Investor Presentaiton
Taxation of business income
The starting point for computing taxable profit
is the profit before tax in the Czech statutory
financial statements. This is then subject to ad-
justments under the Income Taxes Act. Unless
this Act contains a provision to the contrary,
income and expenses booked for accounting
purposes are taxable/deductible. Where capi-
tal gains form part of business profits they are
taxable as normal income or exempt under the
participation exemption rules.
For companies, the tax year is generally the
same as the financial year. It is possible to
adopt a financial year ending on a date other
than 31 December provided that it is the last
day of a calendar month. If the financial year-
end changes, provisions in the Income Taxes
Act deal with the resultant long or short pe-
riod. However, these are not perfectly drafted
and numerous issues can arise in such cases.
Individuals are always taxed on a calendar year
basis.
The Income Taxes Act attempts to define which
deductible and non-deductible expenses in
some detail. The general rule is that expenses
incurred for the purpose of generating, as-
suring or maintaining taxable income are tax
deductible.
A special deduction equal to deductible expen-
ditures on research and development (R & D)
can be claimed and effectively means that such
expenditure is deducted twice; this deduction,
if not used in the period in which it arises, may
be carried forward to the next three tax peri-
ods. The Act on Reserves allows restricted de-
ductions for bad debt reserves. It also allows
taxpayers to create tax deductible reserves for
future repairs, subject to the existence of sup-
porting evidence in the form of project plans,
as long as the funds are transferred to a sepa-
rate bank account by the due date for filing the
annual tax return.
The Act on Reserves contains special rules on
loan provisions for banks and reserves for in-
surance companies.
Tax depreciation can be claimed on fixed as-
sets. For this purpose, fixed assets are divided
into several categories broadly reflecting their
expected useful life. Depreciation on most as-
sets may be claimed on either a straight-line or
an accelerated basis.
Tax losses may be carried forward for five years.
Losses may not be carried forward following
a substantial change in the direct ownership of
a company unless it can be shown that at least
80 percent of the company's revenues are de-
rived from the same activities as those carried
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