Corporate Tax 2010 - BMR Advisors

Chapter 13
Czech Republic
Petr Kotáb
Salans
Radovan Bernard
1 General: Treaties
1.1 How many income tax treaties are currently in force in the
Czech Republic
At present, there are 76 tax treaties to which the Czech Republic is
a party covering all regions worldwide.
1.2 Do they generally follow the OECD or another model
The tax treaties between the Czech Republic and other countries are
generally based on the OECD Model Tax Convention in cases
where the other party of the treaty is an industrially developed
country (European countries are typical). In cases of tax treaties
with some of the less-developed countries, the UN Model Tax
Convention is followed. The tax treaty with the USA stands apart
and forms a model of its own.
1.3 Do treaties have to be incorporated into domestic law
before they take effect
International tax treaties need to be agreed to by the Parliament and
ratified by the President of the Czech Republic (subsequent to
possible examination as to the constitutionality thereof by the
Constitutional Court which is done only upon qualified request and
in practice is rarely initiated). The treaties are then published in the
Collection of International Treaties and become part of the domestic
law. No further incorporation into domestic law is needed.
1.4 Do they generally incorporate anti-treaty shopping rules (or
“limitation of benefits” articles)
The general anti-treaty shopping principles contained in the model
tax treaties are usually incorporated in the Czech tax treaties;
however, the treaties usually do not contain more comprehensive
anti-treaty shopping provisions in comparison with those presented
in a model treaty. For example, the criterion of place of effective
management is commonly applied, in addition to mere registered
address, to limit the benefits of a tax treaty available to a foreign
corporate taxpayer. On the other hand a “limitation of benefits”
clause is not commonly used.
1.5 Are treaties overridden by any rules of domestic law
(whether existing when the treaty takes effect or
introduced subsequently)
A tax treaty published in the Collection of International Treaties
prevails over any Czech law, irrespective of whether previously
existing or issued subsequently. In the event that a tax treaty sets
forth provisions other than those set forth in the law, the provision
of such treaty will be applied. The Ministry of Finance however
tends to issue tax instructions for the application of tax treaties
which sometimes twist the interpretation of a tax treaty contrary to
the common interpretation of the same (e.g., interpretation in
respect of the OECD Model Treaty).
2 Transaction Taxes
2.1 Are there any documentary taxes in the Czech Republic
There are no documentary taxes in the Czech Republic. Based on
the nature of the pertinent transaction (real estate transfer, share
transfer, etc.) standard court, notary or administrative fees may be
charged that are supposed to cover or contribute to the expenses of
the registration made by the pertinent authority and have no
taxation nature.
2.2 Do you have Value Added Tax (or a similar tax) If so, at
what rate or rates
There is value added tax (VAT) in the Czech Republic and it applies
to taxable supplies described in more detail in question 2.3. The
Czech VAT system is based on and generally complies with the EU
VAT rules, particularly the Council Directive 2006/112/EC of 28
November 2006 on the common system of value added tax.
Two VAT rates are applied in the Czech Republic:
the standard VAT rate is applied to most taxable transactions
involving supply of goods and services unless a reduced VAT
is set forth; and
the reduced VAT applicable to certain supplies of goods and
services permitted by the Directive 2006/112/EC (e.g.,
foodstuffs, medical equipment, pharmaceutical products and
books, among others) and to certain supplies related to
construction work for residential housing.
As part of a complex of measures addressing the public finance
deficit, as from January 1, 2010 the standard VAT rate currently set
at 19% will increase to 20% and the reduced VAT rate set at 9% will
increase to 10%.
ICLG TO: CORPORATE TAX 2010
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