Czech Republic - Taxation

Direct taxes in 2003 included a personal income tax with four brackets (15% up to yearly income of about $4,000, 20% on income between $4,000 and $8,000, 25% on income between $8,000 and $12,000, and 32% on income above $12,000, with additional lump sums of $600, $1400, and $2400, respectively, paid at the 20%, 25%, and 32% levels); a corporate income tax with a standard rate of 31% (15% on income from dividends and mutual or pension funds); payroll taxes of 47.5% (35% paid by the employer and 12.5% paid by the employee) covering pension insurance, sickness insurance, and employment insurance); real estate taxes; gift taxes (1% to 40%) and inheritance taxes (0.5% to 20%). Since 1996, the top personal income rate has been reduced from 40% to 32%; the top corporate income tax rate from 39% to 31% , and the payroll tax rate from 50% to 47.5%. Withholding taxes are applied to income of non-residents: 15% on income from dividends and interest.; and 25% on income from royalties and operating licenses. The Czech Republic has bilateral tax treaties (BITs) with about 65 countries. In the BITs withholding rates are generally lower.

The main indirect tax is a system of value-added taxes (VATs) which replaced turnover taxes as of 1 January 1993. There are three VAT rates: 22% on most goods and some services; 5% on basic foodstuffs, minerals, pharmaceuticals, medical equipment, paper products, books, newspapers, and most services; and 0% on exports and supplies of services to non-residents. There is also a 5% real estate transfer tax, payable by the seller, and deductible for income tax purposes.

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