Direct Taxes
Personal income taxes have progressive rates, which range from 12-32%. This tax applies to all income generated by employed and self-employed individuals. Under the law, the employer deducts a tax withholding amount from the employee’s salary. Self-employed individuals pay tax deposits and file a tax return on an annual basis. Each taxpayer can deduct a non-taxable basic income of CZK 38,040 per year from their taxable income and there are a number of other expenses that qualify as deductions, such as contributions to charity, contributions to a supplementary pension insurance fund, trade union contributions and a specific amount for each underage dependent child. After all allowable deductions have been taken from a person’s taxable income, the balance becomes subject to the income tax, with the rate based on the level of taxable income.
Legal entities pay a corporate income tax at a rate of 26%. Property taxes are a tax paid on real property (land and buildings). In the case of land, the tax is based on the total area or the value of the land. The tax rate depends on the quality of the soil, the location and the type of use. For buildings, the tax base is calculated on the total size of the built-up area and the applied tax rate depends on the purpose for which the building is used. Property taxes are paid on an annual basis.
The tax rates for estate and gift taxes range from 0.5 to 40%, based on the relationship between the deceased and the beneficiary or the donor and the donee. (There is no tax due on an inheritance between parties that are lineal descendants.)
Indirect Taxes
The rates on the Czech value-added-tax have been harmonized with the EU regulatory requirements. VAT applies to most good manufactured in the Czech Republic and to most services provided in the Czech Republic, as well as to imported merchandise. The basic VAT rate is 19% and the reduced rate is 5%, and most merchandise and services are taxed using the basic rate.
Excise taxes have also been harmonized with the EU regulatory requirements. Excise taxes apply to manufactured and imported mineral oils, spirits, beer, wine and tobacco products in the EU. The tax rates for the different types of commodities are set as fixed rates and the legal basis for the charging of such taxes is established under the law.
In the Czech Republic tax-related matters are a popular subject of discussion. It is possible that with changes in the government the existing tax system could also be changed.