Global Tax Alert | 16 October 2013

Czech Senate approves Income Tax Law amendment

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On 10 October 2013, the Czech Senate approved a special law measure that includes a long discussed Income Tax Law amendment. For this amendment to be enacted it must be approved by a new Chamber of Deputies on its first session (once elected later this year).1

The main changes of the approved Income Tax Law amendment are as follows:

  • Higher research and development (R&D) incentive in the form of an improved R&D credit including a year-on-year increase in R&D costs eligible for a 210% deduction (currently a 200% deduction regardless of year-on-year increase) and also the broadening of the types of costs qualifying for R&D credit.
  • Higher allowance for qualifying gifts with a deduction of up to 10% of the tax base (increase from 5%).
  • Income of individuals from the sale of securities will be exempt if the holding period exceeds three years instead of the current six months (with exceptions).
  • Corporate income tax for investment funds remains at 5% and withholding tax on dividends from investment funds remains at 15% (before any potential reductions), contrary to previous drafts which proposed a complete overhaul of the investment funds taxation.
  • The previously discussed and anticipated broad extension of the dividend withholding tax exemption was not approved. The current dividend participation exemption rules remain basically intact.

In addition to the above, there is a simultaneous complete overhaul of civil and company laws which indirectly impact the taxation as it generally allows for more flexible structuring.

Endnotes

1. Normally, law amendments are approved by Chamber of Deputies in the Czech Republic. However, as the Chamber of Deputies was recently dissolved, there is a relatively unique situation where the Czech Senate - as the only functioning Parliament chamber - can approve special law measures.

For additional information with respect to this Alert, please contact the following:

Ernst & Young s.r.o., Prague
  • Libor Fryzek
    +420 225 335 310
    libor.fryzek@cz.ey.com
Ernst & Young LLP, Eastern European Business Group, New York
  • Vladimir Sopkuliak
    +1 212 773 4144
    vladimir.sopkuliak@ey.com
  • Miklos Santa
    +1 212 773 1395
    miklos.santa@ey.com

EYG no. CM3885