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The general information below is intended as a guide only, and the application of its contents to specific situations will depend on the particular circumstances involved. Accordingly, we recommend that readers seek appropriate professional advice regarding any particular problems that they encounter, and the information below should not be relied on as a substitute for advice. Czech real extate taxReal estate tax consists of 2 taxes: (1) tax on land and (2) tax on structures (building tax). Real estate tax is generally payable on an annual basis by the registered owner of the land or buildings, although in certain cases the user or the leaseholder is the payer. All taxpayers must file tax returns to their Czech tax authority by 31 January of the first taxable period. (1) Tax on land is imposed on plots of land entered in the Land Register (Cadastral register) and is payable by the owner or user. For instance, real estate tax on land with construction permission amounts to CZK 1 per square meter. (2) Building tax is calculated according to the registered ground area of the building. Building tax varies from CZK 1 – 10 per square meter depending on the main purpose of a building and the number of floors. In built-up areas, both land tax and building tax are multiplied by a coefficient that varies according to the locality in the Czech Republic, ranging from 0.3 to 4.5 in Prague. Czech real extate tax transfer taxReal estate transfer tax is charged at a uniform rate of 3 per cent (as from 1 January 2004; prior to 2004 a 5 per cent real estate tax was applicable). The 3 per cent real estate transfer tax is applied on the higher amount of (1) the agreed purchase price or (2) the fair market value of the real estate assessed by a certified evaluator. Generally speaking, real estate transfer tax is payable by the seller; however, the buyer is, according to tax law, in the position of a guarantor of the real estate tax. Czech corporate income tax and tax depreciationCzech corporate income tax is levied on the worldwide income of Czech corporate tax residents and on Czech-source income of foreign legal entities. Taxable profit (corporate income tax base) is calculated from the economic profit/loss computed according to the Czech accounting standards adjusted for various items in line with the respective tax legislation. For instance, the economic result is adjusted for tax purposes for e.g. non-tax deductible expenses such as representation, travel expenses above statutory limits, unpaid real estate tax, etc. Furthermore, it is possible in certain cases to reduce adjusted taxable profit by other deductible items e.g.:
The standard Czech corporate income tax rate applied on the taxable profit is 28% applicable for the 2004 taxable period. Please note that in the 2005 taxable period the Czech corporate income tax rate will be 26% and in the 2006 taxable period 24%. Tax Depreciation of assetsTangible assets for tax purposes are understood to be buildings (real estate) and other movable assets whose acquisition price exceeds CZK 40,000 and whose expected useful life exceeds one year. Intangible assets are defined as start-up costs, industrial know-how and similar rights, software, and technical or other exploitable knowledge whose value exceeds CZK 60,000 with an expected useful life of over one year. Tangible assets are divided into 6 categories for tax depreciation purposes as shown in the following table.
A company can use either straight-line or accelerated depreciation for any asset, although once it has elected to use a method for a particular asset this method may not be changed during the useful life of the asset. If a fixed asset is sold, half of the annual depreciation charge can be claimed in the year of sale for tax purposes. Note that land is not depreciated for either tax or accounting purposes. Czech value added taxA person obliged to pay tax (for instance an entrepreneur) with a seat, place of undertaking business or a business premises in the Czech Republic is exempted from the application of the tax if its turnover does not exceed CZK 1,000,000 in the previous12 consecutive calendar months. The VAT period is monthly or quarterly. As of 1 May 2004 there are two VAT rates, the standard 19% for goods and services and a reduced 5% for selected goods and services (e.g. essential foodstuffs, pharmaceutical products, books). In the case of the delivery of a building, including an unfinished building, construction and montage works that are connected with the construction, reconstruction, modernisation and restoration, including framework, material, machines and equipment which are incorporated or installed into a building as a part thereof through montage and construction works, the standard rate applies. Building work for residential purposes is exempt; in this case the reduced rate applies. This exemption shall apply until the end of 2007. Conveyance of real estate (buildings, flats and non-residential premises) will be exempt from VAT only if realized at least 3 years after the approval for use or acquisition. If the condition for the exemption is not met, the standard rate of 19% applies – with the exemption of residential real estate. Conveyance of land, including financial renting, will be VAT exempt with the exception of the conveyance of land for construction purposes as defined in the new VAT law valid from 1 May 2004.
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