Czech Republic: Changes in corporate income tax

From 2024, the so-called government austerity consolidation package will come into force in the Czech Republic, bringing changes to up to 60 legal regulations. Most of the changes are proposed to take effect from 1 January 2024.

Below, we would like to inform you about the most important changes concerning corporate income tax.

Increase in corporate income tax rate

The tax rate will increase from 19% to 21%.

Functional currency

Accounting entities will have the option to keep their accounts in a foreign currency (namely in Euros, US dollars or British pounds) if the foreign currency is a so-called functional currency for them. This is the primary currency of the economic environment in which the entity operates.

The tax calculation will be based on the profit/loss in a foreign currency. The items included in the tax return will be converted into Czech crowns based on the exchange rates of the Czech National Bank, at the exchange rate at the end of the tax period.

The tax can be paid in Czech crowns or in a foreign currency. Arrears or overpayments due to exchange rate differences from the payment of the tax will not arise, or there will be no right to their refund.

Option to tax only realised exchange rate differences

Unrealised exchange rate differences usually arise at the time of valuation of foreign currency assets and debts as of the date as of which the financial statements are prepared. These exchange rate differences are accounted for in results as expenses or income. Until now, the unrealised exchange rate difference entered the tax base at the time of realisation, i.e. at the moment when the currency risk ceases. This can be both a payment of a debt and a write-off of a receivable.

The taxpayer will now have the option to exclude unrealised exchange rate differences from the tax base in the taxation period in which they arise and to tax them only in the taxation period in which they are realised. This means that the exchange rate loss would not be a tax-deductible expense and the exchange rate gain would not be a taxable income.

The taxpayer must inform the tax administrator about entering this regime and must then apply it to any exchange rate differences the taxpayer incurs.

The period for which the taxpayer will be in this regime should not be shorter than three taxation periods, and any previously untaxed exchange rate differences will need to be re-taxed when exiting such regime.

If you wish to discuss these topics, please contact:

WTS Alfery s.r.o.