Corporate income tax

In this article we will tell you who pays corporate income tax and what the current rates are. We will explain how the profit becomes the tax base, which costs to watch out for, when to use deductions and discounts, how exemptions, advances and withholding tax work and how to reflect all this in the accounting.

Who pays the tax (DPPO taxpayers)

Taxpayers are both legal entities based in the Czech Republic (residents – taxing worldwide income) and legal entities based abroad (non-residents – taxing income from sources within the Czech Republic). For non-residents, it is assessed in particular whether they have a permanent establishment in the Czech Republic – if so, the income attributable to that establishment is taxed.

What is subject to tax

The subject of the tax is income from all activities and from the disposal of all property (in cash or in kind), unless otherwise provided by law. The law also lists the income that is not subject to tax and, separately, exempt income (see below).

Corporate income tax rate (amount of income tax)

The basic rate of corporation tax is 21%. There are also special rates: 5% for a basic investment fund and 0% for a pension company fund.

Note the separate tax base: some income (in particular, defined income from foreign profit shares of residents) is taxed at a separate rate of 15% and is not included in the last known tax liability for advance payment purposes

Tax base: from profit or loss to tax

The tax base is based on your accounting profit (profit or loss) and is further adjusted for so-called items reducing the tax base and for deductible items.

Items increasing the tax base

Some expenses are not tax-effective. Typically, these are entertainment costs – entertainment, refreshments, gifts.

Please note: this is not all “marketing” – the law distinguishes advertising (tax deductible under certain conditions) from representation (non-tax deductible).

Other common non-tax items: fines and penalties, certain donations (unless you claim them as a deduction), deficiencies, etc.

Items reducing the tax base

On the other hand, reducing items include, for example, exempt income (see below) income that has already been taxed once and the law allows you to exclude it from the tax base, or so-called deductible items.

• Exemptions: the law lists a long list of exempt corporate income. The most important for practice are in particular: the exemption of profit shares (dividends) received in the parent-subsidiary regime, provided that the statutory conditions are met (e.g. minimum shareholding and holding period, other conditions for non-EU subsidiaries), as well as various exemptions for both pecuniary and gratuitous income (e.g. certain membership fees, gratuitous benefits, etc.).
• Deductible items from the tax base: This includes in particular tax losses, donations and deductions for research and development or for the promotion of vocational training). Tax losses can be claimed back to the two immediately preceding periods up to an aggregate limit of EUR 30 million. CZK 30,000, and/or forward in five subsequent periods. As for donations – if you have made a donation to charity worth at least CZK 2,000, you can deduct the value from your tax base. However, you can deduct a maximum of 30% of the tax base. You can then claim a deduction for research and development or to support vocational training if you carry out such activities. However, you must have pre-approved and clearly defined objectives and project documentation.

Tax rebates

Company tax rebates are not numerous, but they can be significant:

The discount for employing people with disabilities: 18,000 CZK for employees with disabilities (1st-2nd degree) and 60,000 CZK for employees with more severe disabilities (3rd degree). A pro rata share of the average annual recalculated number is also applied.

Discount in the form of an investment incentive: can be applied if the conditions of the Investment Incentives Act are met.

How to calculate corporate income tax

1. Take the pre-tax result from the accounts (profit/loss).
2. Add non-tax expenses (e.g. entertainment, fines and penalties, donations outside the statutory deductions).
3. Subtract reducing items (e.g. exempt income, income already taxed separately).
4. Apply deductible items (tax loss – backward and forward, R&D or training deductions).
5. Round the result down to the nearest thousand and multiply by the rate (usually 21%).
6. Reduce the tax by any discounts (e.g. for employing PWD, investment incentives).
7. Compare with advances paid, pay the difference (or overpayment).

Numerical example (Ltd. model)

Assumptions: pre-tax profit of CZK 5 000 000. During the year, the entity recognised:

• Representation (partners’ hospitality) CZK 80 000 → non-tax expense → + 80 000.
• Contractual penalty CZK 20 000 → typically non-tax expense → + 20 000.
• Dividend received from subsidiary, exemption conditions met → – 300 000 (reducing item).
• Tax loss from last year CZK 400,000 → deductible item – 400,000.

Tax base before deductions: 5 000 000 + 80 000 + 20 000 – 300 000 = CZK 4 800 000.

After the loss: 4 800 000 – 400 000 = 4 400 000 CZK.

Rounded down to the nearest thousand: CZK 4 400 000. Tax at 21 %: CZK 924 000.

Company employs 1 worker with more severe disability ( 3rd degree) → discount of CZK 60,000

Resulting tax = CZK 864 000.

Tax calculator: if you are filing your return in the MY Tax portal, the system will calculate the tax on the return and check the formal links.

Tax period

For corporation tax, you can choose a calendar year or a financial year (any 12 consecutive months).

Income tax advances (who pays and when)

In order to avoid surprises at the end of the year, the law often requires companies to make advance payments of income tax.

You don’t pay advances if your income is less than CZK 30,000; advances are also not paid by the municipality or the region.

If the amount is CZK 30,000-150,000, you pay 2 half-yearly advances – each equal to 40% of the last known tax (due by the 15th day of the 6th and 12th month of the tax year).

Above CZK 150 000, you pay 4 quarterly advances of 25% of the last known tax (due by the 15th day of the 3rd, 6th, 9th and 12th months).

Summary

Corporate income tax is payable by Czech companies as residents (worldwide income) and non-residents with income from sources in the Czech Republic, typically through a permanent establishment. Income from all activities and disposals of property are subject to the tax. The basic rate is 21%, with a special rate of 5% for a basic investment fund and 0% for a pension company fund; specified foreign profit shares may be taxed separately at a rate of 15%. The tax period may be a calendar or a business year.

Calculation: based on the accounting result, adjusted for non-tax expenses (e.g. representation, fines), reducing items (e.g. exempt or already separately taxed income) and deductible items (tax loss – backdated up to 2 years up to 30 million EUR). CZK and/or forward 5 years; donations up to 30% of the base; R&D/vocational training deduction). After rounding the base down to the nearest thousand CZK, the rate and any discounts (employment of PWD 18,000/60,000 CZK, investment incentives) are applied. There are no advances up to CZK 30,000 of last known tax; CZK 30-150,000 two half-yearly (40% each); above CZK 150,000 four quarterly (25% each).