EY
Florenci
Executive and immigration contacts
Martina Kneiflova +420 225-335-295
Email: martina.kneiflova@cz.ey.com
Ondrej Polivka +420 225-335-595 Email: ondrej.polivka@cz.ey.com
Michaela Felcmanova +420 225-335-949 Email: michaela.felcmanova@cz.ey.com
Tomas Pevny +420 225-335-636
Email: tomas.pevny@cz.ey.com
Jarmila Kozakova +420 225-335-762
Email: jarmila.kozakova@cz.ey.com
Marek Pycha +420 225-335-452 Email: marek.pycha@cz.ey.com
Adam Linek +420 225-335-049 Email: adam.linek@cz.ey.com
Jana Taborska +420 225-335-954 Email: jana.taborska@cz.ey.com
Immigration contact
Jan Lachmann
A. Income tax
+420 225-336-127 Email: jan.lachmann@cz.ey.com
Who is liable. Czech residents are subject to tax on their worldwide income. Nonresidents are subject to tax on Czech-source income only. There is no special regime applicable to Czech tax nonresidents. However, Czech nonresidents may not qualify for certain tax-deductible items and tax reliefs.
The term “resident” includes any person residing in the Czech Republic for at least 183 days within a calendar year or having a residence (permanent home) in the Czech Republic. Employment income received by a nonresident whose employment activity in the Czech Republic does not exceed 183 days during any 12 suc cessive calendar-month period is exempt from tax in the Czech Republic if it is paid by a foreign entity without a permanent establishment in the Czech Republic and if no economic employment exists in the Czech Republic.
Income subject to tax. The taxation of various types of income is described below.
Employment income. Employment income includes salaries, wages, bonuses, other compensation of a similar nature and most benefits in kind. Employment income also includes fees paid to directors of private companies, shareholders of private limited companies and limited partners of limited partnerships for work performed for the company or partnership, regardless of whether their position with the entity is one of authority.
Effective from 2021, the tax base for employment income equals the gross employment income.
Individuals assigned by a foreign employer to the Czech Republic who continue to be employed and paid by the foreign employer, and who perform work for and under the instruction of a Czech resident individual or legal entity (the so-called “economic employer”), are deemed to be employed by the Czech resident individual or legal entity, and their employment income is subject to monthly payroll tax withholding.
Self-employment and business income Taxable self-employment and business income consists of income from business activities and professional services, less deductible expenses. Authors, lectur ers, athletes and artists are considered providers of professional services. Net income from business activities and professional ser vices is subject to tax with other income at the rates set forth in Rates
Investment income. Czech-source interest income derived from personal investments is subject to a 15% final withholding tax. However, if the source of the interest income is part of the individual’s business activities, the interest income is taxed in the individual’s tax return. Other investment income, including divi dends and limited partners’ shares of partnership profits, is sub ject to a 15% final withholding tax. Nonrecurring income (for example, arbitration awards) is generally taxed with other ordi nary income at the rates set forth in Rates
A 35% final withholding tax applies to the abovementioned types of income (other than income from lease-purchase contracts) subject to final withholding tax for tax residents of countries that have not entered into a valid double tax treaty or treaty on exchange of information with the Czech Republic.
Dividend and interest income derived by a resident from foreign sources is taxed in the individual’s tax return. A separate tax base with a rate of 15% applies to selected types of non-Czech invest ment income (for example, dividends and interest income).
For the rates applicable to certain types of income of nonresi dents, see Rates.
Rental income Income derived from the rental of immovable and movable assets is taxed in the annual tax return together with other types of income at the rates set forth in Rates.
Capital gains and losses. Capital gains derived from the sale of property acquired for the purpose of resale or exchange for profit are taxed as ordinary income at the rates set forth in Rates. Capital gains realized from the sale of real estate or personal property not acquired for resale are generally exempt from income tax if the minimum required holding period is met. The minimum required holding periods are 12 months for automo biles, 2 years for a primary residence and 10 years for other immovable property. Other holding periods apply to other types of personal property.
Effective from 2014, income from sale of securities is exempt from personal income tax if the total gross income from the sale of securities (without taking into account costs or deductions) does not exceed CZK100,000 in a calendar year. In addition, if the gross income from the sale of securities exceeds CZK100,000
on an annual basis, income from the sale of securities is exempt from tax if the securities have been held for a period of more than three years. This rule applies to securities acquired after 31 December 2013. For securities acquired on or before that date, the prior rule applies. Under the prior rule, income from the sale of securities is exempt from tax if the securities have been held for a period of more than 6 months and if the individual had a direct share of less than 5% in the company in the 24-month period preceding the sale.
In general, capital losses derived from the sale of securities can not be carried forward, and they can be offset only against gains derived from the sale of other securities during the same tax period. The same rule applies to movable assets or immovable property. As a result, gains derived from the sales of such assets can be offset only against losses derived from the sales of the same types of assets.
Taxation of employer-provided stock options. No specific law in the Czech Republic addresses the tax treatment of stock options.
In general, employer-provided stock options do not result in a taxable event until the option is exercised if the following condi tions are met:
• The exercise price equals the fair market value of the underly ing stock at the date of grant.
• The option is not transferable.
• The option is subject to a suspensive condition and is capable of lapsing before it vests (for example, if the option holder ceases to be an employee).
However, this treatment is not a settled matter, particularly whether the taxable event occurs at grant, vesting or exercise. Readers are encouraged to consult with professional advisors on this matter. The taxation of stock options must be examined on a case-by-case basis.
The difference between the exercise price and the fair market value of the stock at the date of exercise is generally taxed as em ployment income at the exercise date, at the same tax rate appli cable to other employment income. Capital gains derived from the sale of shares by an individual are taxed as described in Capital gains and losses. If the capital gains are not exempt from income tax, the excess of the sale proceeds over the exercise price is taxable, at the rate set forth in Rates, in the year of disposal.
Business deductions. In general, expenses and costs are consid ered to be deductible for tax purposes if they are incurred to generate, assure and maintain taxable income. In addition, the law explicitly provides that certain expenses are deductible (for example, depreciation) and that certain expenses are not deduct ible (for example, representation expenses).
Instead of deducting actual expenses, taxpayers engaged in cer tain business activities may choose to deduct a percentage of gross revenues as lump-sum costs. The percentage of lump-sum costs varies depending on the individual’s business activity, as indicated in the following table.
Deductible
Activity rate
Agriculture, forestry, fishing, farming and craft
Trade license income
Licensing intellectual property rights (inventions and copyrights), sole proprietorships and other business income
Rental
The lump-sum costs for the activities listed above are limited to the following amounts:
80% deductible rate: CZK1,600,000
60% deductible rate: CZK1,200,000
40% deductible rate: CZK800,000
30% deductible rate: CZK600,000
Rates. Taxable income of residents and nonresidents, other than income subject to withholding tax or included in a separate tax base, is taxed by progressive taxation. The personal income tax rate is 15% for the tax base not exceeding CZK1,701,168 per year (for 2021). The tax rate for the tax base above this threshold is 23%.
For the purposes of monthly payroll tax calculations, the monthly employment income below the monthly threshold of CZK141,764 (in 2021) is subject to a 15% tax rate. Income above the threshold is subject to a tax rate of 23%.
Royalties and fees for professional services, such as directors’ fees and payments under management or consultancy agree ments, derived by nonresidents are subject to a 15% withholding tax. Nonresidents’ rental income is subject to a 5% final with holding tax on lease-purchase contracts and to a 15% final with holding tax on other rental income of movable property. These rates may be reduced under applicable tax treaties.
Tax reliefs. Czech tax residents may subtract tax reliefs from their annual tax liability. The amounts of these reliefs for 2021 are described below.
The annual personal tax relief is CZK27,840 (CZK30,840 as of 2022). In addition, tax relief of CZK24,840 is granted for a spouse living in the same household with the taxpayer, unless the spouse’s annual income exceeds CZK68,000.
Additional personal tax relief of CZK2,520 is granted for par tially disabled persons and of CZK5,040 for totally disabled persons.
Tax relief of CZK15,204 is granted for the first dependent child. If an individual has more children, the tax relief for the second child is CZK22,320, and the tax relief for the third and each additional child is CZK27,840.
The tax reliefs, except for the personal tax relief, are available to Czech tax residents. Also, these are available to tax residents of European Union (EU) countries, Iceland and Norway if their Czech-source income accounts for at least 90% of their total annual income. To apply the tax reliefs, Czech tax nonresidents
must submit the official confirmation of the worldwide income provided by the foreign tax authorities.
Relief for losses. Losses incurred in self-employment or rental activities may be carried forward for five years. Effective from July 2020, losses may also be utilized in the two tax periods pre ceding the period in which the loss is incurred.
B. Inheritance and gift taxes
Effective from 2014, inheritance and gift taxes are incorporated in the income tax; that is, the same basic rules apply to the taxa tion of gifts. In general, Czech residents are subject to tax on their worldwide gifts, and nonresidents are subject to tax on Czech-source gifts only.
The following groups of gifts are exempt from tax:
• Gifts received from lineal relatives, a spouse, minor relatives, such as brothers and sisters, lineal relatives of a spouse, chil dren’s spouses, nieces, uncles and aunts
• Gifts received from persons who lived with the transferor longer than one year in one household
• Property of a beneficiary that has been allocated to a trust fund by any of the persons mentioned above
• Gifts received occasionally up to the amount of CZK15,000 per year
All taxpayers are exempt from inheritance tax.
C. Social security
Contributions. Social security and health insurance contributions are paid by both the employer and the employee on employment income at the following rates.
Employer Employee Total % % %
Social security
Old-age pension 21.5 6.5 28 Sickness 2.1 — 2.1
Unemployment 1.2 — 1.2 Health insurance 9.0 4.5 13.5
The maximum assessment base for health insurance contribu tions was canceled, effective from 2013. The second pension insurance pillar was canceled, effective from 2016.
The maximum assessment base for social security contributions equals 48 times the monthly average salary. For 2021, the maxi mum annual assessment base for social security contributions is CZK1,701,168. Income above the limit is not subject to social security contributions, with certain exceptions for situations in which the individual has multiple employers during the year. In such circumstances, the maximum assessment base applies to each employer separately. However, the employee remains sub ject to one maximum assessment base.
EU social security legislation and totalization agreements. As a member state of the EU, the Czech Republic is bound by the EU Social Security Regulations (currently applicable to all member states of the European Economic Area (EEA) and Switzerland) and other EU law. In addition, to prevent double social security taxation and
to assure benefit coverage, the Czech Republic has entered into totalization agreements with several non-EU jurisdictions, including Albania, Australia, Belarus, Bosnia and Herzegovina, Canada, Chile, India, Israel, Japan, Korea (South), Moldova, Montenegro, North Macedonia, Quebec, the Russian Federation, Serbia, Syria, Tunisia, Turkey, Ukraine and the United States.
D. Tax filing and payment procedures
The tax year for individuals is the calendar year. Individual tax returns must be filed by 1 April of the following year. Extensions may be granted until 1 July. By additional application, the dead line may be extended to 1 November for Czech tax resident indi viduals who must include foreign-source income in their Czech tax return. The tax is due by the deadline for filing the tax return.
Czech employers must withhold monthly payroll tax advances from all compensation paid to their legal or deemed (economic) employees.
Joint taxation of married couples is not available in the Czech Republic.
Effective from 2015, individuals must submit a notification of tax-exempt income exceeding CZK5 million received after 1 January 2015 to the Czech tax authorities. Such income must be reported to the tax authorities by the deadline for filing the tax return. Fines of up to 15% of the tax-exempt income can be lev ied for failing to meet the obligation. Individuals who are not required to file a tax return must also file this notification.
E. Double tax relief and tax treaties
The Czech Republic has entered into double tax treaties with the following jurisdictions.
Albania Hong Kong SAR Pakistan Armenia Hungary Panama Australia Iceland Philippines Austria India Poland Azerbaijan Indonesia Portugal Bahrain Iran Romania Bangladesh Ireland Russian Barbados Israel Federation Belarus Jordan Saudi Arabia Belgium Kazakhstan Serbia and Bosnia and Korea (North) Montenegro Herzegovina Korea (South) Singapore Botswana Kuwait Slovak Republic Bulgaria Kyrgyzstan Slovenia
Canada Latvia South Africa
Chile Lebanon Switzerland China Mainland Liechtenstein Syria Colombia Lithuania Tajikistan
Croatia Luxembourg Thailand
Cyprus Malaysia Turkey Denmark Malta Turkmenistan
Egypt Mexico Ukraine
Estonia Moldova United Arab Ethiopia Mongolia Emirates
Finland Morocco United States
France New Zealand Uzbekistan
Georgia North Macedonia Venezuela
Ghana Norway Vietnam
* This treaty is effective from 1 January 2019. The Czech Republic also honors the double tax treaties of the former Czechoslovakia with the following jurisdictions.
Brazil Japan Sri Lanka
Germany Netherlands Sweden
Greece Nigeria Tunisia
Italy Spain United Kingdom
F. Immigration requirements
Foreigners coming from EU and non-EU countries must satisfy immigration obligations.
Non-EU nationals. Non-EU nationals intending to stay in the Czech Republic for a period up to 90 days can apply for a shortterm visa (also called a Schengen visa). The short-term visa can be granted for one or multiple entries. It is processed by a Czech embassy or consulate in about two weeks.
Citizens of countries under a Schengen visa waiver program may enter and travel within the Schengen Area freely according to a “90/180 rule”; that is, they can stay in the Czech Republic/ Schengen area for a maximum of 90 days within any 180-day period. The visa waiver program applies only for travels of a nonprofit nature. Non-EU citizens interested in a short-term employment or assignment in the Czech Republic should apply for a work permit and a short-term work visa, unless they meet certain criteria to avoid this obligation.
For all non-EU nationals, a longer stay than 90 days in a 180-day period is possible only with a long-term visa or relevant resi dence permit (see Long-term visa and Employee Card below and ICT and Blue Card in Section G). A visa or residence permit is issued for a single purpose, such as for business, studies or employment. A foreign national working in the Czech Republic without a visa or residence permit and/or relevant work permit may be subject to deportation, and significant fines can be assessed on Czech companies if the foreign national performs work without the respective permit.
Long-term visa and Employee Card. A long-term visa for a stay exceeding 90 days is issued based on an application filed at a Czech embassy or consulate abroad. The process usually takes up to three months.
The long-term visa can be issued for a period of up to one year. If the purpose of the visit remains the same, the stay in the Czech Republic may be extended. The visa is then replaced by a resi dence permit that can be issued for a period of up to two years and may be renewed repeatedly.
Non-EU nationals intending to work in the Czech Republic must apply for an Employee Card, which is granted by the Czech Ministry of Interior.
The Employee Card has two forms. The dual version combines a work permit and residence permit and is intended for all non-EU nationals employed by a Czech entity. The non-dual version of the Employee Card needs to be supported by the work permit granted by the Czech Labour Office and is intended mainly for the assigned non-EU individuals without an employment contract with a Czech entity. The government processing can take up to six months. However, this overall processing time may be pro longed if available appointments are lacking for employee card application filings at the Czech embassy or consulate abroad. The Employee Card in both forms can be valid for up to two years and can be further extended in the Czech Republic.
Health insurance requirements. For short-term stays (up to 90 days), foreigners must arrange travel health insurance to cover any medical costs and expenses that might arise in connection with emergency health treatment, repatriation or death during their stay in EU member states. The insurance must be valid throughout the territory of the member states and cover the entire period of the person’s intended stay or transit. The minimum cover age is EUR30,000 per insured event without any co-insurance or co-payment.
Foreigners must also present a document proving their health insurance coverage when they apply for or collect their shortterm visa.
For stays exceeding 90 days, foreigners must arrange for com mercial comprehensive health insurance with the Czech health insurance company, Pojišťovna VZP, a.s., in the period from 2 August 2021 until 2 August 2026; no other health insurance is acceptable.
On commencement of work in the Czech Republic, foreign nationals with a local employment agreement with a Czech com pany must be registered with the Czech public health insurance scheme; their coverage equals that of the Czech nationals. As such, the need for commercial health insurance may be avoided or limited. The obligation to register with the public health insur ance scheme may also apply for some assignment cases. A detailed case-by-case assessment is advisable.
Registration of non-EU nationals after arrival in the Czech Republic. Non-EU nationals need to be registered with the Czech Foreigner’s Police within three working days after their arrival in the Czech Republic (unless they stay in a hotel and the registra tion is processed automatically by the hotel). Individuals who will work in the Czech Republic need to visit the Czech Ministry of Interior instead to provide their biometric data that will be used for issuance of their Employee Card (see Section G). NonEU nationals working in the Czech Republic need to be also registered at the Czech Labour Office on their first working day at the latest.
EU nationals. No visas or work permits are required for the EU nationals.
EU nationals need to be registered at the Labour Office by a company for which they perform their work on their first
working day at the latest. In addition, they must process their registration with the Czech Foreigner’s Police within 30 days after their arrival (if not processed via a hotel). A residence permit is not mandatory but is recommended if the EU national intends to stay and/or work in the Czech Republic for a period exceeding three months, because it is usually needed for car registration, obtaining a parking permit, closing a contract with a phone provider, buying property in the Czech Republic and other transactions. EU nationals must be covered by health insurance during their stay in the Czech Republic. An EU Health Insurance Card satisfies this requirement.
Family members of EU nationals from third countries are subject to a preferable treatment (compared with other non-EU nationals) if they accompany or follow the EU national residing in the Czech Republic. Registration at the Foreigner’s Police and man datory application for a temporary residence permit apply to them.
Business visitors. In general, a non-EU national who is in the Czech Republic on a short-term (few days) business trip is not required to have a work permit or Employee Card. Non-EU nationals from countries with a free visa regime are not required to obtain a visa to travel to the Czech Republic. Non-EU nation als from countries with a visa requirement need to apply for the business type of visa to be able to enter the Czech Republic.
Students. Students from non-EU countries intending to study in the Czech Republic for a period exceeding 90 days may apply for a long-term study visa. Students from non-EU countries with the visa-entry obligation may need a study visa for a short-term study stay under 90 days. Non-EU students intending to work in the Czech Republic do not need to obtain work permits if they are studying or have completed studies at a Czech high school, uni versity or artists’ school accredited in the Czech Republic.
Trainees. A special regime may be applied to non-EU national trainees assigned to the Czech Republic. These individuals may apply for the same immigration permits as the standard assignees or undertake a simplified immigration procedure. This simplified procedure avoids the obligation to apply for a work permit or Employee Card if the trainees’ work in the Czech Republic will not exceed six months and the substance of the work will be experience and training for their future career in a “home country company.” Before the assignment of trainees, the Czech company may qualify for the simplified procedure by filing a special request and meeting certain conditions.
Termination of the stay. The termination of work in the Czech Republic for both EU nationals and non-EU nationals must be reported to the Labour Office. In addition, non-EU nationals must inform the Ministry of Interior about the termination of their stay and return the relevant residence permit (if applicable).
G. Work permits, Employee Cards, intra-corporate transfers, Blue Cards and self-employment
Local employees. A company intending to employ a non-EU national in the Czech Republic must register a job position with the Czech Labour Office. This registration is public, and the
Czech Labour Office has 30 days to fill the position with a Czech or other EU national. If no appropriate candidate is found in the Czech Republic or in other EU countries, the position is regis tered in the official database for Employee Cards and a non-EU national can apply for it by filing an application at the Czech embassy or consulate in his or her country of residence. The application for the Employee Card must be supported by the local employment contract or agreement on the future contract between the applicant and the Czech company. This contract must meet certain criteria relating to a working schedule and level of salary.
If the Ministry of Interior approves the application, the Czech embassy or consulate issues a special visa to the applicant to allow him or her to enter the Czech Republic and register with the Czech Ministry of Interior. On the finalization of this process, the non-EU national obtains the Employee Card in the form of a plastic biometric residence permit.
Assigned individuals. Assigned individuals (individuals who do not have a local employment contract) are required to apply for a work permit in the Czech Republic. After the work permit appli cation is filed with the respective Labour Office, they are allowed to apply for the non-dual Employee Card. A Czech company must inform the Czech Labour Office about the assignment of a non-EU national to the Czech Republic. No testing of the Czech or EU labor market is required. On the collection of the work permit (to be delivered with the Employee Card application) and approval of the Employee Card application, the process of enter ing the Czech Republic and collecting the Employee Card is the same as in the case of local employment.
The following assigned individuals (and some others) are exempt from the work permit obligation and need apply only for the nondual Employee Card:
• A holder of a Czech permanent residence permit
• A foreigner who undertakes or completes studies at a high school or university accredited in the Czech Republic
• A foreigner seconded to provide services in the Czech Republic on behalf of his or her employer with a seat in an EU country
• A third-country citizen who is accompanied by his or her close family member (spouse, child or parent) from an EU country
• A dependent of a non-EU national who is working in the Czech Republic based on a residence permit provided that the depen dent holds a valid residence permit
Nevertheless, the Czech company must register these individuals at the Czech Labour Office, and the individuals are always required to obtain a relevant visa or residence permit.
Intra-corporate transfers. Foreign workers seconded to the Czech Republic based on intra-corporate transfers (ICTs) may apply for an ICT Card, which may be obtained for a period of one year for trainees and three years for specialists and managers. Because of the relative inconvenience of ICT (restricted duration of card validity, condition of at least six months’ prior employment with the seconding enterprise and complexity of the documentation to be submitted), employers may choose to continue to use the “old” process of legalizing a working stay for assigned non-EU nation als, which is the obtaining a work permit and an employee card.
Blue Card. A Blue Card is intended for the non-EU nationals with high qualifications who want to work in positions that are not covered by Czech or EU nationals.
Czech companies need to register positions available under the Blue Card procedure in the Blue Card register.
A Blue Card is a combination of a work permit and a residence permit in one document and allows the recipient to reside in the Czech Republic and work in a job for which the Blue Card is issued.
A Blue Card is issued to workers with high professional or uni versity education who have already agreed on an employment contract with a Czech company. The contract must have a dura tion of at least one year and meet certain other criteria.
A Blue Card is valid for the duration of the agreed employment contract plus three months.
The Blue Card is issued for a maximum period of two years. The application for a Blue Card must be submitted to the relevant embassy or consulate of the Czech Republic. The process is very similar to the dual Employee Card regime; the overall processing time is the same.
In comparison to the dual Employee Card, a Blue Card may ease the relocation of its holder to other EU member countries.
H. Self-employed individuals
Self-employed individuals must have trade licenses to perform self-employment activities in the Czech Republic. In addition, non-EU nationals must obtain an entrepreneur type of visa.
To acquire this license, the individual must apply at the appropri ate trade license office.
The entire immigration process takes approximately five months after all the required documents are submitted.
I. Family members
Non-EU national dependents of a long-term visa, Employee Card, ICT or Blue Card holder may stay in the Czech Republic based on a granted short-term or long-term visa or a residence permit for reunion purposes. The long-term visa and residence permit may be further extended in the Czech Republic.
The visa or residence permit applications of the family members can be filed together with the main applicant (employee) with the Czech embassy or consulate abroad and is valid only for the validity period of the visa or residence permit of the main visa holder.
All family members need to have required health insurance cov erage (these are the same requirements specified in Section F).