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EY +420 225-335-111 Na Florenci 2116/15 Fax: +420 225-335-222 110 00 Prague 1 Czech Republic
Principal Tax Contact and International Tax and Transaction Services –International Corporate Tax Advisory
Libor Fryzek +420 225-335-310 Mobile: +420 731-627-004 Email: libor.fryzek@cz.ey.com
Business Tax Advisory
Libor Fryzek +420 225-335-310 Mobile: +420 731-627-004 Email: libor.fryzek@cz.ey.com
Ondrej Janecek +420 225-335-360 Mobile: +420 731-627-019 Email: ondrej.janecek@cz.ey.com
Rene Kulinsky +420 225-335-615 Mobile: +420 731-627-006 Email: rene.kulinsky@cz.ey.com
Lucie Rihova +420 225-335-504 Mobile: +420 731-627-058 Email: lucie.rihova@cz.ey.com
Jana Wintrova +420 225-335-248 Mobile: +420 731-627-020 Email: jana.wintrova@cz.ey.com
International Tax and Transaction Services – Transaction Tax Advisory
Rene Kulinsky +420 225-335-615 Mobile: +420 731-627-006 Email: rene.kulinsky@cz.ey.com
People Advisory Services
Martina Kneiflova +420 225-335-295 Mobile: +420 731-627-041 Email: martina.kneiflova@cz.ey.com
A. At a glance
(EU)/European
certain conditions
(c) The rates may be reduced by applicable tax treaties.
(d) Dividends are subject to a final withholding tax at a rate of 15%. Under the principles of the EU Parent-Subsidiary Directive (No. 2011/96/EU), dividends paid by Czech companies to parent companies (as defined in the directive and Czech law) located in EU/European Free Trade Association (EFTA) countries are exempt from withholding tax if the parent company maintains a holding of at least 10% of the distributing company for an uninterrupted period of at least one year (further conditions apply). Dividend distributions between two Czech companies or between foreign subsidiaries and their Czech parents are exempt from tax under similar conditions. The tax exemption does not apply if any of the following circumstances exist (further conditions may apply):
• The parent company or the subsidiary is exempt from corporate income tax or similar tax applicable in its jurisdiction.
• The parent or subsidiary may opt for an exemption (or a similar relief) from corporate income tax or similar tax applicable in its jurisdiction.
• The parent or subsidiary is subject to zero corporate income tax or similar tax applicable in its jurisdiction.
• The subsidiary treats the dividend payments as tax deductible.
(e) The 35% withholding tax generally applies to Czech-source income arising to Czech tax nonresidents from countries outside the EU/EEA that have not entered into a double tax treaty with the Czech Republic or a bilateral or multilateral tax information exchange agreement that is binding on both the Czech Republic and the respective foreign country. The 35% withholding tax rate also applies if the Czech income payer is unable to prove the tax resi dency status of the respective beneficial income owner. If applicable, the 35% rate affects all types of income subject to withholding tax (for example, divi dends, interest, royalties or rental income). It does not affect rental income from financial leases if the 5% withholding tax rate applies (see footnote [i]).
(f) Interest payments to nonresidents are generally subject to withholding tax at a rate of 15% (special rules apply to some bonds). Under the principles of the EU Directive 2003/49/EC, interest paid by Czech companies to related com panies (as defined in the directive) located in EU/EFTA countries is exempt from withholding tax if certain additional conditions are met.
(g) For certain types of income, EU/EEA tax residents may choose to include the income in their tax return and have it taxed at the standard corporate income tax rate after deduction of associated expenses (while claiming a credit for the withholding tax paid against tax liability stated in the tax return) or they may choose to treat the withholding tax as a final tax on the income.
(h) This withholding tax applies to nonresidents. Under the principles of EU Directive 2003/49/EC, royalties paid by Czech companies to companies located in EU/EFTA countries are exempt from tax if certain additional condi tions are met.
(i) A 5% withholding tax is imposed on gross rent if the lease contract stipulates that the lessee takes over the ownership of the leased asset (tangible asset only) for a purchase price or for free at the end of the lease term or if the lease contract stipulates such a right or option for the lessee (further conditions may apply). Other rental payments are subject to a 15% withholding tax. Some rental payments may be considered royalties for Czech tax purposes.
B. Taxes on corporate income and gains
Corporate income tax. Resident enterprises are subject to tax on their worldwide income. An enterprise is considered to be a resi dent enterprise if it is incorporated in the Czech Republic or if its management is located there. Nonresident enterprises are subject to income tax on their Czech-source income only.
Rates of corporate tax. The standard corporate income tax rate for Czech enterprises and branches of foreign enterprises is 19%.
Basic investment funds are subject to a preferential tax rate of 5%. Under the Czech Income Taxes Act, the following are considered basic investment funds:
• An investment fund whose shares are accepted for trading on a European regulated market if it satisfies both of the following conditions: No corporate income taxpayer (other than the state, the central bank or specified international institutions) owns shares representing 10% or more of the share capital of the
investment fund. Shares owned by related parties are considered shares owned by a single taxpayer for purposes of this condition.
The investment fund does not have a trade license based on the Czech Act on Trades.
• Mutual fund
• Investment funds and subfunds of a joint stock company with variable registered capital if it invests (in line with its prospec tus) more than 90% of its assets in prescribed instruments (for example, certain securities, money market instruments, finan cial derivatives, receivables and loans)
• A foreign investment fund comparable to funds as described in the above three bullets if it satisfies all of the following conditions: Its home country is an EU/EEA member state.
It can prove that it is administered or managed based on an authorization comparable to the authorization issued by the Czech National Bank and its administrator or manager is subject to supervision comparable to the Czech National Bank’s supervision.
It has statutes or a document comparable to a prospectus based on which it can be determined whether the fund is comparable to a fund described in the above three bullets. It can prove that according to the laws of its home country none of its income is attributable to other persons (meaning it is not tax transparent).
A preferential corporate income tax rate of 0% applies to pension funds.
No differences exist between the taxation of 100% Czech-owned enterprises and those with foreign investment.
Investment incentives. Investment incentives are available to in vestors launching or expanding the following:
• Manufacturing
• Technology centers
• Business support services centers, including shared-services, software-development, high-technology repair and data centers
Several amendments were made to the Investment Incentives Act and related regulation. Among others, new levels of public support for the 2022–27 period were introduced. The investment incentives must be approved by the Czech government. Except for specific subsidized regions or for manufacturing projects related to products with strategic importance for protection of life and health of citizens, only projects with high added value are supported. The criteria for value-added testing includes, among others, the level of employees’ wages, the percentage of employees working on research and development (R&D) or the percentage of university-educated employees (see Manufacturing industry below).
Manufacturing industry. The following are general qualification conditions for the incentives for the manufacturing industry:
• In regions with 20% aid (15% from 2025, see below), only investments in new economic activity (that is, no longer expan sion projects) will be eligible for new support for large enter prises. Investment in tangible and intangible assets to set up a new establishment or to extend the range of activities of an
establishment will be considered a new economic activity, pro vided the new activity is not the same as or similar to that previously carried out in the establishment. The same or similar activity will be assessed according to the four-digit classifica tion of economic activities code (CZ-NACE codes; “CZ-NACE” is an abbreviation used for classification of economic activities [for the French term “nomenclature statistique des activités économiques dans la Communauté européenne”]).
• An investment at least CZK80 million must be in long-term tangible and intangible assets. The CZK80 million requirement may be reduced to CZK40 million in selected regions.
• The investment must be in a manufacturing sector, and at least 50% of the total investment must be invested in qualifying production machinery. Machinery must be acquired at an arm’s-length price. It must have been produced no more than two years before the acquisition and must not have been previously subject to tax depreciation.
• Qualifying intangible assets must be acquired from unrelated third parties for arm’s-length prices.
• The investment must be realized in the Czech Republic outside Prague with higher value added. To satisfy this requirement, for investment in manufacturing, the support recipient must have executed employment agreements for salaries amounting to at least the average wage in the given region with 80% of the employees who are working in the place in which the invest ment is being made, and one of the following conditions must also be met:
— At least 10% of employees must be university-educated and a contract for R&D cooperation must have been executed with a research organization or university.
— At least 2% of employees must be working in R&D.
— The acquisition of machinery and equipment used in R&D on top of eligible costs should represent at least 10% of the total eligible costs (machinery and equipment used in R&D cannot be included in eligible costs).
Technology centers. The following are general qualification con ditions for the incentives for technology centers:
• The investor must invest at least CZK10 million in long-term tangible and intangible assets.
• At least 50% of the total investment must be invested in quali fying machinery. Machinery must be acquired at an arm’slength price, must be produced no more than two years before the acquisition and must not have been previously subject to tax depreciation.
• At least 20 new jobs must be created.
Business support services centers. The following are general qualification conditions for the incentives for business support services centers:
• Services provided by centers should cover the territory of at least three countries (including the Czech Republic).
• For data centers and software-development centers, at least 20 new jobs must be created.
• For high-tech repair centers, at least 50 new jobs must be cre ated.
• For shared services centers, at least 70 new jobs must be cre ated.
Eligibility criteria for granting incentives to small and mediumsized enterprises are reduced.
The following are selected general conditions:
• The above qualification conditions must be met within three years of the issuance of the decision to grant the investment incentives.
• The project cannot be started prior to the submission of the investment incentives application with CzechInvest (a Czech governmental agency that processes the investment incentives applications).
• The investment must be environmentally friendly.
• The investment must be maintained for the duration of the incentive’s utilization period (10 years) and for at least 5 years from completing the investment project or creation of the first job (if the eligible expenses are wages, see Eligible expenses below).
• The investor cannot relocate the same or similar activity in the EEA in the two years preceding the application, or cannot, at the time of the application, have concrete plans to relocate such an activity within a period of up to two years after the completion of the investment project.
• The recipient of the investment incentives (that is, a new Czech subsidiary) should not be established sooner than six months prior to submitting the application to CzechInvest. The com pany should be the sole shareholder of a new Czech subsidiary (applicable for some investments).
Investment incentives can be obtained in the following forms:
• Corporate income tax relief for 10 years
• Job-creation grants
• Grants for training and retraining employees
• Cash grants on capital expenditures for strategic investments
• Real estate tax exemption
The total value of the incentives can range from 20% (15% from 2025) to 40% of total eligible costs (see Eligible expenses) for large enterprises (depending on the region). No incentives are provided in Prague. The cap is increased by 10% for midsized enterprises and 20% for small enterprises. The cap applies to the total of tax relief, job-creation grants, cash grants on capital expenditures and real estate tax exemption. Training and retrain ing grants are provided on top of this cap.
Corporate income tax relief and cash grants on capital expendi tures are offered throughout the entire Czech Republic with the exception of Prague. Job-creation grants and training and retrain ing grants are only offered in regions with high unemployment. Job-creation grants are also available in special industrial zones. Real estate tax exemption is only offered in special industrial zones.
Eligible expenses. The eligible expenses include the following (only one of the categories needs to be selected at the discretion of the investment incentives recipient):
• Value of tangible assets (machinery, building and land) and value of intangible assets, provided that machinery represents at least 50% of the total tangible and intangible assets’ value. The assets should be acquired within five years of the issuance of the decision to grant the investment incentives.
• Value of wages incurred over a 24-month period following the month when a job was created and filled. The new job qualifies if it is created in the period from the day of the filing of the investment incentives application to the end of the third year after the issuance of the decision to grant the investment incen tives. The value of the monthly wage per one employee for the purposes of cap calculation is limited to three times the average wage in the Czech Republic. Additional conditions with respect to the employees hired for the job apply.
Cash grants for strategic investment. Investors in the manufactur ing industry can be provided with a cash grant for acquisition of tangible and intangible assets of up to 20% of the qualifying costs (no more than CZK1.5 billion). Except for manufacturing proj ects related to products with strategic importance for protection of life and health of citizens or for projects in the high-tech manufacturing industry, the following conditions need to be met (in addition to the above general conditions):
• A minimum required investment of CZK2 billion, of which at least CZK1 billion represents new machinery, must be made.
• At least 250 new jobs must be created. In addition, R&D centers and high-tech repair centers can be provided with a cash grant of up to 20% of the qualifying costs (no more than CZK500 million), provided that the following conditions are met (in addition to the above general conditions):
• For R&D centers, a minimum required investment of CZK200 million, of which at least CZK100 million represents new machinery, must be made. In addition, at least 70 new jobs must be created.
• For high-tech repair centers, a minimum required investment of CZK200 million, of which at least CZK100 million represents new machinery, must be made. In addition, at least 100 new jobs must be created.
Special conditions. In addition to the general conditions listed above, investors claiming the income tax relief must satisfy cer tain special conditions, including, among others, the following:
• They must reduce their tax base by claiming maximum tax depreciation, deducting all available tax-effective bad debt provisions and using all available tax losses carried forward, in accordance with the tax law.
• They must be the first user of tangible assets (excluding real estate) that are acquired for the purposes of the investment in the Czech Republic.
• They may not cease to exist, terminate their activities or declare bankruptcy.
• They may not increase their tax base through related-party trans actions that are not at arm’s length.
Mergers are allowed to some extent; tax relief claimed before the merger is not lost, but investors are not able to claim tax relief in subsequent tax periods.
Specific conditions apply to job-creation, retraining and training grants and to grants on capital expenditures for strategic invest ments.
The incentives are provided based on the Investment Incentives Act and related EU directive. All investment incentives are sub ject to Czech government approval.
Capital gains. In the Czech Republic, realized and unrealized capi tal gains are recognized.
Capital gains realized by a Czech or another EU/EEA parent company (also, see below) on the transfer of shares in a subsidiary established in the Czech Republic or another EU/EEA country are exempt from tax if the parent company maintains a holding of at least 10% of the subsidiary for an uninterrupted period of at least one year (further conditions apply).
Capital gains realized by a Czech or EU/EEA parent company on the transfer of shares in a subsidiary in a contracting country (that is, a third country that has entered into a tax treaty with the Czech Republic) are also exempt from tax if the following conditions are satisfied:
• The subsidiary has a legal form comparable to Czech legal forms listed in the Czech tax law.
• The parent company has held an ownership interest of at least 10% in the subsidiary for at least one year (this condition may be fulfilled subsequent to the date of the transfer).
• The subsidiary is liable to a tax similar to corporate income tax at a rate of at least 12% in the tax period in which the parent company accounts for the respective capital gain and in the preceding tax period.
The exemption for capital gains does not apply if any of the fol lowing circumstances exists:
• The subsidiary entered liquidation proceedings.
• The shares in the subsidiary were acquired through the acquisi tion of a going concern.
• The parent company or the subsidiary is exempt from corporate income tax or similar tax applicable in its jurisdiction.
• The parent company or the subsidiary may opt for an exemp tion (or a similar relief) from corporate income tax or similar tax applicable in its jurisdiction.
• The parent company or the subsidiary is subject to zero corpo rate income tax or similar tax applicable in its jurisdiction.
Other realized capital gains are included with other taxable in come and taxed at the regular corporate income tax rate. Capital losses on certain assets may be deducted from ordinary income, while capital losses on other assets (including capital losses on assets that qualify for exemption) are not deductible, even from other capital gains.
Unrealized capital gains and losses, which result from revaluation to fair value, are taxable or deductible only with respect to certain assets. Unrealized gains on shares that qualify for exemption are not taxable and unrealized losses on such assets are nondeductible for tax purposes.
Capital gains realized by nonresidents on the following are con sidered Czech-source income and are consequently generally taxable:
• Sales of rights registered in the Czech Republic or investment instruments to Czech taxpayers or Czech permanent establish ments
• Sales of shares (securities or share interests) in Czech compa nies, regardless of the tax residence of the purchaser
However, capital gains realized by EU/EEA parent companies on sales of shares may be exempt from tax (see above).
Administration. Companies may select a calendar year or a fiscal year as its tax year. If a company uses a tax year other than the calendar year, it must file a notification with the tax authorities.
Tax returns must be filed within three months after the end of the tax year. If a company does not file the tax return by the standard three-month deadline, the deadline is automatically extended to the following:
• To four months after the end of the tax year if the tax return is filed electronically
• To six months after the end of the tax year if the tax return is filed by an appointed advisor (tax advisor or attorney-at-law)
Companies that are subject to a statutory audit are automatically granted a three-month (to six months after the end of the tax year) extension. In addition, on application of the company, an extension of three months to file a tax return may be granted at the discretion of the tax authorities.
A company with tax liability of more than CZK150,000 for the preceding year must make quarterly advance payments of tax, each equal to 25% of the preceding year’s tax liability. The pay ments must be made by the 15th day of the third, sixth, ninth and twelfth month of their tax year. Any balance of tax due must be paid by the due date for filing the tax return.
If a company’s liability for the preceding year exceeded CZK30,000, but did not exceed CZK150,000, installments that are each equal to 40% of the tax liability for the preceding year must be paid by the 15th day of the sixth and twelfth months of their tax year. If the preceding year’s tax liability was CZK30,000 or less, only a single payment is required on filing the annual return.
Late payments and late filings incur penalty charges at a rate established by law. Overpayments are generally refunded within 30 days of the taxpayer’s application.
Dividends. Dividends are subject to a final withholding tax at a rate of 15%. The tax rate is increased to 35%, effective from 2013, for dividends paid to Czech tax nonresidents from countries out side the EU/EEA that have not entered into a double tax treaty with the Czech Republic or a bilateral or multilateral tax infor mation exchange agreement that is binding on both the Czech Republic and the respective foreign country.
Under the principles of the EU Parent-Subsidiary Directive (No. 90/435/EEC), dividends paid by Czech companies to parent com panies (as defined in the Czech tax law) that are located in EU/ EFTA countries (also, see below) are exempt from withholding tax if the parent company maintains a holding of at least 10% of the distributing company for an uninterrupted period of at least one year (further conditions apply). The condition described in the preceding sentence may be fulfilled after the date of distribu tion of the dividend. Dividend distributions between two Czech companies and between foreign subsidiaries and their Czech parents are exempt from tax under similar conditions.
In addition, dividends distributed by subsidiaries in a contracting country are also exempt from taxation under rules similar to those applicable to capital gains (see Capital gains).
The tax exemption for dividends does not apply if any of the fol lowing circumstances exists (further conditions may apply):
• The parent company or the subsidiary is exempt from corporate income tax or similar tax applicable in its jurisdiction.
• The parent or subsidiary may opt for an exemption (or a similar relief) from corporate income tax or similar tax applicable in its jurisdiction.
• The parent or subsidiary is subject to zero corporate income tax or similar tax applicable in its jurisdiction.
• The subsidiary has an option to treat the dividend payments as tax deductible in its jurisdiction.
Foreign tax relief. Foreign tax relief (through credit or exemption) is available only under tax treaties. If foreign tax relief is not available under a treaty, the income tax paid abroad may be deducted as an expense in the following year if it is imposed on income included in taxable income in the Czech Republic.
C. Determination of trading income
General. Taxable income is calculated according to Czech account ing regulations, with adjustments for tax purposes.
All expenses incurred to generate, assure and maintain taxable income that relate to the given period are generally deductible, subject to the limits specified in the corporate income tax and related laws, if documented by the taxpayer. The following are some of the expenses that may be deducted:
• Depreciation of tangible and intangible assets (see Depreciation).
• Cost of insurance if related to taxable income (except for insur ance paid on behalf of an executive or member of the board of directors for damage caused by the performance of his or her functions).
• Membership contributions paid to selected chambers and asso ciations under certain conditions.
• Damages resulting from natural disasters. The amount of the damage must be documented by evidence submitted by an ex pert from an insurance company. Damages caused by unknown perpetrators can be tax deductible if confirmed by the police.
• Real estate tax paid in accordance with the Czech law, road tax and selected other taxes and fees (subject to exceptions), if re lated to activities that generate taxable income.
• Specified expenses related to the provision of proper working, social and health care conditions of the employees.
• Payments on leases, including financial leases, under certain conditions.
• Travel expenses related to work in the Czech Republic and abroad.
• Donations valued at CZK2,000 or more for various social and charitable purposes. In general, the maximum amount of this deduction is 10% of the tax base (with exception for tax periods ended during the period from 1 March 2020 to 28 February 2022 when the maximum amount of this deduction is 30% of the tax base).
• Expenses incurred on free-of-charge in-kind supplies provided for certain social and charitable purposes as a result of the COVID-19 pandemic from 1 March 2020 to 31 December 2020.
The following are some of the expenses that are not deductible for tax purposes:
• Refreshment and entertainment expenses
• Damages (unless the specific conditions mentioned above are met)
• Expenses paid by the taxpayer on behalf of another payer (for example, instead of related parties)
• Penalties and late payment interest levied by tax authorities and other government institutions
• Non-monetary benefits provided to employees (for example, cultural events, sports, education and medical aids)
• Creation of provisions and reserves (unless specific conditions are met)
In general, taxpayers must increase their tax base by the amount of any overdue liability accounted for in their books that represented a tax-deductible expense and that remains unsettled for 30 months (for liabilities due in 2015 or later) or 36 months (for liabilities due prior to 2015).
Inventory. Inventory is valued at acquisition or production cost. Costs include all costs necessary to convert the inventory to its current condition and to transport it to its current location. No deduction is allowed for inventory provisions or for other de creases in inventory value. Under certain circumstances, the liqui dation of inventory may be deductible for tax purposes.
Provisions. Provisions are not deductible unless a special tax law permits their creation for tax purposes.
Tax relief is provided with respect to overdue trading debts (as defined in the law). A special regime applies to unpaid receivables that were due before 31 December 1994.
Rules applicable as of 1 January 2014. Taxpayers may generally create the following tax-deductible provisions for debts that are overdue and not lapsed (with certain limitations):
• 50% of the unpaid book value of the debt if more than 18 months have elapsed since the agreed due date
• 100% of the unpaid book value of the debt if more than 30 months have elapsed since the agreed due date
For overdue debts exceeding CZK200,000 that were acquired from the previous creditor, deduction of the above provisions is allowed only if a court or arbitration proceeding was initiated and the taxpayer (creditor) participates in the proceeding.
Rules applicable until 31 December 2013 (for receivables with a due date before 2014). For overdue debts not exceeding CZK200,000 that were due after 31 December 1994, if between 6 and 12 months had elapsed since the agreed due date for the debt, 20% of the book value of the debt was deductible (grandfathering rules apply). This deduction was allowed regardless of whether court or arbitration proceedings had commenced against the debtor. If the debt was more than
months
court or arbitration proceedings needed to be commenced by the creditor
the debtor to claim a larger tax deduction for the debt. The deduction was calculated by applying the following specified percentages to the book value of the debt.
percentage
For debts exceeding CZK200,000 that were overdue more than six months, the rules described above applied if the creditor had commenced court or arbitration proceedings against the debtor.
The above deductions (under the rules applicable until 31 December 2013 and the rules applicable after that date) must be recorded in the accounting books. The deductions may not be claimed for debts from related parties and other specified debts. A 100% provision can be created for receivables up to CZK30,000, subject to certain conditions. A 100% provision for overdue re ceivables may also be created if insolvency proceedings have been initiated with respect to the debtor’s property and if the creditor makes a timely claim for such receivables against the debtor in the respective court. This deduction may not be claimed for debts from related parties.
Reserves. Taxpayers may create tax-deductible reserves for the repair of tangible assets included in Categories 2 through 6 for tax depreciation purposes (see Depreciation). The reserves must be created for a minimum of two tax periods and for the maximum number of tax periods specified for each asset category.
Reserves for repairs of tangible assets may be created taxeffectively only if cash equal to the amount of the reserve created is deposited in a specific bank account. This measure applies to reserves that are created after 2008.
Depreciation. The corporate income tax law includes specific provisions concerning the depreciation of tangible and intangible assets. Depreciable tangible assets are divided into six categories, each of which specifies a period (a specified number of years) over which all assets in the category are depreciated.
following are the six categories of depreciation, the time peri ods for depreciation of assets in each category and representative assets included in each category.
machines
buses,
Asset
buildings, pipelines,
buildings
* This category includes hotels, stores and office buildings.
Assets other than buildings that cannot be classified in any of the above categories are considered to be in Category 2. Category 5 covers buildings that are not covered by Categories 4 or 6.
Taxpayers may elect to depreciate assets using the straight-line or the accelerated method. The method chosen, however, does not affect the period of depreciation. Under the accelerated method, depreciation for the first year is calculated by dividing the cost of the asset by the applicable coefficient (see table below). For subsequent years, accelerated depreciation is calculated by multiply ing the residual tax value of the asset by two and then dividing by the applicable coefficient, which is reduced by the number of years for which the asset has already been depreciated.
The following are the depreciation rates and coefficients for the six categories under the straight-line and accelerated methods.
Straight-line Accelerated-depreciation Category rate coefficient
1 20% for first year 3 for first year and and 40% for 4 for subsequent subsequent years years
11% for first year 5 for first year and and 22.25% for 6 for subsequent subsequent years years
5.5% for first year 10 for first year and and 10.5% for 11 for subsequent subsequent years years
2.15% for first year 20 for first year and and 5.15% for 21 for subsequent subsequent years years
1.4% for first year 30 for first year and and 3.4% for 31 for subsequent subsequent years years
1.02% for first year 50 for first year and and 2.02% for 51 for subsequent subsequent years years
Taxpayers may elect to use lower than the maximum straight-line depreciation rates. Additional rules apply to assets that were tech nically improved.
An initial accelerated depreciation charge (additional 10% to 20% of input price; in general, the input price is the acquisition cost, including related costs) is granted in the year of acquisition for certain tangible assets if other conditions are met.
Effective from 2010, the component depreciation of assets method may be used for accounting purposes. For tax purposes, the accounting result is adjusted as if this method was not used.
Specified tangible assets used in solar energy production are depreciated proportionally for a period of 240 months.
Effective from 1 January 2021, the threshold for classification in the category of separate tangible assets and their technical im provement is increased from CZK40,000 to CZK80,000. It is also possible to apply this new threshold to assets acquired and technical appreciation completed in 2020.
Extraordinary depreciation of assets in the first and second de preciation groups put into use between 1 January 2020 and 31 December 2021 may be used. Assets classified in the first depreciation group can be fully depreciated over 12 months, and assets in the second depreciation group can be fully depreciated over 24 months (depreciation up to 60% of input price is applied during the first 12 months and the rest during the remaining 12 months). Only the first person depreciating the given asset can apply the extraordinary depreciation.
Historically, depreciable intangible assets were divided into two categories — intangible assets that may be used for a definite time period and those that may be used for an indefinite time period. Intangible assets that may be used for a definite period are depreciated proportionally during such period. If the period for use is indefinite, the intangible asset is depreciated propor tionally over the following periods (also see next paragraph).
Category Period (months)
Audiovisual works 18 Software 36 Foundation expenses 60 Other intangible assets 72
Under an amendment, effective from 1 July 2017, the above periods are set as minimum depreciation periods. According to transitory provisions, this modification applies to intangible assets of which depreciation was commenced after the effective date of the amendment (that is, 1 July 2017).
Effective from 1 January 2021, the tax depreciation of intangible assets is abolished. The expenses related to the acquisition of in tangible assets can be amortized in the same way for tax pur poses as for accounting purposes. It is also possible to apply this new approach to assets acquired in 2020.
Research and development costs. In principle, qualifying costs for certain eligible R&D projects are deductible twice (first as taxdeductible expenses, then as a specific tax base decreasing item). Since 2014, the R&D deduction has been increased to 110% of incremental eligible costs incurred in the tax period. Purchased services do not qualify for the second deduction (except for the services provided by a public university or other research institu tions specified by relevant legislation). Further detailed condi tions are provided for the deduction.
Relief for losses. Losses may be carried forward for five years. The carryforward may be lost if a “substantive change” in persons participating in the equity or control of the taxpayer occurs and if the same activity test is not met. A “substantive change” is consid ered to be one of the following:
• A change in more than 25% equity ownership
• A change resulting in a shareholder receiving decisive influence
The same activity test is met if 80% of the revenues generated in the period in which the substantive change occurs and in the fol lowing tax-loss utilization periods is from the same activities that were performed in the period in which the tax loss was generated.
Effective from 1 July 2020, a tax loss may be deducted from the tax base in the two tax periods immediately preceding the tax period (or the period for which a tax return is filed) for which the tax loss is assessed. In the tax periods preceding the period for which the tax loss is assessed, a tax loss may only be deducted from the tax base up to a total amount not exceeding CZK30 million.
Groups of companies. Czech income tax law does not provide for consolidated tax returns or other types of group relief.
D. Other significant taxes
The following table summarizes other significant taxes.
Nature of tax Rate
Value-added tax (VAT), levied on all taxable supplies (goods and services), acquisitions of goods from other EU member states and imports of goods; certain supplies are exempt Standard rate; applicable to most goods and services 21%
Reduced rate applicable to specified goods and services (for example, food products and cultural services) 15% Reduced rate applicable to certain goods, such as books, pharmaceuticals and baby food 10%
Social security and health insurance contributions; the social security contributions are paid only up to the maximum assessment base
Health insurance
Employer 9% Employee 4.5%
(No maximum assessment base applies.)
Old-age pension
Employer 21.5%
Employee 6.5%
(The expected maximum assessment base is CZK1,867,728 as of 1 January 2022.)
Sickness
Employer 2.1% Employee 0%
(The expected maximum assessment base is CZK1,867,728 as of 1 January 2022.)
Nature of tax Rate
Unemployment
Employer
1.2%
Employee 0%
(The expected maximum assessment base is CZK1,867,728 as of 1 January 2022.)
Excise tax, imposed on entities that produce or import certain goods, including hydrocarbon fuels and lubricants, alcohol and spirits, beer, wine and tobacco products; tax based on the quantity of goods expressed in specific units; tax may be levied only once on a particular good Various Road tax, imposed on entities that use vehicles; based on engine capacity and number of axles Various Environmental tax; imposed on electricity, natural gas and solid fuel when delivered to final consumers; tax is based on the quantity of goods expressed in specific units; tax is administered and paid by the distributor which charges it to the final customer as a price increase
Various Electronic tax stamps for the use of highways Small vehicles (up to 3.5 tons; annual stamp)
CZK1,500 Large vehicles Electronic road tolls
E. Miscellaneous matters
Foreign-exchange controls. The only legal tender valid in the Czech Republic is the Czech crown (CZK). Other currencies may be used for domestic transactions, but the use of the Czech crown is prevalent.
The Czech crown is fully convertible. Several financial transac tions, such as direct investments or acceptance of credit from abroad, are subject to a reporting requirement.
Anti-avoidance legislation. In applying the tax law, the tax author ities may consider the substance of a transaction if the form of the transaction conceals the actual facts. In addition, the Czech courts have developed the abuse-of-law concept. The concept is similar to the one developed by the European Court of Justice (for example, Halifax [No. C-255/02]).
A minimalistic version of the general anti-avoidance rule (inspired by the Anti-Tax Avoidance Directive [ATAD]) is included in the Tax Administration Law as of 1 April 2019. The provi sion applies to all taxes, and its wording (together with the explanatory report) indicates continuity of the current approach to the abuse of law concept.
Transfer pricing. If prices in a transaction involving related parties vary from the current market prices and if the difference cannot be justified, the market prices are used for tax purposes. Related parties include companies related through capital (that is, the same legal or natural persons directly or indirectly manage, control or own more than 25%) and companies related in a different
manner. In addition, related parties are persons who establish a business relationship for the principal purpose of decreasing taxable income or increasing a tax loss.
Binding rulings. Taxpayers may apply to the tax authorities for advance pricing agreements and for binding opinions on transfer prices, the determination of the tax base of a tax nonresident from activities carried on by a permanent establishment, technical im provements of long-term assets, the allocation of expenses to taxable and nontaxable income, expenses incurred on R&D proj ects, expenses incurred on buildings that are also used for private purposes, and the application of VAT rates.
Financing expenses. The tax deductibility of financing expenses (interest and associated expenses) with respect to related-party loans (including back-to-back loans) is limited by a debt-equity ratio of 4:1 (6:1 for banks and insurance companies). Financing expenses with respect to profit-participating loans are nondeductible for tax purposes. Also, limitations are imposed on the deductibility of financing expenses related to shareholdings.
Based on the transposition of the ATAD, effective from 1 April 2019, the deductibility limit for exceeding borrowing costs is the higher of 30% tax earnings before interest, tax, depreciation and amortization (EBITDA) or CZK80 million. The rule does not apply to “standalone” taxpayers and to listed financial enterpris es. Borrowing costs subject to this rule are defined broadly in line with ATAD. Disallowed exceeding borrowing costs may be carried forward and claimed in future tax periods (however, transfer to previous tax periods and transfer of unused capacity to future tax periods will not be allowed). The interest deductibility limitation rule will apply together with the thin-capitalization rule and other limitations on financing expenses.
Controlled foreign company rules. Controlled foreign company (CFC) rules were implemented through the ATAD transposition and are effective from April 2019. The CFC rules provide for taxation of certain types of passive income of a CFC (or perma nent establishment if exempt pursuant to a double tax treaty) in the hands of a Czech controlling company in proportion to the share capital held in the CFC if the following conditions are met:
• The CFC entity does not carry out substantive economic activ ity.
• The foreign tax of the CFC entity is lower than 50% of the tax that would be paid as a Czech resident under Czech rules.
• The Czech controlling company directly or indirectly (itself or with associated companies) has a greater than 50% share of the voting rights, capital or profits.
Stricter CFC rules apply to entities from jurisdictions on the EU list of noncooperative jurisdictions.
Exit taxation. Exit taxation rules (that is, taxation of the transfer of assets with no change in ownership from the Czech Republic to another jurisdiction if the Czech Republic loses the right to tax the transferred asset) were implemented through the ATAD trans position and apply to tax periods beginning on or after 1 January 2020. The main parameters of the rules are broadly in line with those in the ATAD.
Anti-hybrid rules. Anti-hybrid rules were also implemented through the ATAD transposition and apply to tax periods beginning on or after 1 January 2020. Situations of double deduction, deduction without inclusion of income and imported hybrid mismatch are addressed by the anti-hybrid rules.
Foreign investment. Similar rules apply to both Czech investors and foreign investors.
Exchange of information. Various recent changes have occurred in the area of exchange of information, such as amendments made to the EU directive on administrative cooperation in the field of taxation, including Country-by-Country Reporting (CbCR) and the Mandatory Disclosure Regime (legislation implementing the EU Directive on Administrative Cooperation 6 [DAC 6] is gener ally in line with EU DAC 6), the conclusion of the Multilateral Competent Authority Agreement and the conclusion of similar agreements with “tax haven” countries.
F. Treaty withholding tax rates
The Czech Republic honors bilateral tax treaties of Czechoslovakia. It has also entered into tax treaties with many other jurisdictions. The Czech Republic is a signatory of the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (Multilateral Instrument, or MLI). The Czech Republic has so far implemented only “the minimum standard”; that is, the preamble, the rule to prevent treaty abuse (the principal purpose test) and modifica tions concerning the effective resolution of disputes by mutual agreement. The MLI entered into force for the Czech Republic on 1 September 2020, and the entry into effect in relation to a particular covered treaty is generally derived (with some delay) from its ratification by both MLI signatories.
The following table lists the withholding tax rates under the bilateral treaties currently honored by the Czech Republic.
Dividends Interest Royalties % % %
Albania 5/15 (b) 0/5 (g) 10
Armenia 10 0/5/10 (g) 5/10 (a)
Australia 5/15 (e) 10 10
Austria 0/10 (c)(s) 0 (t) 0/5 (a)(q)
Azerbaijan 8 0/5/10 (g) 10
Bahrain 5 0 10 Bangladesh 10/15 (b) 0/10 (g) 10
Barbados 5/15 (b) 0/5 (g) 5/10 (a)
Belarus 5/10 (b) 0/5 (g) 5 Belgium 5/15 (b)(s) 0/10 (g)(t) 0/5/10 (q)(aa)
Bosnia and Herzegovina 5 0 0/10 (a)
Botswana 5 0/7.5 (g) 7.5
Brazil 15 0/10/15 (g)(i) 15/25 (v)
Bulgaria 10 (s) 0/10 (g)(t) 10 (q)
Canada 5/15 (c) 0/10 (g) 10
Chile 15 4/10 (z) 5/10 (w)
China Mainland 5/10 (b) 0/7.5 (g) 10
Colombia 5/15/25 (b) 0/10 (g) 10 Croatia 5 0 10
Cyprus
Dividends Interest Royalties
% % %
0/5 (c)(s) 0 (t) 0/10 (a)(q)
Denmark 0/15 (c)(s) 0 (t) 0/10 (a)(q)
Egypt 5/15 (b) 0/15 (g) 15
Estonia 5/15 (b)(s) 0/10 (g)(t) 10 (q)
Ethiopia 10 0/10 (g) 10
Finland 5/15 (b)(s) 0 (t) 0/1/5/10 (m)(q)
France 0/10 (b)(s) 0 (t) 0/5/10 (q)(u)
Georgia 5/10 (b) 0/8 (g) 0/5/10 (u)
Germany 5/15 (b)(s) 0 (t) 5 (q)
Ghana 6 0/10 (g) 8
Greece 15 (s) 0/10 (g)(t) 0/10 (a)(q)
Hong Kong 5 0 10
Hungary 5/15 (b)(s) 0 (t) 10 (q)
Iceland 5/15 (b)(s) 0 (t) 10 (q)
India 10 0/10 (g) 10
Indonesia 10/15 (e) 0/12.5 (g) 12.5
Iran 5 0/5 (g) 8
Ireland 5/15 (b)(s) 0 (t) 10 (q)
Israel 5/15 (f) 0/10 (g) 5
Italy 15 (s) 0 (t) 0/5 (a)(q)
Japan 10/15 (b) 0/10 (g) 0/10 (a)
Jordan 10 0/10 (g) 10
Kazakhstan 10 0/10 (g) 10 Korea (North) 10 0/10 (g) 10 Korea (South) 5 0/5 (g) 0/10 (a)
Kuwait 0/5 (k) 0 10
Kyrgyzstan 5/10 (f) 5 (g) 10
Latvia 5/15 (b)(s) 0/10 (g)(t) 10 (q)
Lebanon 5 0 5/10 (w)
Liechtenstein 0/15 (c)(s) 0 (t) 0/10 (a)(q)
Lithuania 5/15 (b)(s) 0/10 (g)(t) 10 (q)
Luxembourg 0/10 (c)(s) 0 (t) 0/10 (a)(q)
Malaysia 0/10 (l) 0/12 (g) 12
Malta 5 (s) 0 (t) 5 (q)
Mexico 10 0/10 (g) 10
Moldova 5/15 (b) 5 10
Mongolia 10 0/10 (g) 10
Montenegro 10 0/10 (g) 5/10 (a)
Morocco 10 0/10 (g) 10 Netherlands 0/10 (b)(s) 0 (t) 5 (q)
New Zealand 15 0/10 (g) 10
Nigeria 12.5/15 (c) 0/15 (g) 15
North Macedonia 5/15 (b) 0 10
Norway 0/15 (c)(s) 0 (t) 0/5/10 (u)(q)
Pakistan 5/15 (b) 0/10 (g) 10
Panama 5/10 (y) 0/5/10 (g)(z) 10
Philippines 10/15 (c) 0/10 (g) 10/15 (r)
Poland 5 (s) 0/5 (g)(t) 10 (q)
Portugal 10/15 (j)(s) 0/10 (g)(t) 10 (q)
Romania 10 (s) 0/7 (g)(t) 10 (q)
Russian
Federation 10 0 10
Saudi Arabia 5 0 10
Serbia 10 0/10 (g) 5/10 (a)
Singapore 5 0 10
Slovak Republic
Dividends Interest Royalties
% % %
5/15 (c)(s) 0 (t) 0/10 (a)(q)
Slovenia 5/15 (b)(s) 0/5 (g)(t) 10 (q)
South Africa 5/15 (b) 0 10
Spain 5/15 (b)(s) 0 (t) 0/5 (n)(q)
Sri Lanka 6/15 (o) 0/10 (g) 0/10 (a)
Sweden 0/10 (b)(s) 0 (t) 0/5 (a)(q)
Switzerland 0/15 (c)(s) 0 (t) 5/10 (p)(q)
Syria 10 0/10 (g) 12
Taiwan (bb) 10 0/10 (g) 5/10 (w)
Tajikistan 5 0/7 (g) 10
Thailand 10 0/10/15 (g) 5/10/15 (h)
Tunisia 10/15 (b) 12 5/15 (a)
Turkey 10 0/10 (g) 10
Turkmenistan 10 0/10 (g) 10
Ukraine 5/15 (b) 0/5 (g) 10
United Arab Emirates
0/5 (k) 0 10
United Kingdom 5/15 (b) 0 0/10 (a)
United States 5/15 (c) 0 0/10 (a)
Uzbekistan 5/10 (b) 0/5 (g) 10 Venezuela 5/10 (f) 0/10 (g) 12
Vietnam 10 0/10 (g) 10
Non-treaty
jurisdictions 15/35 (x) 0/15/35 (d)(x) 15/35 (x)
(a) The lower rate applies to royalties paid for copyrights. The higher rate applies to royalties paid for patents, trademarks, designs or models, plans, secret for mulas or processes, or industrial, commercial or scientific equipment or information.
(b) The lower rate applies if the receiving company (other than a partnership) owns at least 25% of the capital of the payer. Under the Belgium treaty, divi dends paid to partnerships may also qualify for the lower rate. Under the United Kingdom treaty, the lower rate applies if the receiving company con trols at least 25% of shares with voting rights of the payer. Under the Japan treaty, the lower rate applies if the receiving company holds at least 25% of shares with voting rights of the payer for at least six months preceding the payment of dividend. Under the Colombia treaty, the 25% rate applies to dividends paid by a Colombian resident that are derived from profits that were not under the law subject to Colombian tax, and the 15% rate applies to dividends not subject to the 5% or 25% rates.
(c) The lower rate applies if the receiving company (other than a partnership) owns at least 10% of the capital of the payer. Under the Canada and Nigeria treaties, the lower rate applies if the receiving company controls at least 10% of the voting rights of the payer (except for dividends paid by a Canadian investment corporation). Under the United States treaty, the lower rate applies if the receiving company owns at least 10% of the shares with voting rights of the payer (exceptions applies to dividends paid by investments companies and real estate investment trusts located in the United States). Under the Norway treaty, the 0% rate also applies to dividends paid to the government or speci fied institutions. Under the Cyprus, Liechtenstein, Luxembourg and Switzerland treaties, the 0% rate applies if at least 10% of share capital of the payer is held by an entity (other than a partnership) for at least one year. Under the Denmark treaty, the 0% rate applies if the recipient of the dividends is a pension fund. Under the Switzerland treaty, the 0% rate also applies if the recipient of the dividends is a central bank or a pension fund.
(d) Interest on mutual deposits with banks in the interbank market is exempt from tax for recipients from non-treaty countries (subject to reciprocal treatment). For all Czech tax nonresidents (that is, recipients from treaty and non-treaty countries), interest on bonds issued by Czech taxpayers or the Czech Republic outside the Czech Republic is exempt from tax. The 15% rate applies to other interest but see also footnote (x).
(e) The lower rate applies if the receiving company (other than a partnership) owns at least 20% of the capital of the payer. Under the Australia treaty, the
lower rate applies to dividends paid from the Czech Republic to Australia if the receiving company owns at least 20% of the capital of the payer and to dividends paid from Australia to the Czech Republic if special requirements are met.
(f) The 5% rate applies if the receiving company (other than a partnership) owns more than 15% of the capital of the payer.
(g) The 0% rate applies to interest paid to (or by) the government (or specified institutions), subject to further conditions. Under the Albania treaty, the 0% rate also applies to interest paid to an agency, including banks and financial institutions, wholly owned by the contracting state. Under the Georgia treaty, the 0% rate also applies to interest on loans and credits guaranteed by govern ments or related to sales of industrial equipment that are financed by loans. Under the Armenia and Azerbaijan treaties, the 5% rate applies to interest on bank loans. Under the Ethiopia treaty, the 0% rate also applies to, among other items, interest paid to institutions owned or controlled by the govern ment whose sole purpose is the promotion of export or foreign investment. Under the Thailand treaty, the 10% rate applies to interest paid to financial institutions or insurance companies; otherwise, the rate of the source country applies. Under the Pakistan and Syria treaties, the 0% rate also applies to in terest paid to the central bank or any financial institution wholly owned by the government and to interest on loans and credits guaranteed by the government or specified institutions. Under the China Mainland treaty, the 0% rate also applies if the interest paid to selected government agencies or the central bank or if the receivable is financed, guaranteed or pledged by the government, the central bank or a selected government agency. Under the Barbados, Colombia, Iran, Tajikistan and Uzbekistan treaties, the 0% rate also applies to interest from the sale on credit of merchandise or equipment or from a loan or credit granted by a bank or guaranteed by the government (or specified institutions). Under the Belarus treaty, the 0% rate also applies to interest on bank loans. Under the Poland treaty, the 0% rate also applies to interest from a loan or credit granted by a bank or guaranteed by the government (or specified institutions). Under the Belgium treaty, the 0% rate applies to interest from suspended payments for goods and services, loans guaranteed by public institutions aimed to support the export and bank loans and deposits (except in the form of securities). Under the Brazil treaty, interest from securities, bonds and promissory notes issued by the government (or specified institutions) is subject to tax in the state of residence of the issuer. Under the Bulgaria and Panama treaties, the 0% rate also applies to interest from suspended payments for equipment or goods or from certain loans guaranteed by public institutions. Under the Canada treaty, the 0% rate also applies to, among other items, interest paid to institutions established to manage and pay out benefits from pension, retirement or employee schemes (other limitations apply). Under the Botswana, Ghana, Korea (South) and Kyrgyzstan treaties and the Taiwan bill, the 0% rate also applies to interest paid in connection with the sale on credit of any merchandise or equipment or in connection with a loan or credit provided, guaranteed or insured by the government (or specified institutions). Under the Bangladesh, Kazakhstan and Turkmenistan treaties, the 0% rate also applies to interest from loans guaranteed by the government (or specified institutions). Under the Malaysia treaty, the 0% rate also applies to interest from approved loans if the beneficial owner of the interest is a Czech tax resident.
(h) The 5% rate applies to royalties for copyrights. The 10% rate applies to royal ties for patents, trademarks, designs or models, plans, secret formulas and processes. The 15% rate applies to other royalties.
(i) The 10% rate applies to loans and credits granted by a bank for a period of at least 10 years in connection with the following:
• Sales of industrial equipment or studies
• Installation or furnishing of industrial or scientific units
• Public works
(j) The 10% rate applies if the receiving company owns at least 25% of the payer for at least two years preceding the payment of the dividend.
(k) The 0% rate applies to a dividend paid to the government of a contracting state (or a government institution) or to a company that is at least 25% owned by the government of the contracting state.
(l) The 0% rate applies to a dividend paid by a tax resident of Malaysia to a Czech tax resident who is the beneficial owner of the dividends.
(m) The 0% rate applies to royalties paid for copyrights. The 1% rate applies to royalties paid for finance leases of equipment. The 5% rate applies to royal ties paid for operating leases of equipment and for the use of, or right to use, software. The 10% rate applies to other royalties.
(n) The lower rate applies to royalties for copyrights, with the exception of royal ties for cinematographic films and films or tapes for television broadcasting. The higher rate applies to other royalties.
(o) The lower rate applies to dividends paid by a tax resident of Sri Lanka to a Czech tax resident (except with respect to investments made after the effec tive date of the treaty).
(p) The treaty provides for a rate of 10%, but a protocol to the treaty provides for a rate of 5% until Swiss domestic law imposes a withholding tax on royalties.
(q) In addition to treaty protection, royalties paid by Czech companies or perma nent establishments of companies from EU member states to related-party companies located in other EU/EEA member states or Switzerland is exempt from tax if the conditions stated in provisions implementing EU Directive 2003/49/EC, as amended, are satisfied and if an advance ruling is issued by the Czech tax authority. If a Czech withholding tax applies to outbound royal ties, EU/EEA tax residents may choose to include the income in their tax return and have it taxed at the standard corporate income tax rate after deduc tion of associated expenses (while claiming a credit for the withholding tax paid against tax liability stated in the tax return), or to treat the withholding tax as a final tax on the income.
(r) The 10% rate applies to royalties paid for patents, trademarks and industrial, commercial, or scientific equipment or information. The 15% rate applies to royalties paid for films.
(s) In addition to treaty protection, dividends paid by Czech companies to parent companies (as defined in the EU Parent-Subsidiary Directive 2011/96/EU) that are located in other EU member states, or in Iceland, Liechtenstein, Norway or Switzerland, are exempt from withholding tax if the parent com pany maintains a holding of at least 10% of the distributing company for an uninterrupted period of at least one year (this condition may be met subse quently). Further conditions apply.
(t) In addition to treaty protection, interest from qualified instruments paid by Czech companies or permanent establishments of companies from EU mem ber states to related-party companies (as defined in EU Directive 2003/49/EC) located in other EU/EEA member states or Switzerland is exempt from with holding tax if the conditions stated in the provisions implementing EU Directive 2003/49/EC, as amended, in the Czech tax law are satisfied and if an advance ruling is issued by the Czech tax authority. In addition, if Czech withholding tax applies to outbound interest, EU/EEA tax residents may choose to include the income in their tax return and have it taxed at the stan dard corporate income tax rate after deduction of associated expenses (while claiming a credit for the withholding tax paid against tax liability stated in the tax return), or to treat the withholding tax as a final tax on the income.
(u) The 0% rate applies to royalties paid for copyrights. The 5% rate applies to payments for industrial, commercial or scientific equipment. The 10% rate applies to royalties paid for patents, trademarks, designs or models, plans, secret patterns or production procedures and software, as well as for informa tion relating to experience acquired in the areas of industry, commerce or science.
(v) The 25% rate applies to royalties paid for trademarks. The 15% rate applies to other royalties.
(w) The 5% rate applies to royalties paid for industrial, commercial or scientific equipment.
(x) A 35% tax rate applies to payments to tax residents in countries with which the Czech Republic has not entered into a double tax treaty or a treaty on ex change of information in tax matters. For further details, see footnote (e) in Section A.
(y) The 5% rate applies to business profits after taxation transferred by a perma nent establishment in one contracting state to its head office in the other contracting state.
(z) The 4% rate applies to interest paid to banks, insurance companies and other specified lending and financial institutions. If Chile agrees to a lower rate or an exemption with an Organisation for Economic Co-operation and Development member state, this lower rate or exemption would also apply to the treaty between Chile and the Czech Republic.
(aa) The 0% rate applies to copyright royalties paid from the Czech Republic to Belgium. The 5% rate applies to royalties paid for use of industrial, com mercial or scientific equipment.
(bb) A special bill aimed at preventing double taxation with respect to Taiwan entered into effect on 1 January 2021.