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Czech Republic

Individuals in the Czech Republic are subject to personal income tax, social security contributions, real-estate tax, real-estate transfer tax, gift and inheritance tax and road tax if a vehicle is used for entrepreneurial activities. 

The tax year for individuals is the calendar year and a tax return must be filed by 31 March of the following year.

For tax purposes, a resident is defined as an individual who stays in the Czech Republic for 183 days or more within a 12-month period. Residents are liable for tax on their worldwide income; nonresidents pay tax only on income sourced in the Czech Republic.

Taxable income and rates
The personal income tax rate is 15%. Generally, all forms of compensation, whether in cash or in kind, are taxable as income (except for some tax-free benefits).

Employed taxpayers contribute 12.5% of their gross wages to the state health and social security funds (the employer's contribution to the funds amounts to 35% of the employee's income). A cap, in an amount equal to 48 times the average monthly wage, is applicable to the assessment base for social security and health insurance as from 1 January 2008.

Certain forms of domestic-source income are subject to lump-sum withholding tax. For example, a 15% final withholding tax applies to interest income from savings deposits and to dividends.

Small business owners may opt to pay a lump sum tax payment instead of paying tax on actual profits. This option applies if the individual is not subject to VAT, operates a business as a sole proprietor and did not have annual income of more than CZK 1 million for the previous tax year.

Determination of taxable income
The Income Taxes Act recognises five basic sources of income: employment, entrepreneurial activity, capital, leased property and other. General taxable income is defined as the difference between gross income and allowable expenses incurred in obtaining this income. Domestically sourced dividend and interest income are taxed separately via withholding at source.

No expenses may be deducted in calculating taxable income from employment. The tax base for income from employment includes social security and health insurance the employer is required to pay (35% of gross income). Health insurance premiums and social security charges paid by an employee (12.5% of gross income) to the state social security system are not tax deductible.

For other categories of income, deductions may be a fixed percentage of income or the total actual expenses incurred in deriving the income. Donations to recognised charities may be deducted up to a maximum of 10% of the tax base. A standard personal tax allowance of CZK 24,840 is deductible, with additional tax allowances of CZK 28,840 for a dependent spouse (if the spouse does not earn more than CZK 38,040 per year) and CZK 10,680 for each dependent child. However, the spouse and dependent deductions do not apply to nonresidents. Individuals with a disability may deduct CZK 2,520 to CZK 16,140, depending on the severity of the disability.

Some income is tax-exempt, including gains from the sale of a flat or house (if the seller lived there at least two years before the sale); gains from the sale of movable or immovable property (if the property was held at least one or five years, respectively, before the sale); gains from the transfer of an interest in a business entity (if the interest was held at least five years); and insurance payments.

Losses on assets sold below their book value may be deducted. Trips provided to employees up to a value of CZK 20,000 per year are not considered a taxable benefit.

Special expatriate tax regime
There is no special expatriate tax regime.

Capital taxes
Land and building owners are subject to an annual real estate tax. The tax base for land depends on the area of land occupied (residential land) or the price of the land (agricultural land). The tax on buildings is assessed, depending on the size of the building. Rates are also multiplied by a coefficient of one to five, depending on the location of the property.

Inheritance and gift tax is levied on immovable and movable property in the Czech Republic (regardless of the nationality or residence of the owner). Where the deceased person or donor is a Czech national, movable property abroad is also subject to this tax. Rates vary depending on the category of the beneficiary.

Source: Deloitte

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