V. BUSINESS AND FINANCE
EMPLOYEES – TAXATION, SOCIAL SECURITY AND HEALTH INSURANCE The extent of individual’s taxation in the Czech Republic depends on individual’s tax residency status. Czech tax residents are subject to tax on their worldwide income. Czech tax non-residents are subject to tax on Czech-source income only. Tax non-residents are taxed in the same way as residents on their Czech-source income, except for certain types of income.
Czech source income is, for instance, income for work performed in the territory of the Czech Republic, rental income from real estates located in the Czech Republic, etc. In addition, Czech tax non-residents may not qualify for certain tax deductible items and tax reliefs. The term “tax resident” includes any person residing in the Czech Republic for at least 183 days within a calendar year (continuously or over several periods) or having a residence (permanent home)1 in the Czech Republic. If an individual is treated as a tax resident in the Czech Republic and, at the same time in another country, the final tax residency status is to be determined in accordance with the applicable double tax treaty. Czech Republic concluded double tax treaties with nearly all European countries and majority of other developed countries. If there is no double tax treaty in place between the Czech Republic and the other country, double taxation may arise.
INCOME SUBJECT TO TAX Employment income includes salaries, wages, bonuses, other compensation of a similar nature and most benefits in kind2. Employment income also includes fees paid to directors and shareholders of private limited companies and to limited partners of limited partnerships for work performed for the company or partnership. On the other hand, travel reimbursement within the Czech labour law statutory limits and various other qualified benefits, such as luncheon vouchers, cultural and social fund benefits, temporary accommodation of up to CZK 3 500 per month (approx. EUR 135) and private life insurance or supplementary pension insurance premiums annually of up to CZK 50 000 (approx. EUR 1 923) may be exempt from taxation if further conditions are met. The tax base for employment income equals the sum of the gross income of the employee. No expenses may be deducted from employment income.
TAX-DEDUCTIBLE ITEMS The tax base from employment as described above is to be consolidated with all other partial tax bases (i.e. partial tax base from self-employment and business income, from rent, investment income or from other income). The overall tax base can be lowered by tax deductible items such as gifts to charities and other organizations for qualified purposes, mortgage interests, and contri-
butions towards individual’s private life insurance or supplementary pension insurance.
TAX RATE The employee’s tax liability is computed from the tax base reduced by the above tax base deductions, using the 15 % tax rate. In case the gross income of the employee exceeds annual maximum assessment base for social security contributions, 23 % tax rate applies on employment income exceeding the limit4. For non-residents from countries outside the European economic area with no treaty on exchange of tax related information with the Czech Republic in place, income from dividends, capital gains, interest, royalties and remuneration to members of statutory bodies is subject to 35 % withholding tax rate.
TAX ALLOWANCES Tax payer may lower the annual tax liability through deduction of tax reliefs. The below tax reliefs, except for the personal tax relief, are available for tax residents and in general, also for Czech tax non-residents who qualify as residents of other member states of the European Union or of the European economic area and their Czech-source income accounts for at least 90 % of their total annual income. The annual personal tax relief is CZK 27 840 (approx. EUR 1 071). In addition, tax relief of CZK 24 840 is granted for a spouse living in the same household with the taxpayer, unless the spouse’s annual income exceeds CZK 68 000 (approx. EUR 2 615). Additional personal tax relief of CZK 2 520 (approx. EUR 97) is granted for partially disabled persons and of CZK 5 040 (approx. EUR 194) for fully disabled persons. Tax relief of CZK 4 020 (approx. EUR 155) is granted to tax payers who are full-time students up to the age of 26 and tax relief of CZK 15 204 (approx. EUR 585) is granted for the first, CZK 19 404 (approx. EUR 746) for the second and CZK 24 204 (approx. EUR 931) for the third and each other dependent child. In addition, parents may apply for tax relief for children visiting the kindergarten of CZK 14 600 (approx. EUR 562) per annum. In case of the taxpayer’s tax liability having been fully covered by tax reliefs, the child tax relief can also be used as a child tax bonus. In this
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