Employee’s tax return for 2017
Please note: This article explains the procedure for employees of registered businesses only. A different procedure applies to self-employed individuals and other sources of income.
Is the annual tax reconciliation done by an employer?
Your salary has been taxed at a rate of 15% each month, calculated from the super-gross salary (i.e. 134% of your gross salary) on a pay-as-you-go basis, and your employer has already reduced your monthly taxes by CZK 2,070 (known as the ‘tax relief for a taxpayer’). This and tax deductions for dependent children are the only automatic tax relief the employer can regularly claim for employees. Any other tax claims have to be made after the end of the year in a form for annual tax reconciliation.
In most cases, the annual tax reconciliation is done by your employer. Your payroll department should contact you and ask if you want them to do the accounting for you. In such cases, they should take into account any applicable tax allowances from the tax base (paid charity gifts, mortgage interests, private pension savings, life insurance, union dues) and tax relief (tax relief for a taxpayer – CZK 2,070 each month – for the months that he or she did not work in the Czech Republic, as well as deductions for a dependent spouse, children, daycare, studies, or disability).
(To be eligible for some of the tax allowances and tax relief, your employer may ask you to bring a confirmation of your tax residence in the Czech Republic. Such a document is called a Czech tax domicile. More about the domicile below.)
However, annual tax reconciliation cannot be made to an employee who is legally required to file a tax return individually (§38g, 586/1992 Col.) This applies to:
- an employee who had more than one job at a time (or a job not taxed by withholding tax each month)
- an employee who received any other income (over 6,000 CZK) worldwide (business activity, sales, renting out, shares, capital gains, etc.)
- an employee who received over 1,355,136 CZK in gross salary in a year and thus paid a “solidarity tax“. (A solidarity tax is deducted from a monthly gross salary higher than CZK 112,928. Such taxpayers pay an additional 7% – on top of the flat 15% – of the amount exceeding the monthly limit However, if the limit for the full year has not been exceeded, they get the solidarity tax back.
How to file an individual tax return
In case you have to (as per the previous paragraph) or want to file an individual tax return, you can claim the same personal tax deductions: tax relief for children, a spouse and studies, and a reduction of your tax base for allowances such as charity donations, interest on a mortgage, pension and life insurance contributions and others.
Individual income tax returns should be submitted at the end of March. The submission deadline is April 2nd. It is necessary to submit the tax return on an official form. Although only forms in the Czech language are accepted, you can see and compare the English translations of the income tax return form and the instructions for ﬁlling it out. Download your personal income tax forms here.
A tax return can be submitted at any office of the Financial Authority, regardless of your residence. You can, of course, file all the forms on your own, but more frequently you will need the help of a professional accountant or a tax advisor to evaluate your situation, your possible gains, and to help you file all the forms and supplement them with the necessary documentation. We at Brno Expat Centre cannot do this for you, but we can suggest English speaking tax consultants to you.
What are all the possible tax deductions?
Allowances from the tax base
|Allowance||Maximum amount for allowance from the tax base in 2017|
|Charity gifts*||minimum CZK 1,000 per gift, to a maximum of 15% of the tax base; a blood donation is valued at 2,000|
|Mortgage interest*||CZK 300 000|
|Private pension savings (in a Czech pension fund)*||maximum CZK 24 000 (only contributions in excess of the first CZK 12 000 are eligible, so optimal contribution is CZK 36 000)|
|Life insurance*||CZK 24 000|
|Union dues*||CZK 3 000|
|Tax relief||Amount of discount for 2017|
|Taxpayer||CZK 24 840|
|For dependent children* (1st, 2nd, 3rd)||CZK 13 404, CZK 19 404, CZK 24 204|
|For dependent spouse* (income below 68 000)||CZK 24 840|
|For studies||CZK 4 020|
|For kindergarten or daycare*||maximum CZK 11 000|
*The benefits with an asterisk can only be applied to a Czech tax resident or non-resident (EU citizen) having more than 90% of his worldwide income from Czech sources.
Czech tax residence and tax domicile
To claim some of the tax allowances and tax relief, you need to prove that you are a Czech tax resident. On an individual tax return, it is the individual’s responsibility to support his or her claim of residence with some documents (for example accommodation and employment contracts). However, when your employer does the annual reconciliation for you and takes the responsibility, they may ask you to bring an official confirmation of your tax residence in the Czech Republic. Such a document, called a Czech tax domicile, is issued by the Financial Office upon reviewing your personal situation, your documentation regarding your stay in the Czech Republic, and sometimes interviewing you. The tax domicile is usually issued within a couple of weeks, and Brno Expat Centre can you help you with that. Please download and read our detailed guidelines we have compiled: BEC Infosheet: Tax domicile.
Many taxpayers make the common mistake of determining their tax residency based on the length of their stay (183 days) in the country. This definition is included in the local, and also in most foreign, income tax laws. The majority of foreigners living in the Czech Republic come from the so-called “contractual countries”, which means that the Czech Republic has concluded a Treaty for the avoidance of double taxation (Double Taxation Treaty) with their country of origin. This treaty takes precedence over local laws. Article 4 in each of the treaties defines one’s tax residency according to four criteria of descending importance, which is often quite different from local laws. According to the conventions, you become a tax resident in a country 1) where you have your own or rented flat; 2) where your personal and economic relations (centre of vital interests) are; 3) where you usually stay; 4) of which you are a citizen; or 5) where competent authorities come to such an agreement.