Czech Corporation Tax Is Highest Among V4 Countries, Through True Picture Is More Complex

The general rate of corporation tax in the Czech Republic is currently 19%. Photo credit: Freepik.

Brno, June 21 (BD) – The general rate of corporation tax in the Czech Republic is currently 19%, the highest overall rate among the Visegrad Four (V4) countries (the Czech Republic, Hungary, Poland, and Slovakia). However, this does not necessarily mean that Czech firms pay the most tax; taking into account other features of the tax systems of V4 countries, the overall tax burden for corporations may be more, according to the annual “CEE Tax Guide” study by the consulting company Mazars, which compares tax trends in 25 European and Central Asian countries.. 

For example, Hungary has the lowest general rate of 9%, but in some sectors the overall rate of tax on profits can be as high as 50%. The 15% corporate income tax rate in Slovakia applies only to taxpayers whose income does not exceed EUR 49,790 (roughly CZK 1.2 million) for the tax period. Otherwise, the rate is 21%.

Different countries place emphasis on different factors of the profit of legal entities when applying tax, according to Mazars. The study further states that countries in the region of Central and Eastern Europe typically keep their basic corporate tax rates around 15-20%, though the reality is often more complex. 

“A number of countries, such as Poland and Slovakia, have favourable tax rates for companies with smaller profits,” said Pavel Klein, managing partner of Mazars’ tax department in the Czech Republic. “In Hungary, which has a general corporate income tax rate of 9%, the total taxation of companies in some sectors can reach up to 50%.”

The study also states that the European Union is making a conscious effort to reduce tax competition, and to prevent the use of the most harmful tax avoidance techniques.

In the 25 countries surveyed, only one saw a lower rate of corporation tax year-on-year; since 2022, only in Austria was the rate reduced, from 25 to 24%.

All Central and Eastern European countries using traditional corporation tax allow losses to be carried forward to other tax periods. This option has a time limit, usually 5-7 years, but in some countries the limit is only 3 to 4 years. All V4 countries have a time limit of 5 years. 

“From 2020, tax losses can be applied retroactively in the Czech Republic, for two previous periods. However, the maximum amount of tax loss by which the tax base can be reduced in transitional tax periods is limited to CZK 30 million,” explained Klein.

The Mazars study points out that countries in the CEE region readily apply withholding tax at a rate of 15% or even 19-20% on dividends, royalties or interest. However, Hungary and Latvia, for example, still generally do not apply withholding tax on capital income. Many CEE countries offer tax incentives to encourage companies to invest in research and development.

Last but not least, the report compares how governments have tried to consolidate state budgets during the energy crisis caused by the war in Ukraine. Hungary and the Czech Republic, for example, have introduced so-called extraordinary taxes on specific sectors in this context, which should be only temporary.

“A special tax on the income of legal entities will be applied in the period 2023 to 2025 for companies operating in the sectors of energy production and trade, banking, petroleum, and fossil fuel mining and processing,” said Klein. “The extraordinary tax will be applied in the form of a 60% tax surcharge on the excessive profit of these companies.”

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