Taxes, this is an eternal topic that swirls around the debate. Even legal entities, i.e. companies and organisations, are not exempt from them, as they are obliged to pay various fees. Are you wondering what taxes a company pays? In this article, we look at corporate income tax and corporate tax returns.
Corporate taxes are governed by the Income Tax Act.
Every legal entity must apply for income tax registration with the tax authorities within 15 days of its formation. If the company has employees, these employees become payers of employment income tax.
Paying corporate income tax is a basic obligation of any company that generates any profit. The current rate in the Czech Republic is 21%, starting in 2024. Until then, companies taxed their income at 19%. The tax is calculated on the tax base, which includes all the company’s income less deductible expenses.
The tax base is the difference between the company’s income and expenses (costs), taking into account only income that is taxable and expenses that are tax deductible, as stated in the Income Tax Act.
Companies must also make advance payments of corporation tax during the year, which are calculated on the basis of the previous year’s tax liability. This obligation arises if the annual tax exceeds CZK 30,000. Legal entities can pay the advance payments either quarterly or half-yearly, depending on the amount of the tax liability. If a company fails to pay the advance payments on time, it is liable to a late payment penalty, which puts it at risk of further financial burden.
Due to the amount of money that corporate income tax represents, every well-functioning company already takes taxes into account when planning its cash flow in order to keep to its budget.
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The year 2024 brought a few more innovations in corporate taxation. The first is that, since last year, companies that conduct most of their business transactions in a foreign currency have the option of keeping their accounts in their functional currency, such as euros, US dollars or British pounds. This includes the ability to prepare corporate tax returns directly in that currency and then pay the tax in that currency as well.
Also new is the introduction of the option not to tax unrealised exchange differences. Only actual exchange rate transactions will now be subject to corporate income tax. Previously, companies had to tax unrealised gains, for example if there was a currency appreciation on receivables denominated in euros. Henceforth, such unrealised gains will not be tax deductible.
The new legislation also brought changes to the tax deductibility of expenditure on promotional items. Previously, these expenses were deductible up to CZK 500 if specific conditions were met, with an exception allowing the inclusion of silent wine. However, this exception has been abolished and the expenditure on silent wine will no longer be tax deductible.
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Value added tax also applies to companies. In general, there are two VAT rates in the Czech Republic:
VAT-registered companies are obliged to submit regular tax returns and control reports. These documents contain detailed information on the transactions received and made, which are used to determine the tax liability to the State.
In the Czech Republic, value added tax must be paid by those legal entities whose turnover exceeds CZK 2,000,000 in twelve consecutive months. These legal entities must register for VAT with the tax office and file a return by the 25th day of the month following the tax period.
The corporation tax return for 2024 must be filed no later than 1 April 2025 in paper form or by 2 May 2025 electronically. If an audit is required or if the return is filed by a tax advisor, the deadline is extended to July 1, 2025.
In paper form, companies can file it in person at a local tax office or mail it there. However, they can also file it electronically via a data box.
Hint: In the context of an incidental dispute, the Supreme Court addressed how a share in a corporation can be disposed of. Among other things, it confirmed that the regulation of the distribution of a share in a limited liability company is dispositive. Learn more about what new developments affect a share in a corporation.
Yes, corporate taxpayers can also claim certain tax credits. Specifically, this is CZK 18,000 for each employee with a disability (excluding employees with more severe disabilities).
In addition, they can claim a discount of CZK 60,000 for each employee with a more severe disability.
Legal entities in the Czech Republic have certain exemptions from income tax that apply to specific types of income. Exceptions that are not subject to tax include:
Exempt income
Other specific exemptions
These exemptions are defined in the Income Tax Act, specifically Section 19 and other relevant sections.
Legal entities can also take advantage of tax deductions for taxation. The most common ones include research and development costs, donations for public benefit, depreciation of assets and employee benefits (e.g. food vouchers or education allowances).
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Profit-sharing withholding tax is a specific type of tax that applies when profit shares are paid to partners in business corporations such as limited liability companies (LLCs). This tax has several key aspects:
The company that pays out the profit share is obliged to withhold tax at the time of payment. The company must remit the withheld tax to its tax office by the end of the calendar month following the month in which the withholding took place. The company must then file an annual withholding tax return by 1 April of the following year.
Legal persons may be exempt from this tax if they meet certain conditions. The basic condition is that the recipient must hold at least 10% of the shares in the company for at least 12 months. This exemption applies to parent and subsidiary companies within the EU and under double taxation treaties.
In answering the question of what taxes a company pays, we need to look at a few more categories, as VAT is far from the only one. In addition to taxes, companies also pay various fees. What are some of the most common ones?
Legal entities in the Czech Republic are required to pay various taxes, most notably corporate income tax, which is set at 21% from 2024. This tax is calculated on the profit of the company after deducting deductible expenses, and companies also pay advances during the year based on past tax obligations. Another important obligation is VAT, which has a basic rate of 21%, a reduced rate of 15% and a second reduced rate of 10%, with registration for VAT being compulsory for annual turnover above CZK 2 million. Corporate income tax returns are due by 1 April on paper and by 2 May electronically. Companies can use various tax exemptions and deductions, for example for research and development or donations for public benefit. New features from 2024 include the ability to keep accounts and pay taxes in foreign currency, non-taxation of unrealised exchange differences and changes to the deductibility of expenditure on promotional items.
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