I owe taxes: what interest am I facing and how can I reduce it?

How does the tax office calculate interest on late payment?

If you are late paying your taxes, the tax office will start charging you interest on late payments. This is calculated according to the rules set out in the Civil Code and government regulations. The amount of interest is based on the Czech National Bank’s repo rate, to which 8 percentage points are added. For example, if the CNB’ s repo rate is 6 %, the default interest is 14 % per annum.

Interest on late payment is calculated for each day of delay and starts to accrue from the fifth day after the tax is due. However, after this period, the amount due starts to accrue interest daily and the longer you delay payment, the more you pay.

The tax office calculates the interest automatically and charges it when you check your arrears or file a supplementary tax return. If the amount of interest is low (currently under CZK 1,000), the tax office does not have to recover it.

Of course, the best strategy is to pay your taxes on time. But if there is a risk of delay, it pays to act quickly – the shorter the delay, the lower the interest.

When does interest start to accrue and when does it end?

As we mentioned, interest on overdue taxes does not start accruing immediately after the due date. The Inland Revenue provides a four-day “interest-free period” during which you can pay the tax without penalty. But if you don’t make a payment even by the fifth day after the due date, interest starts to accrue.

Example: if the tax is due on 31 March, interest starts to accrue from 5 April. For each additional day of delay, interest is added to the debt at the CNB repo rate + 8 percentage points.

The interest is calculated up to and including the date of payment of the debt. So if you pay 20 days after the due date, interest is calculated for 15 days (excluding the first four days).

There are also situations where interest stops accruing otherwise – for example, if the tax office grants you a tax extension or a repayment plan. In this case, the interest may be reduced or even waived.

The best defence against high interest is not to delay payment. If you run into problems, it is always better to proactively address the situation with the tax office than to wait for the penalty to increase.

What are the current default interest rates?

Late payment interest is a penalty for late payment of taxes or other financial obligations to the state. It is based on the Czech National Bank (CNB) repo rate, to which 8 percentage points are added. The repo rate is the basic interest rate at which commercial banks borrow money from the CNB.

As of 1 January 2025, the CNB repo rate was 4%. This means that the default interest for the first half of 2025 is set at 12% per annum (4% repo rate + 8 percentage points). This rate applies to all debts that fall into arrears between 1 January and 30 June 2025.

It is important to note that default interest is calculated for each day of default. So, if you owe a certain amount and you are several days late with your payment, interest will be calculated pro rata for those days. The calculation is based on the following formula:

Interest on late payment = amount owed × (repo rate + 8%) / 100 × (number of days late / 365)

For example, if you owe CZK 10,000 and you are 30 days late with your payment in the first half of 2025, the default interest will be:

cZK 10,000 × 0.12 / 365 × 30 = CZK 98.63

To accurately calculate the late payment interest, you can use online calculators that take into account the current rates and the number of days late. It is also advisable to monitor the current CNB repo rate, as its changes directly affect the amount of default interest.

For more information on calculating default interest, you can visit the official website of the Czech National Bank.

Can I apply for a reduction or waiver of interest?

Yes, the tax office can reduce or waive interest in certain cases, but this is not an automatic process. If you have objective reasons for late payment, you can request an individual assessment of your situation.

An application for remission or reduction of interest is made to the tax office, which decides on the basis of the principles set out in the tax code. The most common reasons that can lead to interest waivers include serious health problems, natural disasters, technical difficulties with payment or incorrect instructions from the authority.

If you run into financial difficulties, a better solution may be to apply for a tax extension or a payment plan. In these cases, interest is often reduced to help the debtor pay the obligation.

To increase your chances of success, it is advisable to attach documents proving your situation (e.g., medical reports, proof of a natural disaster) to your application.

The decision of the tax office is individual and cannot be guaranteed in advance, but in justified cases, interest can be at least partially eliminated.

What other penalties do you face for late payment of taxes?

Failure to pay your taxes on time doesn’t just mean interest on late payment. The tax office can also impose other penalties that can significantly increase your debt.

• Penalty for late filing: If you file your tax return after the deadline, you could face a penalty. The penalty is calculated as 0.05% of the tax for each day it is late (up to a maximum of 5% of the total tax). The minimum penalty is CZK 1,000, even if no tax is due.
• Interest on late payment: this interest is the CNB repo rate + 8% per annum and is calculated for each day of delay beyond the 4-day tolerance.
• Penalty on tax assessment: If the tax office assesses you more tax during an audit, you have to pay not only the amount due but also a penalty of 20% of the tax assessed (if the deductions were understated, the penalty is 1%).
• Enforcement and recovery: if you do not pay even after being asked to do so, the authorities can enforce the tax by seizing your account, seizing your property or deducting your wages.

The best defence is to pay on time or at least request a payment plan.

Summary

Late payment of taxes can lead to high interest on late payments, which is calculated at the CNB repo rate plus 8 percentage points. This interest starts to accrue from the fifth day after the due date and increases for each day of delay. In addition to interest, there are also fines for late filing of tax returns, penalties for tax assessments and even execution. The way to avoid these penalties is to pay your taxes on time, apply for a payment plan or, in justified cases, request a waiver of interest. The key to minimising the risks is a proactive approach and timely communication with the tax office.