Investor Presentaiton
sons subject to the solidarity tax) but a higher
rate, depending on the income level.
Dividends and certain types of other Czech
source income are taxed separately and are
subject to a 15 percent withholding tax at their
source.
Foreign source investment income should be
included in the tax base and is subject to a flat
tax rate of 15 percent.
Business income or other self-employed in-
come may be reduced by actual expenses or by
an optional lump-sum deduction ranging from
30 to 80 percent of gross income. The annual
lump-sum deduction is limited to a maximum
of CZK 1,600,000 for income from agricultural
business, CZK 1,200,000 for business income
based on a trade license, CZK 600,000 for rent-
al income and CZK 800,000 for other business
income.
Employees are subject to tax on income in all
forms, whether in cash or in kind. In particular,
benefits, such as the provision of acar available
for both business and private use, are taxable.
It is not possible to deduct an employee's so-
cial security and health insurance contribu-
tions from the tax base. However, items such
as mortgage interest, payments for supple-
mentary pension insurance with state support,
private life insurance premiums, and donations
can be deducted if certain conditions are met.
Employer contributions to defined private pen-
sion schemes up to CZK 30,000 per year are tax
free for the employee.
The Czech pension system comprises two pil-
lars a mandatory pay-as-you-go pension sys-
tem run by the government (the first pillar) and
a voluntary additional pension system admin-
istered by commercial insurance companies
(the third pillar). A second pillar which involved
optional payments of part of the mandatory
obligations to private pension funds, was abol-
ished with effect from 1 January 2016.
There are no special provisions dealing with
employee share option schemes and gains re-
alised on exercising an option are regarded as
taxable income. It is generally accepted, how-
ever, that no gain arises on the granting of an
option.
The salaries of employees are usually subject
to the deduction of wage tax withheld by their
employer on a monthly basis, with possible
annual reconciliations. It is possible to second
expatriate staff through a permanent establish-
ment of a foreign employer that, although tax-
able, is not registered in the Commercial Reg-
ister. In such cases, no liability to withhold tax
arises. Instead, the employees themselves are
liable to file tax returns and pay tax, normally in
quarterly instalments.
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