Linhart - Tax System

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Tax System in the Czech Republic Jan Linhart 27 May 2014

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Transcript of Linhart - Tax System

Page 1: Linhart - Tax System

Tax System

in the Czech Republic

Jan Linhart

27 May 2014

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Agenda

Introduction

Corporate Income Tax

Transfer Pricing

Personal Income Tax

VAT

International Taxation / Holding Structures

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Introduction

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3© 2014 KPMG Česká republika, s.r.o., a Czech limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International“), a

Swiss entity. All rights reserved. Printed in the Czech Republic.

Taxes in the Czech Republic

Indirect taxes Direct taxesOther

taxes

Income taxes Taxes on property

■ Corporate income tax

■ Personal income tax

■ Real estate tax

■ Real estate transfer tax

■ Road tax

■ Value added tax

■ Excise duties

■ Energy taxes

■ Social security and

health insurance

■ Withholding tax

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4© 2014 KPMG Česká republika, s.r.o., a Czech limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International“), a

Swiss entity. All rights reserved. Printed in the Czech Republic.

General comments

■ Basic principles are similar to other European countries

■ Tax system is based on Czech Law

■ In limited areas, possibility to obtain ruling exists (eg. transfer pricing,

utilization of losses carried forward), otherwise the tax authorities do not have

the power to evaluate tax treatment in advance

■ Court decisions are not binding, but over the past few years have significantly

influenced the decision making process of the tax authorities (mostly

improving position of taxpayers)

■ VAT and customs duties harmonized within EU

■ OECD Transfer pricing rules are followed

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5© 2014 KPMG Česká republika, s.r.o., a Czech limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International“), a

Swiss entity. All rights reserved. Printed in the Czech Republic.

Tax rates

Tax type Tax rate

Corporate income tax 19%

Personal income tax 15% - 22%

Real estate transfer tax 4%

Social insurance

employee6.5%

(subject to maximum limit)

employer25%

(subject to maximum limit)

Health insuranceemployee 4.5%

employer 9%

Withholding tax15%

(standard rate, may be modified by Double Tax Treaties)

Value added tax 21% (standard), 15% (reduced)

Excise duties Different rates

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Corporate Income Tax

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7© 2014 KPMG Česká republika, s.r.o., a Czech limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International“), a

Swiss entity. All rights reserved. Printed in the Czech Republic.

Corporate Income Tax

■ Tax base is based on the accounting profit stated in the statutory financial

statements, subject to a number of adjustments (non-deductible expenses,

non-taxable income, tax deductions etc.).

■ Taxable period is the calendar year, though it can be changed into a fiscal

year (non-calendar year-end) if a request is filed in advance to the tax

authorities.

■ The deadline for submission of a tax return is 3 months from the end of the

taxable period. This deadline is extended by a further 3 months if:

– the taxpayer is subject to a statutory audit, or

– the taxpayer engages a registered tax advisor to submit the tax return on its

behalf.

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8© 2014 KPMG Česká republika, s.r.o., a Czech limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International“), a

Swiss entity. All rights reserved. Printed in the Czech Republic.

Corporate Income Tax

Examples of tax

non-deductible costs

Examples of tax

deductible costs

Accounting depreciation of assets Tax depreciation of the assets

Most adjustments (provisions) and reserves Rental fees

Representation / entertainment costs Salary costs and most of employment benefits

Dividends Consumption of material

Inventory shortages

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9© 2014 KPMG Česká republika, s.r.o., a Czech limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International“), a

Swiss entity. All rights reserved. Printed in the Czech Republic.

Tax Depreciation of Assets

■ For tax purposes, accounting depreciation is not relevant, but special

rules for tax depreciation should be applied.

■ In the case of tax depreciation of tangible assets, either straight-line

or accelerated (reducing balance) depreciation can be used.

■ Tangible fixed assets are divided into 6 categories (3-50 years), broadly

reflecting the expected useful life, though in reality tax depreciation is

usually faster than accounting depreciation.

■ Tax depreciation of intangible assets can be straight-line only.

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10© 2014 KPMG Česká republika, s.r.o., a Czech limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International“), a

Swiss entity. All rights reserved. Printed in the Czech Republic.

Corporate Income Tax – Other Rules

■ Thin capitalization rules apply in case of intercompany financing

■ No corporate tax grouping (legal entity approach)

■ R&D deduction – possibility to claim R&D expenses of own R&D centre

twice for tax purposes

■ Mergers are generally tax neutral, but subject to fulfillment of certain

criteria

■ Tax losses can be carried forward for 5 years

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11© 2014 KPMG Česká republika, s.r.o., a Czech limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International“), a

Swiss entity. All rights reserved. Printed in the Czech Republic.

Investment Incentives and Subsidies

Supported Activities

■ Manufacturing companies

■ Research and development centers

■ Shared service centers, software development centers

Forms of State Aid

■ Tax holiday (corporate tax relief over 10 years)

■ Cash grant for creation of new jobs and training of employees in selected regions

■ Cash grant of 5-7% for investment in large (strategic) manufacturing or R&D projects

■ Sale of land for a favorable price

Other Subsidies

■ Other cash grants or subsidies available for certain types of activities (eg. R&D,

innovations, trainings etc.).

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Transfer Pricing

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13© 2014 KPMG Česká republika, s.r.o., a Czech limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International“), a

Swiss entity. All rights reserved. Printed in the Czech Republic.

Transfer Pricing

■ Prices agreed between related parties should be in compliance with those

concluded between independent parties, i.e. using the arm‘s length

principle.

■ OECD Transfer Pricing Guidelines are generally accepted.

■ Recommended documentation scope is set in the “Instruction of the Czech

Ministry of Finance.”

■ Attention of the tax authorities to transfer pricing is gradually increasing

■ Possibility to apply for Advance Pricing Arrangements (APA).

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Personal Income Tax

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15© 2014 KPMG Česká republika, s.r.o., a Czech limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International“), a

Swiss entity. All rights reserved. Printed in the Czech Republic.

Personal Income Tax

Tax Rate

■ 15%

■ Employment and/or business income in excess of 48 times the average wage in

2013-2015 (annual income of CZK 1,245,216 in 2014) is subject to additional 7%

solidarity tax.

Employees

■ Tax on employment income is calculated on the “super-gross salary”, which is the

gross salary increased by social security and health insurance contributions

payable by the employer.

Self – Employed Persons

■ Income of self-employed persons may be reduced by actual expenses or by an

optional lump-sum deduction ranging from 30 to 80 percent of gross income.

■ Social security and health insurance contributions cannot be deducted from the

tax base.

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16© 2014 KPMG Česká republika, s.r.o., a Czech limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International“), a

Swiss entity. All rights reserved. Printed in the Czech Republic.

Taxation of Individuals – Summary

2014

Tax rate15 % of super-gross salary

(approx. 20% effective tax rate)

Solidarity tax (2013-2015)7 % of income exceeding

CZK 103,768 monthly

Social insurance

- employee 6.5 %

- employer 25.0 %

- maximum base CZK 1,245,216

Health insurance

- employee 4.5 %

- employer 9.0 %

- maximum assessment base N/A

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Value Added Tax

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18© 2014 KPMG Česká republika, s.r.o., a Czech limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International“), a

Swiss entity. All rights reserved. Printed in the Czech Republic.

Value Added Tax

Basic Principles

■ VAT is mostly harmonized within the EU, only certain rules are specific for

member states.

■ VAT is paid by the supplier on each level of the supply chain.

■ VAT can be claimed back by the customer if the input supply is used for the

provision of taxable outputs.

■ As a result, VAT is cost neutral for most of businesses if done properly, but

represents a cash-flow burden.

■ Certain activities are VAT exempt (eg. healthcare, education, banking), but no

input VAT can be claimed for these activities.

■ A reverse-charge mechanism (self-assessment) is applied in case of supplies

of goods and services within EU – reduction of cash-flow burden.

■ VAT group taxation among the Czech payers can be established if certain

conditions are met.

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19© 2014 KPMG Česká republika, s.r.o., a Czech limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International“), a

Swiss entity. All rights reserved. Printed in the Czech Republic.

Value Added Tax

Tax Rates

21% - Standard rate

15% - Reduced rate

– Food, books, certain services etc.

0% - Zero rate or exempt

– Export of goods and services, supplies within EU, international transport, financial services,

etc.

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International Taxation

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21© 2014 KPMG Česká republika, s.r.o., a Czech limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International“), a

Swiss entity. All rights reserved. Printed in the Czech Republic.

International Taxation

■ Withholding tax of 15% is applied on income of non-residents

– Dividends, royalties, interest, etc.

– Security tax needs to be applied in specific cases instead of withholding tax

■ The rate can be reduced in line with double taxation treaties.

– Wide network of Double Tax Treaties (approx. 80)

■ The withholding tax rate can be increased to 35% for certain transactions with

companies from non-treaty (DTT or exchange of information) countries

■ EU Interest-Royalty Directive

– Interest and royalties are not subject to withholding tax in the Czech

Republic provided that certain conditions are met (minimum shareholding,

holding period, residency, etc.)

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22© 2014 KPMG Česká republika, s.r.o., a Czech limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International“), a

Swiss entity. All rights reserved. Printed in the Czech Republic.

International Taxation

■ EU Parent-Subsidiary Directive

– Dividend paid by a Czech subsidiary to a parent company may be exempt

from withholding tax under certain conditions (minimum shareholding,

holding period, residency, legal form, etc.)

■ Participation exemption

– Income from the transfer of shares in Czech companies or cooperatives

is tax exempt if:

■ 10% of the shares of a company have been held by a parent company for more than 12

months;

■ Parent company is an EU resident company or a resident of Norway, Switzerland, or Iceland.

■ Subsidiary is a tax resident of an EU Member State or a non-EU Member State with which the

Czech Republic has concluded a double taxation treaty (subject to certain conditions – e.g.

minimum corporate tax rate).

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23© 2014 KPMG Česká republika, s.r.o., a Czech limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International“), a

Swiss entity. All rights reserved. Printed in the Czech Republic.

International Taxation

■ Taxation of dividends, interest, and royalties under Czech-US Double Tax

Treaty

* Shareholding of less than 10% of the voting shares of the company paying the dividends.

** No withholding tax should be applied on ‚cultural‘ copyrights

Type of income Rate

Dividends 5% / 15%*

Interest 0%

Royalty 0% / 10% **

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24© 2014 KPMG Česká republika, s.r.o., a Czech limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International“), a

Swiss entity. All rights reserved. Printed in the Czech Republic.

Main advantages

■ Implementation of EU Directives in the

past

■ No taxation upon acquisition of a target

■ No stamp or transfer duties upon the

transfer of shares

■ No exit tax

■ Interest payments are tax exempt

■ Tax exemption applicable on dividends

(if specific conditions are met)

■ Wide network of double tax treaties

Holding Structures

NL

CZ

USA

LUX

CZ

USA

Typical holding structures

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KPMG in the Czech Republic

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26© 2014 KPMG Česká republika, s.r.o., a Czech limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International“), a

Swiss entity. All rights reserved. Printed in the Czech Republic.

Leading advisor in the area of investment

incentives

KPMG in the Czech Republic since 1990

Audit, Tax, Advisory, and Legal services

■ Biggest among Big 4 firms in the Czech Republic

■ Prague, Brno, České Budějovice and Ostrava

■ 760 people,

– 625 professionals

– 28 partners

– 28 certified auditors

– 106 certified accountants

– 67 registered tax advisors

– 22 qualified foreign practitioners

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Thank you

Jan Linhart

Partner, KPMG Czech Republic

+420 222 123 617

[email protected]

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© 2014 KPMG Česká republika, s.r.o., a Czech limited

liability company and a member firm of the KPMG

network of independent member firms affiliated with

KPMG International Cooperative (“KPMG

International“), a Swiss entity. All rights reserved.

Printed in the Czech Republic.

The KPMG name, logo and ‘cutting through

complexity’ are registered trademarks or trademarks

of KPMG International Cooperative (KPMG

International).