Bussines information
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ITEMS DEDUCTIBLE FROM TAX BASE
Investment allowance
In addition to tax depreciation, a certain percentage of the value of specified
tangible fixed assets may be deducted from the tax base in the year the assets
are acquired. The percentage rate is 10 %, 15 %, or 20 % of the input price
of the newly purchased assets provided the taxpayer is the first owner or the
first lessee of assets. The assets′ net book value is not affected. (The
investment allowance is not applicable for instance for land, building,
furniture, passenger cars). If the company is entitled to claim tax relief (as
one of investment incentives), it must deduct all deductible items from its tax
base before it claims tax relief.
Accumulated tax losses from previous years
Losses incurred in the tax period can be carried forward for a period of
7 years and it is up to the taxpayer when he actually utilizes them against his
profits within this 7-year period. This does not apply to companies that have
received tax investment incentive: these companies have to utilize all of
previous losses against declared profits before they would claim the tax
relief.
Gifts
It is possible to decrease the tax base by gifts donated for special social
reasons. The minimum value of a gift is CZK 2,000; the maximum decrease is 5% of
the tax base adjusted by the investment allowance and tax losses. Again, the
company that has received tax investment incentive in the form of a tax relief
has to decrease its tax base by tax-deductible gifts before it may claim this
tax relief. Donations given for the relief of flood victims and damage can be
treated as tax deductible to most Czech central and local governmental
organizations and to individuals running certain animal or health establishment.
The limits for gift tax relief to eliminate the effects of the 2002 floods have
been increased from 5 % to 10 % of the tax base for companies.
Tax relief
Companies that received the Decision to Grant Investment Incentives can claim
tax relief of up to the maximum of the state aid (i.e. a certain percentage of
the state aid including tax relief on eligible costs specified in the Decision
to Grant Investment Incentives).
Depreciation of Fixed Assets
Tax depreciation is different for tangible and intangible assets. For tangible assets a company can use either straight-line or accelerated tax depreciation (except e.g. land), although once it has elected to use a method for a particular asset this method may not be changed during the useful life of such asset. If a tangible fixed asset is sold/liquidated, half of the annual tax depreciation charge can be claimed in the year of sale for tax purposes.
A company depreciates the intangible fixed assets for accounting purposes. The accounting depreciation of intangible assets is regarded as tax deductible.
Transfer Pricing Rules
Prices charged between related entities (where one company holds a 25% or larger
share in voting rights in another company, or where two companies entered into a
commercial relationship only for the purpose of reducing the tax base or
increasing the tax loss) may not differ from prices at arm’s length. If the
prices differ, the relevant tax authorities may assess the income tax on the
income derived by the seller at a company based on market prices. If the prices
differ and the company is entitled to claim tax relief (as one of investment
incentives), the right to claim tax relief ceases to apply and the company will
have to submit a supplementary tax return for all tax periods in which tax
relief was claimed.
Tax Administration
Corporate taxpayers must file tax returns within 3 months after the end of a
tax period. If the tax period is shorter than one year, the tax return must be
filed within 25 days after the end of the period. Czech legal entities that are
required to prepare audited financial statements or whose tax return is prepared
by a tax adviser must file their tax return within 6 months after the end of
the tax period.
If the tax return is not filed on time, the tax authorities can levy a fine on
the taxpayer. If the tax return is prepared incorrectly, the tax authorities may
assess the tax base and levy the penalty (fine) on the taxpayer.
Tax liability is payable by advance payments on a quarterly or half yearly basis
depending on the size of the previous year’s tax liability. If this was less
than CZK 30,000 no advance payments are required. The difference between the
paid instalments and the total liability is settled after the tax return is
filed but no later than the deadline for filing the corporate tax return.
Accounting
Czech accounting is based on double-entry bookkeeping and is largely consistent
with the systems of other European countries. All joint-stock companies are
required to have an audit in the year following the year in which at least one
of the following limits were met or exceeded. Limited liability companies and
other companies are required to have an audit in the year following the year in
which at least two of the following limits were met or exceeded:
- a balance sheet total of over CZK 40 million,
- annual net turnover higher exceeding CZK 80 million
- average number of employees according to Statistical Act exceeding 50.
Companies that have issued securities traded on European stock exchanges should apply International Accounting Standards for accounting purposes.