Expatriate taxation in the Czech Republic

22.03.2016

Are you an expatriate working in the Czech Republic or a foreigner living here? Do you know your new tax duties? The deadline for filing of the PIT return for 2015 is approaching!

 

From which income are you obliged to pay taxes in the Czech Republic?

As in most countries around the world, you are obliged to tax your income derived in the Czech Republic. Depending on your tax residency, your foreign income might also be subject to tax here. There are the following types of income recognized for tax purposes in the Czech Republic:

  • Employment income (including stock option plans and similar management incentive plans)
  • Business income (including royalties)
  • Capital income (interests, dividends etc.)
  • Rental income (including property rent)
  • Other income (including capital gains, income from stock exchange)

 

What is the tax rate?

The personal income tax rate is flat at 15%. However, any active income (i.e. employment or business income) exceeding the threshold of 1,277,328 CZK (~47,300 EUR) in 2015 is taxed by additional 7% solidary tax.

 

Are you obliged to tax also your income from abroad? Is avoiding of double taxation available?

Whether you are obliged to tax your worldwide income in the Czech Republic or income from the Czech sources only depends on your tax residency. In case you stay tax resident in your home country, you are obliged to tax only your income from Czech sources in the Czech Republic. However, should you become a Czech tax resident, you are obliged to tax your worldwide income in the Czech Republic.

Your tax residency is assessed according to the Double Tax Treaty concluded between the Czech Republic and your home country. In most cases it depends on your center of vital interest, mainly where your family lives and further criterions. In the year in which you become a Czech tax resident, you can have a split tax residency. In such a case your taxable income is split into two time periods (of your tax residency and tax non residency) in the particular calendar year, in which the tax treatment of your income is different with respect to your residency status.

When as a Czech tax resident taxing your worldwide income here, you can avoid double taxation of your foreign income based on the particular Double Tax Treaty. The Czech double tax treaties usually provide either for tax exemption of the foreign income or, more commonly, for a tax credit of the foreign tax.

 

When to file a tax return? Did you get all your money back?

Should you receive employment income in the Czech Republic only, which does not exceed threshold of 1,277,328 CZK (~47,300 EUR) in 2015, you are generally not obliged to file a Czech Personal Income Tax Return (“PIT return”). However, under some circumstances, it might be advantageous for you to file the PIT return also in this case, e.g. when deducting particular tax allowances which cannot be used in your payroll calculation.

Basically, in all other cases you are obliged to file your Czech PIT return. The general deadline for filing of your PIT return is 1 April 2016 already. Should you use services of a tax advisor, the deadline for filing of your PIT return is extended to 1 July 2016. However, please note that also in this case the relevant power of attorney must be submitted to the tax authority also by the 1 April 2016 at the latest.

 

Do you trade stocks? Did you inherit any possession? New announce obligation for tax exempt income might apply also to you!

Generally, tax exempt income is not subject to declare in a PIT return. However, in case you have realized tax exempt income (e.g. from stock trading, sale of your company or from inheritance), a new announce obligation might apply to you. Starting 1 January 2015 it is in most cases necessary to announce the tax exempt income which exceeds the threshold of 5 Mio CZK (~185,200 EUR) to your tax authority. The deadline for this announcement is the same as for filing of the PIT return.

 

Any help with preparing of your tax return or any other tax question?

We will be happy to support you in fulfilling of your tax obligations in the Czech Republic and answering of your tax questions. Should you like to file your tax return by the 1 April 2016 or to extend the filing deadline to 1 July 2016, do not hesitate to contact us!