New Withholding Tax Rate

Effective 1 January 2013, a new 35% withholding tax was introduced. The tax shall apply to payments of income to foreign tax residents who are not residents of

• another EU Member State; or
• the EEC; or
• a country which entered into a Double Tax Treaty with the Czech Republic; or
• a country which is a party to an effective TIEA (see above).

The General Tax Directorate issued information for natural persons and legal entities on how to prove tax residency for the purpose of determining withholding tax under the Income Tax Act.

The information is addressed to parties responsible for applying withholding tax. If a taxpayer fails to prove he/she is a Czech tax resident or another contract country’s tax resident, he or she will be considered a resident of a non-contract country on whom the 35% withholding tax shall be levied.

The Ministry of Finance lists support methods for proving tax residency status, such as via an ID for natural persons, registration of a registered office with the relevant public register for legal entities, or an affidavit for both. Should the party responsible for paying the withholding tax have any doubt regarding the tax residency of the person to whom it pays the taxable income, we recommend that it require the person to submit a tax residency certificate issued by the relevant authority in the relevant country.