Tax residency: who is a tax resident in the Czech Republic

In this article, we will explain what tax residency is, who is a tax resident of the Czech Republic, who is a tax non-resident of the Czech Republic, and most importantly: what are the practical implications for your taxes and everyday life.

What does tax residency mean

Let’s start simply: tax residency tells you which state treats you as a domestic taxpayer for income tax purposes. This is key because the state of tax residency usually applies what is called an unlimited tax liability – that is, it wants to tax not only “domestic” income, but typically also foreign income (foreign wages, business income, rentals, some investment income, etc.).

Tax residence is not the same as citizenship

This is where most of the confusion arises. Tax residence is not automatically derived from citizenship. You can be a Czech citizen and still be a tax non-resident as long as you do not actually live in the Czech Republic in a way that the law considers to be residency. Conversely, you can be a foreigner and become a tax resident of the Czech Republic because you have established a real background and a normal life here.

Who is a tax resident in the Czech Republic

Czech law is fairly straightforward on the issue of tax residency, but in practice it can be tricky: to be a tax resident in the Czech Republic, you only need to meet one of two conditions: either you are domiciled in the Czech Republic or you are habitually resident here (183 days per calendar year).

What exactly does “domicile” mean for tax purposes

By domicile in the Czech Republic, the law does not mean an address in the citizenship or a permanent residence from the population register. It means a place where you have a permanent home and the circumstances suggest that you intend to reside there permanently.

It is also important to note that this permanent home does not have to be an apartment or house owned by you – it could be a rental, a servant’s apartment, a long-term apartment with a partner, etc. The point is that this flat is at your disposal at any time.

The biggest misconception about residence is that some formal indication is enough (or not enough). In fact, it is the reality that is assessed: you have an apartment in the Czech Republic that is your home base, and the circumstances indicate that you want to stay here for a long time.

The tax administration gives practical guidance on what is relevant for the residence assessment: typically personal and family status – for example, whether you live in the apartment with your spouse and children – and whether you use the apartment in connection with economic activities such as employment or business.

In layman’s terms: if you have a “life” in the Czech Republic (family, regular routine, job, business, doctors, normal household functioning), this is exactly the type of situation where intent to reside permanently will be easier to establish than for a person who keeps an apartment here only as an occasional place to stay.

Practical example: you work abroad most of the time, but you have an apartment in the Czech Republic where you return regularly, your partner/family lives here and you spend your free time here. Even without meeting the second condition of habitual residence (183 days), it may happen that you become a tax resident of the Czech Republic through your residence, because your permanent apartment and the circumstances of your life point to a long-term base.

183 days: how they are calculated

The second key is habitual residence in the Czech Republic. Here the law already works with days: a person is considered habitually resident if he or she stays in the Czech Republic for at least 183 days in a calendar year, and this can be continuous or in several periods. And it adds a practical rule that people often overlook: every day of stay counts towards the 183 days.

With habitual absenteeism, people often make two mistakes:

1. They count days “approximately”: the law explicitly says that every day of stay counts. In practice, this means that if you arrive in the evening and leave the next morning, that is two days. This change can add up to dozens of days in a year.
2. People get confused about what period is being assessed: the Czech 183-day test is linked to the calendar year and stays can also be added in parts. So if you return to the Czech Republic repeatedly (e.g. work tours), the days add up even if you have been away for a long time in between.

Practical example: 40 days in winter, 60 days in spring, 90 days in autumn. You have never been here for half a year, but the sum of the days is 190. At this point, you meet the condition for habitual absenteeism.

Important exception: study or medical treatment

The law also contains a rule that, for students and people undergoing long-term treatment, can decide the whole tax set-up: if you are only in the country for study or treatment, you are a tax non-resident, even if you would otherwise meet the habitual residence condition.

In practice, of course, this requires that it is really only for study or treatment – i.e. that your situation does not have the typical characteristics of normal residence (work, business, family background, etc.).

Examples:

Imagine that you are a Slovak citizen and you come to Brno to study for a Master’s degree. You will spend almost the whole academic year from September to June in the Czech Republic, so you will easily exceed 183 days. You are living in a dormitory or in a rental, but your stay is obviously temporary, linked to your studies. You don’t work, you don’t run a business, you don’t have family or other long-term “anchorage” in the Czech Republic, you go home after your exams and there you have your main base. In such a situation, an exception applies: you are a tax non-resident of the Czech Republic, even though you usually stay here (183+ days).

But on the other hand, you may be in a very similar starting situation, but with an important difference: you are a foreigner studying in Prague, but you also have a long-term employment contract in the Czech Republic (not just an occasional part-time job), you rent an apartment indefinitely as a stable base, and you move your regular life here (medical, bank accounts, long-term obligations).

So in practice you can no longer say that you are in the Czech Republic just to study – study is the reason, but alongside it there is a real standard settlement (typically a job as the main economic link and a stable apartment as a base). In such a case, it is very easy to get into the Czech tax resident regime either through residence (a stable flat and the intention to stay there permanently) or through habitual residence without the possibility of using the student exemption.

What does tax residency affect in practice

Whether or not you are a tax resident determines important things: where you have to pay tax on your income, whether or not you are subject to taxation on foreign income, how double taxation treaties apply to you and what tax relief you can claim at all. This can make a difference of tens of thousands of crowns a year – either in extra taxes paid or in unnecessary taxes paid in a foreign country. Let’s take a closer look at the differences:

1) Taxation of foreign income

The key difference between a tax resident and a tax non-resident lies in the extent of taxation in the Czech Republic. A tax resident of the Czech Republic has an unlimited tax liability, so he or she declares and taxes worldwide income in the Czech Republic – not only Czech wages, but also foreign wages, business abroad, rent from an apartment abroad, interest from foreign bank accounts or dividends from foreign stock exchanges. In contrast, a non-resident of the Czech Republic has a limited tax liability and only treats income in the Czech Republic that has its source in the Czech Republic (typically work performed in the Czech Republic, income from Czech real estate or income derived from a permanent establishment in the Czech Republic).

Double taxation: why you don’t automatically have to worry about tax twice

Just because you declare foreign income in the Czech Republic as a tax resident, it does not mean that you are taxed twice. That is why there are international treaties on the avoidance of double taxation and also methods of eliminating double taxation directly in Czech law. In practice, two basic methods are used:

1. The credit method: you tax the income abroad and then include it in your Czech tax return. The tax paid abroad is credited in the Czech Republic up to the amount of tax that would have been due on this income under Czech rules. If the foreign tax was lower than the Czech tax, you will pay the difference in the Czech Republic. If, on the other hand, the Czech tax on this income was higher, the Czech tax will be merged with the credit and you will not pay any more in the Czech Republic (but you will not be refunded the foreign tax).
2. Income exclusion method (exemption): income is just taken into account in the Czech Republic for the calculation of the rate, but is not taxed (or not included in the tax base where tax would be paid). This method is only used for selected income under a specific treaty and Czech law – typically for certain employment income where conditions are met, or for income from countries where the exemption method is explicitly agreed.

Simple model examples:

You are a tax resident of the Czech Republic, working for a German company in Germany: Germany will usually take the right to tax this wage as the state where the work is performed. However, in the Czech Republic, as a resident, you must declare the foreign wages on your return. Under the Czech-German treaty, a specific method applies (usually a credit or exclusion depending on the type of income and the actual treaty wording). The result: you don’t have to pay tax twice, but either the German tax is credited or the Czech wages are excluded.

You are a non-resident of the Czech Republic, but rent an apartment in Prague: You are a non-resident in the Czech Republic, but you have income from a Czech source (rent from a property in the Czech Republic). This remains taxable in the Czech Republic. Income from abroad (e.g. wages in your home country) is not dealt with in your Czech return – instead, it is dealt with according to the rules of the country where you are tax resident.

2) Double taxation treaties

Double taxation treaties are agreements between two countries that have two main objectives:

1. To allocate the right to tax specific types of income – wages, business income, dividends, interest, royalties, gains from the sale of real estate, etc.
2. Decide where you are a resident if residency would work out in two states at the same time (“tie-breaker” tests).

How treaties work with residency

Sometimes you will meet the requirements for tax residency under the domestic rules in two states – for example, the Czech Republic and another country. Then a set of criteria comes into play to decide which state takes precedence. These criteria typically go in order:

1. Permanent home – where is it available?
2. Centre of life interests – where do you have closer personal and economic ties (family, work, business, property)?
3. Habitual residence – where do you spend most of the year?
4. Nationality – are you a citizen of one of these countries?
5. Mutual agreement between authorities – if all of the above fails, the tax administrations must come to an agreement between themselves.

The outcome is important: it determines where you are tax resident for treaty purposes, and the double taxation exclusion is then dealt with accordingly.

How treaties deal with specific income

Most double tax treaties are similar in structure: first they define who is resident, and then subsequent articles regulate the different types of income. For employment, treaties generally provide that wages are taxed where the work is actually performed; however, they allow an exception for short-term stays (typically up to 183 days if other conditions are met). Dividends are usually subject to withholding tax in the source state, but at a limited rate (for example, up to 15%), with the state of residence subsequently ensuring that double taxation is avoided. And for real estate, treaties almost always leave the right to tax to the State in whose territory the property is located.

3) Tax allowances and benefits

The tax resident/tax non-resident distinction in the Czech system has a direct impact on what tax credits and tax benefits you can claim.

As a rule,a tax resident of the Czech Republic has a wider range of possibilities to claim tax credits and benefits (typically taxpayer’s rebate, spouse ‘s rebate, tax benefits for childrenor certain deductions), provided of course that the statutory conditions are met.

A non-resident taxpayer can always claim the taxpayer’s rebate. Other discounts, tax-free parts and child tax benefits are generally only available to EU/EEA residents if at least 90% of their income is derived from sources in the Czech Republic (there are exceptions for some discounts).

As a resident, you should always check what income you have both in the Czech Republic and abroad, which treaties apply and what reliefs are available. For a non-resident, the main issues are income from sources in the Czech Republic, any treaty benefits (e.g. lower withholding tax) and whether you qualify for certain Czech discounts at all.

Identification for tax purposes in the country of tax residence

You may have experienced it: a bank or investment platform asks you to declare where you are tax resident and fill in a tax identification number for that state.

The reason? Automatic exchange of financial account information works – in the EU under rules known as DAC2, globally under the CRS standard. DAC2 sets up an automatic exchange of financial account information between states, and the information is exchanged with the taxpayer’s state of residence. The CRS then covers financial account information that financial institutions identify and report under due diligence procedures and is a tool to combat tax evasion.

The Czech legal framework is also based on the Act on International Cooperation in Tax Administration, which regulates how the tax administration cooperates with foreign authorities in the tax area.

And what is a TIN? It is, in practice, a “tax identification number” for identification purposes in a given country – a unique identifier used by the tax administration of that country. In the Czech Republic, in practice, you will most often encounter a birth number (for individuals) or a TIN (especially in contact with the authorities and for some registrations), and for foreigners, specific identifiers assigned by the Czech authorities depending on the situation. The purpose is always the same: to let financial institutions and authorities know where you belong for tax purposes.

How to prove tax residency: confirmation of tax domicile

In cross-border situations, you often can’t do without a piece of paper that outwardly proves where you are at home for income tax purposes. That paper is a tax domicile certificate – simply an official confirmation that you are tax resident in the Czech Republic for a certain period or on a certain date.

In practice, you apply to the local tax office and the application usually clearly specifies the period or date, the country for which you need the certificate and the purpose (typically to claim the benefits of a double taxation treaty, reduced withholding tax on dividends, proof of residency to a foreign payer, etc.). For simplicity, you can use the sample applications. In many situations, the tax authorities now also issue certificates in electronic form (with a recognised electronic signature and time stamp).

Summary

Tax residency determines which state treats you as a domestic taxpayer for income tax purposes. In the Czech Republic, residency is assessed mainly through two simple criteria: you are resident in the Czech Republic (you have a permanent apartment available and circumstances show an intention to stay here for a long time) or you usually stay in the Czech Republic for at least 183 days in a calendar year (every day counts, stays are added together). Beware of a common misconception: tax residency is not citizenship – a Czech citizen can be a non-resident and a foreigner can be a resident as long as he or she has a real life background here. There is a specific exception: someone who is in the Czech Republic only for study or medical treatment generally remains a tax non-resident for Czech purposes, even if he or she exceeds 183 days.

In practice, the resident vs. non-resident distinction determines what and where you are taxed: a resident of the Czech Republic addresses worldwide income in his/her return, a non-resident of the Czech Republic usually only income from sources within the Czech Republic (e.g. work in the Czech Republic, rent from Czech real estate). Double taxation is normally eliminated by double tax treaties and methods such as credit or exclusion; the same treaties also address situations where you are resident in two countries (so-called “tie-breaker” based on permanent home, centre of life interests, etc.). Residency also has an impact on the application of discounts and benefits (residents generally have wider possibilities; non-residents often only to a limited extent and subject to conditions). And since banks and platforms now have to find out where you are tax resident because of the automatic exchange of information (DAC2/CRS), they will often ask you for a TIN and sometimes a tax domicile certificate to officially prove your residency.