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Investor Presentaiton

Employees of foreign companies may fall under a further possible tax treatment, the "deemed employer" rule, which is essentially an anti- avoidance provision. The rule may apply if employees of a foreign employer work in the Czech Republic under the control of a Czech person who pays a fee to the foreign employer for their services. Here, the Czech person is regarded as the employer for tax purposes and has to account for the em- ployees' income tax. In practice, this rule is rarely applied to employ ees of bona fide foreign investors, unless they choose to use it as an alternative to the perma- nent establishment described above. Further special treatment applies to licensed labour agencies. Resident and non-resident individuals may claim a basic personal tax allowance of CZK 24,840 per year. Various other credits are granted to a resident, such as a tax credit of CZK 24,840 per year for a spouse living in the taxpayer's household if the spouse's annual income does not exceed CZK 68,000 and tax al- lowances for children (a tax allowance of CZK 13,404 for the first-born, CZK 15,804 for the second-born and CZK 17,004 for the third-born and any subsequent child'). Tax allowances up to the amount of the minimal wage announced for a given tax year (CZK 9,900 for 2016) can be claimed for fees paid to child care facilities. Limitations apply to individuals earning busi- ness or rental income, who claim flat rate ex- pense deductions. Allowances are also granted to residents of the EU or EEA if at least 90 percent of their income is derived from sources in the Czech Republic. The amount of income from foreign sources should be confirmed by the foreign tax authori ties in the state of residence. Social security contributions, where payable, amount to 45 percent of an employee's salary (for income up to an annual cap for social secu rity - see below). This consists of an employee contribution of 11 percent and an employer contribution of 34 percent, made up as follows. Employee (%) Employer (%) Pension 21.5 6.5 Sickness insurance 2.3 0.0 Unemployment insurance 1.2 0.0 Health insurance Total 9.0 4.5 34.0 11.0 1 According to a proposed amendment to the Income Taxes Act which is expected to be passed during 2016, the allowance for the second-born child will increase to CZK 17,004 and that for the third and any subsequent child will increase to CZK 20,604. The increased allowances should apply for the whole of 2016. 61
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