usiness The process of purchasing an off-the-shelf company requires the new director to file a petition with the court to change the company’s certificate that contains a notarially-certified foundation deed or articles of association approving the changes of commercial name, trade licenses, shareholders and directors, plus the original or notariallycertified documents supporting those changes. There is a 2,000 CZK stamp tax on filing changes to an s.r.o. certificate. Depending on circumstances, the director may also need to open new bank accounts, register a change of address with regulatory agencies, or add to trade authorizations. tAXeS And ReGulAtionS The s.r.o. can be regulated by a great number of government entities, including the Commercial Court, trade license office, tax authority and, if there are employees, again the tax authority, social security administration, and a health insurance company. There are a variety of indirect and excise taxes depending on the business of the s.r.o.––it is important to consult an accountant in advance of formation in order to understand the regulatory and tax demands on your company. Americans, in particular, might be surprised to find that the IRS will demand information on the returns of their s.r.o.’s activities each tax year, too. 2012 Tax Rates Corporate Income tax (2012): 19.0% Dividend withholding tax (2012): 15.0% Employment law taxes (2012) Employer Employee Social security contribution and withholding:* 25.0% 6.5% Health insurance contribution and withholding: ** Employment income tax withholding:*** 9.0% 4.5% 15.0% * Social security includes pension (21.5%), disability (2.3%), and unemployment fund insurance (1.2%). Seconded employees from abroad are subject to disability insurance. Both employer and employee taxes max out at 1,809,864 CZK of the taxable income. ** Both employer and employee taxes max out at 1,809,864 CZK of taxable income. ***Employment income tax withholding is 15% x “super gross” wage, which includes the employer-paid share of health and social security contributions, thus 20.1% of the gross wage. employeeS It is possible that you intend to hire employees to carry out the work of the company. If this is the case, be aware that this activity is highly regulated in the Czech Republic. The issues to consider are worthy of a book (the regulations are themselves a very long book!), but bear these issues in mind: ` Employees who will work in the Czech Republic must have permanent or temporary residence (employees and their family members, who are citizens of most European countries) or special work permission (third countries). ` There are multiple types of employment and work contracts: full, part-time, agreements on the performance of work and work activities, each with special legal and tax conditions. ` Employees need to be registered with government agencies within eight days of commencing work; with foreign employees, the documentation requires the process be started well in advance. ` There are significant penalties for companies and directors who fail to collect and remit employment taxes. income tAXeS The Czech Republic assesses income tax based on residence, personal characteristics of the payer, and the nature of the income. The primary sources of authority for taxation are the Act on Income Tax and the many international treaties on the avoidance of double taxation to which the Czech Republic is a signatory. The Czech Republic taxes residents (that is, citizens and foreigners who spend more than 183 days in a calendar year in the Czech Republic) on their worldwide income. Worldwide income includes foreign interest, dividends, capital gains, rental, and other income. Residents must use foreign-tax credits or re-source income on their returns to avoid double taxation. Nonresidents are taxable on Czech source income only. This means that persons who are present and earn income in the Republic for even part of a year are subject to taxation. The income tax rate is 15% for all sources of income. There is no separate capital gains tax. Tax may be withheld at source (employment, interest and dividends) or via the submission of tax returns (self-employment, rental income, foreign income, and other income). Taxpayers with income solely from employment may settle their tax obligations through their employers and without filing a return. Employees pay a 15% advance tax (zálohová daň) of “super gross” wages (134% of gross wages), resulting in an effective tax rate of 20.1%. Self-employed persons pay 15% of taxable income. Employees on special work contracts such as a dohoda o provedení práce are subject to income tax withholding (srážková daň). Taxable income from self-employment is generally revenues minus deductible expenses, or, if the payer is using the percentage of revenue method of calculating tax, 40% of revenues, resulting in an effective tax rate of 60%. Meals and entertainment, social security and health insurance expenses are not deductible. Taxable rental income is generally revenues minus deductible expenses, or, if the payer is using the percentage of revenue method of calculating tax, 70% of revenues, resulting in an effective tax rate of 10.5%. In order to use the percentage of revenue method of taxation, self-employed taxpayers must be licensed to practice a trade with the trade license office (živnostenský úřad). If income is generated from joint property (i.e. rental revenue owned by two or more persons), all owners must use the same method of calculating tax. Income tax returns are due on March 31 for the previous calendar year. Every taxpayer can request the tax authority to extend the filing and payment deadline to 30 June by paying an administrative fee of 300 CZK. It is not necessary to engage a tax adviser. The late filing of an income tax return from January 1, 2013 will subject the filer to a daily penalty of 0.05% of the due tax, beginning on the 6th day after the due date, amounting to no less than 500 CZK and no more than 300,000 CZK. In addition, the filer will be assessed penalty interest of 0.0005% per day––equal to 18.25% p.a. There are deductions for mortgage interest (300,000 CZK), government-subsidized pensions and private life insurance (12,000 CZK each), charitable tax donations (10% of the tax base, minimum of 168 | expats.cz survival guide www.expats.cz
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