Business Operations in the Czech Republic (Portfolio 7098)

Tax Management Portfolio, Business Operations in the Czech Republic, No. 7098, contains general information to enable foreign businesses to determine the best method of conducting their business operations in the Czech Republic from both a tax and a general legal perspective. To view this Portfolio, visit Bloomberg Tax for a free trial.

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Description

Tax Management Portfolio, Business Operations in the Czech Republic, No. 7098, contains general information to enable foreign businesses to determine the best method of conducting their business operations in the Czech Republic from both a tax and a general legal perspective. The Portfolio analyzes forms of doing business in the Czech Republic and provides a detailed analysis of the tax rules applicable to corporations, individuals, partnerships and other legal entities. In addition to a detailed description of the Czech income tax system, the Portfolio deals with specific taxes such as withholding tax, value added tax, real estate acquisition tax and real estate tax, excise taxes, energy taxes and road tax. Moreover, special provisions related to cross-border relations and transactions are considered throughout the text. To complete the description of the tax environment in the Czech Republic, the Portfolio discusses, among others, intercompany pricing and avoidance of double taxation matters.

The Worksheets include a list of double taxation agreements and related protocols as well as a list of tax information exchange agreements signed by the Czech Republic.

This Portfolio may be cited as Vorlíčková and Zoubek, 7098 T.M., Business Operations in the Czech Republic.

Authors

Lucie Vorlíčková

Lucie Vorlíčková, LL.M., Würzburg University of Applied Sciences (1990); LL.M. in European and International Taxation, European Tax College of the Tilburg University (2001); Lecturer, Charles University of Prague.

Jiří Zoubek

Jiří Zoubek, LL.M., Charles University of Prague (2004); LL.M. in European and International Taxation, Wirtschaftsuniversität, Vienna (2007); Lecturer, Charles University of Prague.

Table of Contents

Detailed Analysis
I. Czech Republic — The Country, Its People and Economy
A. The Country
B. The People
C. The Economy
D. Transportation and Communication
E. Political Organization
II. Operating a Business in the Czech Republic
A. Foreign Investment Regulation
1. Incentives
a. Investment Incentives
b. Types of Investment Incentives
(1) Corporate Income Tax Relief
(2) Transfer of Land and Utilities for Favorable Prices
(3) Job Creation Grants, Training and Retraining Grants
(4) Cash Grant for Strategic Capital Investments
(5) Property Tax Relief in Special Industrial Zone
c. Investment Incentives for Manufacturing Industry
d. Incentives for Technology Centers
e. Investment Incentives for Strategic Services Centers
2. Incentives Pursuant to European Union Structural Funds
a. Current Status
b. Structure and Focus of Operational Programme Entrepreneurship and Innovations for Competitiveness
B. Currency and Foreign Exchange Regulation
1. Currency
2. Real Property Acquisition by Foreign Citizens
3. Payments, Limitation of Payments in Cash
4. Inspection of Foreign Exchange Bureau Activities
C. Trade Regulation and Trading in the Czech Republic
1. Imports and Exports
a. Free Movement of Goods, Capital, Services and Persons
b. Customs Duties and Limitations
c. Taxation
2. General Regulation of Business
a. Competition Law
b. Prohibited Agreements
3. Prohibition on the Abuse of a Dominant Position in the Market
4. Obtaining Permission for Concentrations of Undertakings (Mergers)
5. Intellectual Property Rights
a. Legal Protection of Intellectual Property Rights
b. Inventions and Utility Models
c. Industrial Designs
d. Trademarks
e. Copyrights and Other Related Rights
D. Immigration Law
1. European Union, European Economic Area and Swiss Nationals
2. Third-country Nationals: Employee Card and Blue Card
E. Labor Relations
1. Overview
a. Labor Regulation
b. Basic Labor Relations
c. Establishing the Employment Relationship, Employment Contracts
2. Working Conditions
a. Working Hours
b. Distribution of Working Hours
c. Uninterrupted Rest
d. On-call Duty
e. Overtime
f. Night Work
g. Records
3. Paid Leave
4. Impediments to Work on the Part of an Employee
5. Maternity and Parental Leave
a. Maternity Leave
b. Parental Leave
6. Termination of the Employment Relationship
a. Cancellation During the Probation Period
b. Termination of a Fixed-term Contract
c. Termination by Way of an Agreement
d. Immediate Cancellation of the Employment Relationship for Reasons Defined by Law
e. Notice of Dismissal
f. Collective Dismissal
7. Agreements Made Outside the Employment Relationship
a. Agreement to Perform Certain Work
b. Agreement to Complete a Job (or Agreement on the Performance of a Job)
F. Financing the Business
1. Currency
2. Credit Institutions
3. Other Financial Sector Professionals
4. Supervision
G. Registration of Sales
III. Forms of Doing Business in the Czech Republic
A. Principal Business Entities
1. Sole Proprietorship
2. Limited Liability Company
3. Joint-stock Company
4. Partnership
5. Branch of a Foreign Corporation
6. Other Entities
B. Limited Liability Company
1. Formation
a. Objects
b. Business Name
c. Members
d. Constitutional Documents
e. Registered Capital, Capital Contributions, Membership Interests
f. Formation Process
g. Formation Costs
2. Operation
a. License
b. Amendment of Memorandum
c. Increases and Reductions of Capital
(1) Capital Increases
(2) Capital Reductions
d. Acquisition of Own Stock
e. Corporate Officers
f. General Meeting
g. Directors’ Meetings
h. Books and Records
i. Financial Statements
j. Dividends and Other Distributions of Profits
k. Reserves
3. Statutory Merger
a. Mergers
b. Cross-Border Merger
c. Demerger
d. Transformation Project
e. Publication
f. Independent Appraiser's Opinion
g. Protection of Creditors
h. Right to Request Additional Security Not Available to Certain Creditors
i. Additional Protection of Creditors in Connection with a Transformation
j. Transfer of a Security Interest Attached to a Membership Interest/Equity Security in a Merger, Demerger or Change of Legal Form
k. Transfer of Assets and Liabilities to a Member (an Owner)
l. Cross-Border Demerger
m. Change of Legal Form
n. Relocation of Headquarters to the Czech Republic
4. Dissolution
5. Liquidation
C. Joint-Stock Company
D. Partnership
1. General Partnership
2. Limited Partnership
E. Branch of a Foreign Corporation
F. Other Business Entities
1. Cooperative Society
2. European Company
3. European Economic Interest Grouping
4. European Cooperative Society
G. Classification of Foreign Entities
IV. Principal Taxes
A. Sources of Authority in Tax
1. Legislative
a. Organization of the Tax Law
b. Other Legislative Material that Can Be Used to Interpret the Law
c. Legislative Process
d. Constitutional Challenge
2. Administrative
3. Courts
B. Income Tax
C. Withholding Tax
D. Inheritance and Gift Tax
E. Sales Tax or Value Added Tax
F. Capital Investment Tax
G. Payroll Tax
H. Trade Tax
I. Net Worth Tax
J. Local Taxes
K. Excise Taxes
L. Energy Taxes
M. Road Tax
N. Real Estate Tax
O. Real Estate Acquisition Tax
V. Taxation of Domestic Corporations
A. What Is a Domestic Corporation
B. Corporate Income Tax
1. Taxation of Worldwide Income
2. Accounting
a. General
b. Accounting Period
c. Accounting Methods
d. Valuation Methods
e. Inventories
f. Reserves and Provisions
3. Calculation of Gross Income
a. General
b. Capital Gains
c. Dividend Income
d. Income from Foreign Sources
e. Stock Options
f. Other Inclusions in Gross Income
g. Exclusions from Gross Income
4. Business Expenses
a. General
b. Organizational Expenses
c. Travel and Entertainment Expenses
d. Interest and Royalties
e. Taxes
f. Depreciation and Amortization
g. Obsolete Equipment
h. Charitable Contributions
i. Capital Losses
j. Casualty Losses
k. Reserve Accounts
l. Bad Debts
m. Inventory Write-downs
n. Rent
o. Salaries and Wages
p. Other Deductions from Gross Income
5. Capital Expenditure
6. Loss Carryforwards and Carrybacks
7. Tax Credits and Other Allowances
a. Foreign Tax Credit
b. Investment Tax Credit
c. Other Credits and Allowances
8. Tax Rates and Calculation of Taxable Income
9. Assessment and Filing
10. Audit Process and Statute of Limitations for Assessment and Collection of Taxes
11. Consolidated Returns
12. Reorganizations
a. Change of Legal Form
b. Mergers, Spin-offs, etc.
c. Cross-Border Transactions
d. Liquidation
13. Advance Rulings
C. Other Taxes
1. Dividend Tax
2. Capital Investment Tax
3. Value Added Tax
4. Trade Tax
5. Real Estate Tax
6. Local Taxes
7. Other Taxes
VI. Taxation of Foreign Corporations
A. What Is a Foreign Corporation
B. Determination of Taxable Income
1. Types of Income Taxable by Way of Assessment in the Tax Return
2. Permanent Establishment and Taxable Income
C. Method of Taxation
1. Income Subject to Withholding Tax
2. Income Taxed via Tax Return (Self-Assessment Method)
D. Assessment and Filing
VII. Taxation of a Branch
A. Determination of Taxable Income
B. Method of Taxation
C. Subsidiary v. Branch
VIII. Taxation of Partnerships
A. Domestic Partnerships
1. Income Taxation of General Partnerships
a. Czech Resident Individual
b. Non-Czech Resident Individual
c. Czech Resident/Domestic Corporation
d. Non-Czech Resident/Foreign Corporation
e. Shares in Liquidation Proceeds and Settlement Shares
2. Income Taxation of Limited Partnerships
a. Limited Partners
b. General Partners
B. Foreign Partnerships
1. Czech-Source Income of Foreign Partnerships
2. Income of Czech Residents from Foreign Partnerships
IX. Taxation of Other Business Entities
A. Nonprofit Organizations
B. Basic Investment Funds
C. Trusts
X. Taxation of Individuals — Residents
A. Scope of Taxation
B. Residence
C. Determination of Gross Income
1. Employment Income
2. Self-employment Income
3. Investment Income
4. Income from Leases
5. Other Income
D. Allowances, Deductions, and Credits
1. Nontaxable Portion of Taxable Income (Tax Base Deductions)
a. Gifts
b. Interest Accrued on Mortgage Loans
c. Supplementary Pension Insurance
d. Life Insurance
e. Tax Loss
2. Tax Allowances
a. Basic Tax Allowance
b. Spouse Tax Allowance
c. Child Tax Allowance
d. Tax Allowance for Childcare
e. Other Tax Allowances
E. Rates and Calculation of Taxable Income
1. Employment Income
2. Self-Employment Income
3. Rental Income
4. Investment Income
5. Other Income
F. Assessment and Filing
G. Audit Process and Statute of Limitations for the Assessment and Collection of Taxes
H. Health and Social Security Insurance
XI. Taxation of Nonresident Individuals
A. General
B. Employment Income
C. Business Income
D. Investment Income
1. Dividends and Profit Distributions
2. Interest Income
3. License Fees
4. Pension and Life Insurance Benefits
E. Capital Gains and Other Income from Property
F. Other Income from Sources in the Czech Republic
G. Method of Taxation
1. Withholding
2. Self-Assessment Method
3. Wage Tax Withholding by the Employer
H. Security Tax
XII. Estate/Inheritance/Transfer and Gift Tax
Introductory Material
A. Estates, Inheritances and Transfers on Death
B. Gifts
XIII. Inter-Company Pricing
A. Adjustment of Intercompany Prices — Scope of the Provision
B. Determination of Arm's Length Price
C. Documentation Requirements
D. Availability of Advance Pricing Agreements or Rulings on Pricing
XIV. Special Provisions Relating to Multinational Corporations
A. Foreign Family Foundations
1. Contributions by Czech Residents to Foreign Family Foundations
2. Income of Czech Residents from Foreign Family Foundations
B. Tax Haven Operations
1. Withholding Tax Rate
2. Exemptions from Taxation
C. Rules on Controlled Foreign Companies
XV. Avoidance of Double Taxation
A. Introduction
B. Foreign Tax Credits
C. Tax Treaties
1. Tax Treaty Negotiation and Ratification Process
2. Procedure for Claiming Reduced or No Withholding, or a Refund
3. Security Tax
4. Taxation of Business Income
a. Permanent Establishment
b. Industrial or Commercial Profits
c. Minimizing the Taxation of Business Income Under a Treaty
5. Taxation of Investment Income
a. Dividends
b. Interest
D. Tax Treaties with the United States
1. Czech Republic-United States Tax Treaty
a. Scope of the Czech Republic-United States Tax Treaty, Residence
b. Permanent Establishment
c. Dividends
d. Interest Income
e. Royalties
f. Capital Gains
g. Artists and Sportsmen
h. Other Deviations from the OECD Model Convention
i. Avoidance of Double Taxation
2. Estate and Gift Tax Treaty
3. Social Security Treaty
4. FATCA Agreement

Working Papers

Table of Worksheets
Worksheet 1 Corporate Income Tax Return
Worksheet 2 Personal Income Tax Return
Worksheet 3 VAT Tax Return
Worksheet 4 List of Countries with Which the Czech Republic Has In Force Income Tax Treaties and Other Tax-Related Agreements as of March 31, 2018
Worksheet 5 [Reserved.] 
Worksheet 6 [Reserved.]
Worksheet 7 1993 Czech Republic-United States Income Tax Treaty
Worksheet 8 U.S. Treasury Department Technical Explanation of the 1993 Czech Republic-United States Income Tax Treaty
Worksheet 9 2007 Agreement on Social Security Between the United States of America and the Czech Republic
Worksheet 10 2014 Agreement Between the Czech Republic and the United States to Improve International Tax Compliance and Implement FATCA