Investor Presentaiton
lic, when no arrangement is in place for the ex-
change of information on tax matters.
Withholding tax is a final tax that is generally
reduced by double taxation treaties. Residents
of other EU and EEA countries can file a tax re-
turn in respect of some types of income (e.g.
interest, royalties, freelance work) subject to
withholding tax and claim a deduction for any
related expenses (this does not apply for with-
holding tax from dividends). In such a case,
the withholding tax is considered an advance
payment. This may result in a reduction in the
tax burden as withholding tax is calculated on
a gross basis.
The EU Parent-Subsidiary Directive has been
implemented in the Czech Republic, which
means that dividends paid by a Czech subsid-
iary to a parent company that is a tax resident
in an EU member state may be exempt from
withholding tax. These provisions also apply to
dividends paid between Czech companies and
dividends paid to Swiss, Norwegian, Icelandic
and Liechtenstein corporate shareholders.
The EU Interest and Royalties Directive has
also been implemented in the Czech Republic.
As a result, interest and royalties paid to some
associated companies resident in the EU, Swit-
zerland, Norway, Iceland and Liechtenstein are
generally exempt from withholding tax (sub-
ject to advance clearance procedures).
The Czech Republic has implemented the EU
Savings Directive, which allows the provision
of information about interest paid by Czech fi-
nancial institutions to non-residents.
Other types of income paid to non-EU or EEA
residents, notably from permanent establish-
ments, real estate and sales of securities, etc.,
are subject to withholding tax which is not the
final tax, but a prepayment in respect of the ul-
timate tax liability. This tax is generally levied
at the rate of 10 percent (one percent for sales
of securities or payments for receivables pur-
chased from third parties), but may be reduced
by prior negotiation with the tax authorities.
Beneficial ownership concept
A number of double taxation treaties conclud-
ed by the Czech Republic expressly limit their
benefits to the beneficial owners of income.
In situations where an investor in the Czech Re
public is a foreign entity or a trust that is tax
transparent under its own tax laws, the Czech
Republic will generally honour its transparency
for the application of the Income Taxes Act and
double taxation treaties. The income paid from
Czech investments will normally be treated as
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