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PERSONAL INCOME TAX

Generally, income from dependent activities paid by a foreign employer to a Czech tax non-resident is tax-exempt if the time spent on such activities does not exceed 183 days in any 12 consecutive calendar months. This tax exemption shall not apply to income from an activity performed in a permanent establishment.

Taxation of expatriates
Taxable income includes earnings from dependent activities including benefits in-kind (e.g. housing
allowances, use of a company car for private purposes, etc.), income from business activities, and income from capital, leasing and other sources. In general, taxable income consists of all income regardless of whether it is monetary or non-monetary.

Generally, income is declared and taxed through a personal income-tax return that should be filed with the relevant Tax Office within three months after the end of the tax period (or within six months if a power of attorney for filing the tax return is submitted by a certified tax advisor).

An expatriate who is employed directly by a local (Czech) company or by a branch of a foreign company is subject to tax on his/her income from the dependent activity from the first day of his/her employment. The local company or branch of a foreign company withholds monthly tax pre-payments from his/her salary towards his/her annual tax liability. If the expatriate only has income derived from an employment contract, the employer prepares a year-end tax settlement that is a substitute for the expatriate's tax return.

If a foreign company transfers an expatriate to a Czech company under a service agreement, he/she should be registered as an individual taxpayer with the relevant Tax Office. His/her income is taxed via the annual personal income tax return. Additionally, an expatriate makes semi-annual or quarterly advance payments for his/her personal tax liability in the course of the year. These advance payments are based on the previous year's tax liability.
There is a flat personal income-tax rate of 15% in 2008 and 12.5% starting from 2009. The tax base from which the tax liability is calculated, however, is increased, as the 2008 payroll tax is calculated from the socalled “super-gross” salary (salary increased by social security and health insurance contributions). Therefore the effective tax rate is higher than the nominal 15% (12.5%).

Social security and health insurance contributions

An employee’s social security and health insurance contributions are calculated as 12.5% of gross salary. Employers must pay an additional 35% of all employees′ gross salaries to the Czech social security and health insurance authorities.

Major changes came into effect on 1 January 2004 which generally also require any foreign national working in the Czech Republic directly for a Czech company or an employer with its registered office in a country with which the Czech Republic has concluded a social security agreement to pay into the Czech mandatory health insurance and social security schemes. In these cases, employer contributions are also required. Upon the accession of the Czech Republic to the EU in May 2004, any EU national working in the Czech Republic and his employer are also generally required to pay Czech social security and health insurance contributions unless otherwise exempt according to EU regulations.

source: czech invest

From 2008, there is a capped annual base for social security and health insurance payments of employees in the amount of 48 times the average monthly salary (i.e. CZK 1,034,880 for 2­008).

Based on materials published by CzechInvest.