Czech Republic: Tax Update 2014

The year 2014 brings some important tax news for the Czech Republic: employees, who have for many years been used to that their tax matters are being handled by their employer on their behalf, might face an unpleasant surprise this year. Moreover, companies benefiting from a withholding tax exemption for license fees or interest payments between related companies based on a decision of the Czech tax administrator issued more than three taxation periods ago will have to request prolongation in 2014.

Tax return obligation for certain Employees.

Employ-ees with income exceeding CZK 103,536 (approx. EUR 3,780) in any month of  2013 have to file tax re-turns, i.e. complete the relevant form and file it with the taxation authority. Employers are no longer able to prepare the annual tax reconciliation for them. The obligatory filing of the tax return also relates to employees with lower income, if they, for example, exceeded the above stated amount due to one-off bonuses paid during the last year. If they do not file the tax return, they will both lose various types of tax relief and deductible items (e.g. for children or mortgage interest) and face a fine from the taxation authority. At first glance this fine does not seem high (0.05%), but it is calculated for each day and from the entire tax liability, i.e. including advance payments paid by the employer from the salary. On the other hand, if employees file the tax return, and provided it is completed correctly, they may recover a not insignif-icant tax credit from the tax authority.

 

Withholding Tax Exemption for license fees and interest payments.

Effective from 1 January 2011, license fees and interest payments can be exempt from Czech withholding tax if paid from the Czech Republic to group entities that are EU residents or residents of Switzerland, Norway or Iceland (under the conditions stipulated in the Czech Income Tax Act). For the exemption to be applied, it is necessary to obtain the Czech tax administrator’s decision on the granting of this exemption, which is issued for a maximum of three taxation periods. Given that the exemptions are now being applied for a fourth year, in the case of exemptions issued as of 1 January 2011, it is necessary to file a new request.

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Barbara Behrendt-Krügelstein

Barbara Behrendt-Krügelstein

Manager | Deloitte Tax
Telefon: +43 1 537 00 7112
Mail: bbehrendt-krueglstein@deloitte.at

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