Czech authorities mull taxing foreign companies operating in Czechia

Under the proposed bill, the state would collect between CZK 4 billion and 6 billion per year by taxing foreign-headquartered firms working in Czechia.


Written by ČTK Published on 17.08.2023 10:22:00 (updated on 17.08.2023) Reading time: 2 minutes

Czechia is planning to introduce a new tax scheme aimed at large, foreign multinational companies operating within its borders but based abroad. The government has greenlit a bill for a compensatory tax that Finance Minister Zbyněk Stanjura plans to fast-track through the Chamber of Deputies.

Much-needed money for the state

Anticipated to bring in up to CZK 6 billion Czech annually under the current 19-percent corporate income tax rate, this move is touted as a vital step toward equitable taxation within the nation. The central premise is that large multinational entities will be required to pay a minimum 15 percent tax while conducting business in the country. This initiative also aims to bolster public budgets and establish fair conditions for all market players.

Minister Stanjura emphasized the protracted European endeavor to tax corporate giants effectively. Last year, during the Czech EU presidency, groundwork was laid for a directive now incorporated into Czech law.

Targeting large businesses

The forthcoming Compensatory Tax Act targets major international and domestic firms with consolidated revenues exceeding EUR 750 million (about CZK 18 billion) that have been operating within the Czech market over two of the past four years. If the companies’ effective taxation in Czechia is below 15 percent, an additional tax will be levied on the entity or group, ensuring the minimum 15 percent taxation.

Around 3,200 companies linked to multinational groups are expected to fall under the law's scope. The precise impact remains uncertain, with regulations expected to function preventively, discouraging profit shifts and aggressive tax-benefit use.

If the corporate income tax were to be increased to 21 percent from the current 19 percent, as envisaged in the government's consolidation package, the revenue from the compensatory tax would be CZK 2 billion a year. This would happen because the effective tax rate on companies would increase and fewer groups would remain below the tax threshold at which the so-called top-up tax would apply.

The entirety of collected compensatory tax revenue would funnel into the state budget, boosting the Czech Republic's fiscal health. This legislative move signifies a concerted effort to achieve fiscal fairness and transparency in the realm of multinational corporate taxation.

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