The Czech tax system is not just a list of taxes and forms. It is a mechanism that keeps the state running, distributes resources, mitigates crises and sets the rules of the game for business and everyday life.
The Czech tax system is not just a list of taxes and forms. It is a mechanism that keeps the state running, distributes resources, mitigates crises and sets the rules of the game for business and everyday life.
In this text, we explain what tax is, how the tax rate on paper differs from what you actually pay, the functions and principles of tax, who administers tax and how the tax procedure works.
Tax in Czech law does not have a single legal definition. However, it is well established in the literature and in practice that it is a compulsory, legally imposed, non-refundable, non-equivalent and usually non-exclusive payment to the public budget. Non-equivalent means that we do not pay for a specific service on a piece-for-piece basis – the state provides public goods and services to all without attributing their value to the individual penny paid. Tax is therefore an instrument for financing public budgets – the state, regions, municipalities and selected funds.
Finally, a fundamental constitutional rule applies: taxes and fees can only be imposed by law. This ensures legal certainty and limits the arbitrariness of the state. This follows from the Charter of Fundamental Rights and Freedoms.
We can help you navigate the law, whether it’s dealing with a specific tax situation, preparing for an audit by the tax authority or defending yourself in court.
Direct taxes are paid directly by you. These are typically personal income tax, corporation tax and property tax. With direct taxes, the burden is not passed on in the price of a particular product or service; the impact is tied to your income or assets. This is where equity (both horizontal and vertical) and tax rate (e.g. 15% or 23% for individuals and 21% for companies), as well as the effective rate after rebates and deductions, are intensively addressed in practice.
Indirect taxes, on the other hand, are levied by the entrepreneur/taxpayer, but the economic burden is borne by the consumer through the price of the product or service. These include in particular VAT and excise duties (fuel, alcohol, tobacco; energy taxes are often included). In practice, this means that when you buy a good or service, the tax is hidden in the price – so taxes are collected by the state on an ongoing basis with each purchase. In addition, neutrality plays a role in VAT: taxpayers generally claim a deduction on input so that the tax on final consumption does not distort business decisions.
When do you become entitled to deduct VAT? Find out in our article.
Taxes are often referred to as a source of revenue for the state, but the modern tax system has at least four functions:
These functions are intertwined and sometimes compete: the more complex the system with many exemptions, the worse the clarity and the higher the cost of collection – but at the same time exemptions and rebates often pursue redistributive or allocative objectives. The challenge for tax policy is therefore a trade-off between profitability, efficiency and fairness.
The taxpayer bears the tax burden (e.g. an employee), the taxpayer collects and pays the tax (in the case of VAT, a trader). For indirect taxes, the taxpayer collects the tax at cost, but the burden is borne by the consumer.
Residents of the Czech Republic are persons with a permanent home or habitual residence (usually 183 days per year) in the Czech Republic. They are obliged to tax their worldwide income here. Conflicts are resolved by double taxation treaties.
Yes, through changes in rates or rebates and the timing of public spending (stabilisation function).
The tax system rests on several basic principles that ensure its proper functioning:
Taxes must be sufficiently profitable to cover the statutory functions of the state and local governments.
A fair tax system ensures that those with the same ability to pay bear a similar burden (horizontal equity) and that those with a higher ability to pay contribute relatively more (vertical equity).
The tax should collect the necessary resources with the lowest possible redistribution losses and without unnecessary interference with decisions that the market makes well. An efficient system has a broad base and the fewest exceptions, because it is the exceptions that distort decision-making.
Complicated rules increase costs to taxpayers and the government. A good system strives for simplicity and clarity so that the average person understands his or her obligations and so that tax administration costs as little as possible. Predictability and certainty belong to the same family.
Neutrality means that the level of taxation should not depend on the legal form, type of activity or method of financing, unless there is a good public reason for it. At the same time, there is no absolute neutrality: the state may have legitimate educational objectives (e.g. environmental incentives).
A flexible tax system can adapt the rules to economic changes – without fluctuations in legal certainty. In practice, this means timely but predictable adjustments to rates, bases or allowances.
The system must be manageable: clear deadlines, digitalisation, clear forms, adequate control and enforcement. For example, the Czech MOJE tax portal allows access to personal tax accounts, pre-filling of submissions and setting up notifications. This reduces costs and errors. At the same time, excise duties are administered by a specialised Customs Administration, which is an example of the division of competences according to the nature of the tax.
A solid foundation is precise legal rules that tell who taxes what, when, what the deadlines are and how appeals work. In the Czech Republic, this includes various tax laws and the Tax Code as a procedural rule for tax administration. Legal perfection also reduces the scope for evasion and litigation.
Taxes are not intended to unnecessarily distort decision-making in efficient markets, but can correct for failures (typically externalities – pollution, addictions, negative health impacts). Educational function must be proportionate and transparent – for example, environmental incentives or tobacco taxation have a clear health and environmental justification that outweighs the neutrality distortion.
We can help you navigate the law, whether it’s dealing with a specific tax situation, preparing for an audit by the tax authority or defending yourself in court.
When we ask “what is the tax rate”, we are referring to the algorithm that calculates the tax from the tax base. The rate can be proportional (linear), progressive or degressive – and it can be constructed in a banded (with “bands”) or continuous (by algorithm) manner, which translates into average and marginal taxation.
In addition to the statutory (nominal) rate, there is also an effective rate – what actually comes out after allowances, deductions, exemptions, etc.
For indirect taxes, VAT is a typical example. In the Czech Republic, two VAT rates apply from 2024 – 21% (basic) and 12% (reduced) and some supplies are taxed at 0% (books).
To assess the actual burden of excise duties or VAT, it is useful to look at the VAT gap – the difference between theoretical and actual collection – in addition to the rates. In 2022, the European Commission estimated the tax gap in the Czech Republic at 4.2% of GSTL (approximately €965 million), below the EU average.
What are our VAT rates and how do we calculate the total? You can read this in the next article.
Taxes in the Czech Republic are administered by several organisations:
The procedural rules are laid down in the Tax Code. Its aim is to correctly identify and assess taxes and ensure their payment, in accordance with the basic principles (legality, proportionality, synergy, procedural equality, speed and economy, etc.). The basis is the tax claim – the return, declaration or statement.
In practice, you will encounter the following steps: registration, filing (paper or electronic), payment, control and appeal, if applicable. You can do everything electronically via the MY Tax Portal (electronic forms, filing, payment details, etc.). Looking at the file and accessing information about your own proceedings then strengthens your procedural security.
The state has been massively digitising tax collection in recent years. The MY Taxes portal allows you to fill in and submit electronic forms, provides an overview of payments and enables communication with the authorities. Electronification reduces errors and speeds up administration.
From the user’s point of view, this means: less paper, more ongoing information (payment details, instalments, SIPO for property tax), easier verification of returns and faster communication.
You can read what the My Tax Portal can offer you in the next article.
The Czech tax system is based on the principle that taxes are compulsory, non-refundable and non-equivalent payments to public budgets. We distinguish between direct taxes (income, property) and indirect taxes (mainly VAT and excise duties), the burden of which is borne by consumers in prices. Taxes do not only have a fiscal role; they also have a redistributive, allocative and stabilising function. Above all these are the principles of good taxation – legal certainty, fairness, efficiency, simplicity, neutrality, profitability, flexibility, administrability, universality and proportionate influence on behaviour.
Tax administration is managed by the Ministry of Finance, with the majority of taxes collected by the Revenue Administration and excise duties by the Customs Administration; the process is determined by the Tax Code from filing to possible appeal. Digitalisation (My Tax Portal) is making significant progress, reducing errors and costs. Revenues are shared between the state, regions and municipalities.
In the tariff annexes of the VAT Act and the GFD methodology.
Excise and customs duties in particular; the tax authorities administer most other taxes.
Via bank identity, eCitizen or data box.
No. Sales registration has been abolished; the obligation to register online no longer applies.
The basic rate of 21% has remained and there is now only one reduced rate of 12%; a number of items have moved between rates (e.g. drinks in food services are now generally taxed at 21%).
Not sure how to do your taxes correctly so you don’t get it wrong? We can help you navigate the law, whether it’s dealing with a specific tax situation, preparing for an audit by the tax authority or defending yourself in court.
Ondřej is the attorney who came up with the idea of providing legal services online. He's been earning his living through legal services for more than 10 years. He especially likes to help clients who may have given up hope in solving their legal issues at work, for example with real estate transfers or copyright licenses.
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