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Czech Republic: Tax Revisions Considered

(May 28, 2013) The Czech Republic is re-codifying its private law, and in connection with this project, the legislature is considering changes to the tax laws. On May 15, 2013, the lower chamber of the country’s Parliament approved a first reading of the revisions. The bill’s provisions include changes to both corporate and individual income tax. (Czech Republic: Bill Amending Tax Laws in Connection with Re-Codification of Private Law – Submitted to Parliament, IBFD TAX RESEARCH PLATFORM (May 16, 2013), online subscription database.)

Corporate Income Tax Proposals

  • Profits, including dividends, received by companies resident in the Czech Republic from other companies located in the country or anywhere in the European Union, Iceland, Norway, or Switzerland would be tax exempt; the provision would be reciprocal, applying to dividends received by companies in those other nations derived from companies in the Czech Republic.
  • There will be enhanced incentives for research and development under which a company could claim an additional 110% of costs for qualifying activities and could include research and development performed by third parties.
  • Charitable donations will be deductible up to 10% of the tax base, an increase over the current 5%. This applies to giving to charities and educational organizations established in the Czech Republic, EU Member States, Iceland, or Norway, as well as to donations to disabled individuals and individuals who maintain certain medical and educational facilities.
  • Bad-debt provisions would be revised and made simpler. (Id.)

Individual Income Tax Proposals

  • Tax exemptions will be given to resident individuals for profit distributions, including dividends, from companies located in the Czech Republic, anywhere in the European Union, Iceland, Norway, or Switzerland. Individuals resident in any of those nations would be exempt from tax on such distributions from companies in the Czech Republic as well.
  • Non-resident individuals would have to be resident in another EU Member State, Iceland, or Norway and earn 90% of their global income from the Czech Republic to be eligible for any deductions and tax credits.
  • Charitable donations will be deductible up to 15% of the tax base, an increase over the current 10%. This applies to giving to charities and educational organizations established in the Czech Republic, EU Member States, Iceland, or Norway, as well as to donations to disabled individuals and individuals who maintain certain medical and educational facilities.
  • Under specified conditions, capital gains held for three years would become tax exempt (at present the holding period is six months). (Id.)

The revisions would need approval by both chambers of the legislature and the President’s signature to become law. The goal is to apply the changes as of January 1, 2014. (Id.)