car will not be re- an employment contract with for a Czech number plate within exported, it will be released either a foreign company six months (183 days) into free circulation. In this or a local company may choose of the date of entering the Czech case, the customs duty is which country’s labour law Republic. calculated as a percentage of should apply. the purchase price of the car If a car is imported by a foreign (conventional rate of 10% is Foreign nationals working national for personal use and applied). VAT of 21%is also in the Czech Republic for a period not exceeding six payable on the value of the for a foreign company or months, no customs duty is purchase price (including for a Czech entity based charged and it is deemed to be customs duty). VAT and on a service agreement are not a temporary admission with full customs duty must be paid required to have a specific Czech relief from import duty and VAT. within 10 days of receiving the employment contract, although If a car is imported into official notification from the it is advisable to be aware the Czech Republic by Customs Office. of the terms and conditions set an individual who will change down by the employer for the his residency to the Czech duration of the stay in the Czech Republic and will perform work Republic. If a foreign national is here, it will be classified employed by a Czech company as a change of habitual abode directly, a written employment abroad. In this case, contract must be concluded. the passenger car can be released into free circulation Special rulings apply to with full relief from import duty representatives of Czech and VAT. companies, as this relationship is governed by the Code The condition that must be on Commercial Entities and Civil fulfilled is that the car must have Code, and not by the Labour been used and owned abroad by Code. the importer for at least six months before the date of Importing personal leaving the habitual abode. possessions In other cases (e.g., a car that is After the Czech Republic’s used for business purposes, a car accession to the EU, the that is used by an individual movement of goods within the EU other than the importer or a car is not classified as import or that is to be re-exported in less export, so no customs procedure than 34 months), it will be is applied. In the case of classified as a temporary importing goods from non-EU admission with partial relief member states, the procedure is from import duty. Customs duty the same as described below. will be payable at 3% of the full amounts per month. The amount Foreign nationals are allowed to will become payable upon re- import personal possessions for export of the car. VAT of 21% is personal use duty-free. For customs clearance, however, payable in the moment a copy of the foreign national’s of importation on the value long-term visa, together with of the purchase price confirmation from the employer (including customs duty). VAT regarding the work function and must be paid within 10 days approximate length of stay, must of receiving the official be provided. notification from the Customs This confirmation must be Office. written in Czech. The Customs Office will provide the appropriate form for the import of personal items; this form should be kept, as it will be required when the personal items are exported.

18 Step 4: What to do when you arrive in the Czech Republic

Exchanging your foreign currency Upon Czech tax registration, the foreign The Czech crown (CZK) is a convertible national is issued a tax registration currency and can be readily exchanged number. This number must be used outside the Czech Republic. It is also in any communication with the Czech possible to obtain local currency using tax authorities. your debit or credit card at most automatic cash dispensing machines; Individuals whose employer additionally, MasterCard, Visa, (Czech or foreign) operates a Czech American Express and Diners Club are payroll and who do not have income accepted by many retail outlets. other than their employment income are not required to register personally Foreign exchange rates at 30 January with Czech tax authorities. 2018 were as follows Driving license • CZK 20.394 = USD 1.00 Foreign nationals who are present long- • C ZK 25.330 = EUR 1.00 term in the Czech Republic • CZK 28.804 = GBP 1.00 and who drive a car in this country should have a Czech driving licence Foreign exchange regulations within 183 days from the arrival • Expatriates can operate foreign to the Czech Republic. The licence currency bank accounts at Czech is issued based on the driver’s current banks without restrictions driving licence; however, it is not • Expatriates can hold Czech automatically exchanged for Czech currency bank accounts driving license issued for all types. • When making payments in excess In general, the foreign driving licence is of CZK 270,000 cashless transfers exchanged for a Czech driving licence of funds must be used. if the issuing country is bound by the Vienna Convention or the Geneva Accommodations Convention. EU citizens and foreign Once the foreign national finds nationals who have a driving licence a place to live in during his/her issued by a state of the European assignment in the Czech Republic, Commonwealth do not need to have he/she is obliged report the new their licences replaced by a Czech one. address to the respective office Czech licences cannot be issued, of the Ministry of the Interior for example, for the USA, Canada if the address differs from and Australia. Such driving licences the accommodation stated must be accompanied by an in the application for long-term visa/ international driving licence, which residence permit application. needs to be renewed in the country that issued the driving licence. The only way Tax registration how to avoid obtaining an international Foreign nationals who have income driving licence annually for such drivers taxable in the Czech Republic and who is to pass an additional drivers’ test are not taxed via Czech payroll must in the Czech Republic. register for Czech tax purposes.

19 Step 5: What to do at the end of the year

Tax return submission establishment in the Czech Republic Generally, individuals having annual are always required to submit taxable income over CZK 15,000 a Czech tax return. must submit annual tax return to the appropriate tax authority. However, The tax return must be filed by individuals having employment 1 April following the end of the tax income from one employer or several year in which the income arises. subsequent employers which is taxed Spouses must file separate returns. under a Czech payroll withholding The fiscal year is the calendar year system are not obliged to file in the Czech Republic for personal a personal income tax return taxation purposes. provided that their other income does not exceed CZK 6,000 per year Applying for a tax filing and their annual income is not extension subject to solidarity surcharge. The deadline for filing the tax return Individuals who are not Czech is extended to 1 July if the tax return tax residents are obliged submit is prepared and submitted by a personal income tax return if they a Czech registered tax adviser under utilize certain tax deductions. a power of attorney that has been filed at the Financial Office before Individuals working in the Czech 1 April. The individual may also Republic for a foreign company apply for extension of the filing that has a deemed permanent deadline.

20 Paying your tax liability Fines & penalties The conditions outlined below apply The tax authorities may levy a fine if the tax liability is not regarded for late submission of a tax return; as having been completely settled the tax liability can be increased by by payroll withholding. 0.05% for each day of delay (the tax loss by 0.01% for each day) up to 5% Generally, taxes are payable in total. The fine can amount in advance, based on the last known to up to CZK 300,000. Czech tax liability of the individual (i.e., as stated on the last filed annual There is also interest for late payment tax return) and adjusted where of a tax liability. The default interest appropriate to reflect changes rate is 14% points above the Czech in the liability as notified by the National Bank’s annual repo rate Financial Office. effective on the first day of the applicable calendar half-year, However, the full tax liability and the default interest is calculated is generally due on the day for each day of late payment (starting of submitting the first tax return the fifth working day after the due corresponding to the year of arrival, date). as there was no previously known tax liability and therefore no tax Tax overpayment advances were paid. The tax administrator can offset a tax overpayment against other tax The tax due should be paid arrears, if any, and the balance can to the appropriate Financial Office be credited against a future tax in Czech crowns by bank transfer liability. However, where there are to the Czech National Bank. no tax arrears, the taxpayer can apply The Financial Office also accepts for a refund of overpaid tax. cash payments. Each payment should specify the type of tax payment being In the case of failure to return the tax made. Payment orders should overpayment within the deadline, the indicate the exact bank account Financial Office is obliged to pay number and the location interest to the taxpayer. The amount of the Czech National Bank branch of this interest is 14% above the corresponding to the relevant local Czech National Bank’s annual repo Financial Office. If tax is paid from rate effective on the first day abroad, the appropriate IBAN format of the applicable half-year. of the bank account number must be used. When making payment, the tax Obtaining tax credits in your identification number issued upon home country tax registration must be stated. If it is necessary for a foreign national The day of payment is considered to obtain a tax credit in his/her home to be the day on which the payment country for Czech taxes paid, is credited to the account the Financial Office will, upon of the Financial Office. request, provide an official certificate declaring the total amount of Czech Advance tax payments taxable income and the amount After submission of the first tax of tax paid. This can then be sent return, tax advance payments are to the Financial Office in the home required against the following year’s country. tax liability. The amount of tax advances and the frequency Tax residency certificate of payment depend on the amount If requested to do so, the Financial of the previous year’s tax liability. Office may issue a certificate The advances apply from the day declaring the tax residency following the submission of the tax of the individual return to the last day of the deadline in the Czech Republic. for submitting next year’s tax return.

21 Step 6: What to do when you leave the Czech Republic

Informing the Financial Office declaration (in Czech) must be the employment is terminated. The financial authorities need to be delivered to the customs officials. The visa/residencepermit is advised that the foreign national has The declaration must state that the cancelled automatically left the Czech Republic permanently. goods are personal possessions. as the Labour Office shares the data This releases the foreign national with the Ministry of Interior. from any obligation to pay further tax Exporting your car It is compulsory to return advances. If the car was imported under the (even expired) biometrical temporary admission regime with residence card to the hands of the Filing your tax return a partial relief, the appropriate Ministry of Interior, e.g. by mail. The foreign national’s tax return duty must be paid when the car is should be prepared and submitted exported. Labour office and residence within the normal timescale. As the permit termination – EU foreign national will not be present in If the full relief applied to import of citizens the Czech Republic, it is advisable for the car, no further duties are payable. The employer is obliged to the foreign national to grant a power terminate the employment of the of attorney to an official tax adviser to Work permit and visa/ EU national as well. This is done by residence permit termination – act on his/ her behalf. deregistration at the local Labour non EU citizens Office within 10 working days after The work permit needs to be cancelled Exporting your personal the termination of the employment. by an employer. This is done by possessions If the EU citizen holds the completing a Labour Office's form In order to re-export personal confirmation of the residence within 10 working days after ssessions free of duty, a personal permit, this should be returned to the Ministry of Interior.

22 21 Step 7: Other matters requiring consideration

Health and social security Road tax contributions Most cars that are used for business Assignees working in the Czech purposes fall under the Road Tax Act. Republic are generally subject to Czech social security and health insurance Highway toll contributions. According to Czech All cars that use the Czech highway legislation, foreigners who are subject system must display a special sticker to the Czech social security system must as evidence of payment of the highway have a specific Czech identification toll. The amount of the toll depends number, which is generated based on the weight of the car. For passenger on application via the Czech Foreigners’ cars up to 3.5t, the highway toll Police Department – the so-called birth for a calendar year is CZK 1,500. number. Based on EU regulations Toll stickers for ten days or one month or an applicable bilateral social security are also available. treaty, the foreign employees may be subject to their home country social Other taxes security system and, in this case, they are There are no local taxes on income not subject to the Czech social security in the Czech Republic. There is no wealth scheme (see Appendix D). tax. Individuals may be subject to real estate tax on land and buildings that they Czech health insurance rate is 4.5% use or own. The transfer of assets by way and social security contribution rate is of gift and the sale or other transfer 6.5% (for the employee) and 9% resp. of real estate in the Czech Republic may 25% (for the employer) of the create a liability to income tax or real employee’s gross salary. Entrepreneurs estate transfer tax. contribute a percentage of entrepreneurial tax base. Reporting of the tax-free income Individuals are obliged to report Social security contributions provide the acquisition of tax- free income funding for three separate funds: exceeding CZK 5,000,000. The tax-free pensions, unemployment benefits income should be reported and sickness, together with other to the Financial Office within benefits. Entrepreneurs can choose the deadline for filing of the personal whether or not to contribute to the income tax return. sickness fund. There is a cap on social security for both employees/employers and entrepreneurs. In 2018, the cap applies to social security assessment base (CZK 1,438,992). Health insurance assessment base is unlimited.

23 Appendix A: Overview of personal tax deductions and income tax rates

Personal income tax rates Tax rate applicable to individuals for 2018: 15% plus solidarity surcharge of 7% for employment income and entrepreneurial tax base over CZK 1,438,992(per year).

Annual tax deductions The personal tax allowances for 2018 are as follows (CZK):

Personal 24,840

Spouse (provided the spouse lives with the taxpayer 24,840 and does not have annual income in excess of CZK 68,000)

Student studying for an occupation 4,020

If in receipt of partial disability pension 2,520

If in receipt of disability pension 5,040

If a ZTP/P card holder (handicapped person) 16,140

Child tax credit (provided child qualifies 15,204/19,404/24,204 as a dependent living with taxpayer) If child is ZTP/P card holder (handicapped person) 30,408/38,808/48,408

24 23 Appendix B: Tax computation for 2018

Taxpayer entitled for spouse and two children deductions (CZK)

I II III Annual gross salary 2,000,000 2,500,000 3,000,000 Employee’s health and social taxes (183,535) (206,035) (228,535) Employer’s health and social taxes 539,748 584,748 629,748 Tax base (rounded) 2,539,700 3,084,700 3,629,700 Tax 380,955 462,705 544,455 Solidarity surcharge 39,271 74,271 109,271 Tax deductions: Personal (24,840) (24,840) (24,840) Spouse (24,840) (24,840) (24,840) Children tax credit (34,608) (34,608) (34,608) Tax payable 335,938 (452,688) 569,438 Net salary 1,480,527 1,841,277 2,202,027

Taxpayer not entitled for spouse and children deductions (CZK) I II III Annual gross salary 2,000,000 2,500,000 3,000,000 Employee’s health and social taxes (183,535) (206,035) (228,535) Employer’s health and social taxes 539,748 584,748 629,748 Tax base (rounded) 2,539,700 3,084,700 3,629,700 Tax 380,955 462,705 544,455 Solidarity surcharge 39,271 74,271 109,271 Tax deductions: Personal (24,840) (24,840) (24,840) Tax payable 395,386 512,136 628,886 Net salary 1,421,079 1,781,829 2,142,579

25 Appendix C: Double-taxation agreements

Countries with which the Czech Republic currently has double-taxation agreements:

Albania Iceland Pakistan Armenia India Panama Australia Indonesia Philippines Austria Iran Poland Azerbaijan Ireland Portugal Bahrain Israel Romania Barbados Italy Russia Belarus Japan Saudi Arabia Belgium Jordan Serbia, Montenegro Bosnia and Herzegovina Kazakhstan Singapore Brazil Korea Slovakia Bulgaria Korea People’s Rep. Slovenia Canada Kuwait South Africa China Latvia Spain Chile Lebanon Sri Lanka Columbia Liechtenstein Sweden Croatia Lithuania Switzerland Cyprus Luxembourg Syria Denmark Macedonia Tajikistan Egypt Malaysia Thailand Estonia Malta Tunisia Ethiopia Mexico Turkey Finland Moldova Ukraine France Mongolia United Arab Emirates Georgia Morocco United Kingdom Germany Netherlands United States of America Greece New Zealand Uzbekistan Hong Kong Nigeria Venezuela Hungary Norway Vietnam

1 Does not apply to Taiwan, Macao and Hong Kong 2 Does not apply to Kosovo

26 Appendix D: Social security agreements

The Czech Republic is part of the EU social security legislation covering mainly the intra-EU transfers.

Social security agreements (non EU countries)

Albania Macedonia Australia Moldova Bosnia and Herzegovina Montenegro Canada Serbia Chile Russia Israel Turkey India Ukraine Japan United States of America Korea

26 27 www.pwc.cz

© 2018 PricewaterhouseCoopers Česká republika, s.r.o. All rights reserved. In this document, “PwC” refers to PricewaterhouseCoopers Česká republika, s.r.o., which is a member firm of PricewaterhouseCoopers International Limited, each member firm of which is a separate legal entity.