This article is relevant for candidates sitting the TX-CZE exam. Candidates are advised to read this article in conjunction with the syllabus and study guide and examinable documents, which are relevant for the exam session they are preparing for.
Tax administration is an area of the TX CZE syllabus which is often overlooked or avoided by candidates in preparation for their exam. However, given both the frequency with which it is tested in the TX CZE exam and also its relevance across the whole of the tax system, a thorough understanding of the underlying rules and their application is of vital importance.
In the Czech Republic, the administration of tax is primarily regulated by the Tax Code. However, there are some further specific rules which are covered by laws regulating the individual taxes concerned, such as Income Tax Act or Value Added Tax (VAT) Act.
At the beginning of 2021, some significant changes to the Tax Code came into force. The purpose of this article is to introduce TX CZE candidates to the key rules brought about by these changes, and also to provide a reminder of some of the administration rules which were already in existence before this date, so far as they are relevant to the TX CZE exam. As such, this article covers the following areas:
Although similarities exist in terms of the methods of communication which are available to both taxpayers and the tax authority, there are some key differences to be aware of, especially in relation to ensuring that communications are made in a way which is legally effective.
Any form of taxpayer representation (úkon) to the tax authority is called a submission (podání). Every submission filed with the tax authority must unequivocally indicate:
Whilst the tax authorities are always obliged to deal with any submission which is submitted to them and to assess it based on its actual content, accurate designation and fulfilment of the above listed requirements helps to speed up the procedure and to avoid any unnecessary further communication.
Submissions by a taxpayer can take the following forms:
Submissions made in oral form must be captured in writing in protocol and subsequently hand-signed by taxpayer. The same applies to submissions in paper form.
Submission in electronic form can be by means of a data message in a legally regulated format and signed with a specific type of electronic signature which ensures the unique identification of the taxpayer filing the submission. This covers predominantly submissions made via a ‘databox’ (datová schránka) or with a guaranteed electronic signature (zaručený elektronický podpis). Although electronically filed submissions can cover other means as well (eg standard e-mail), in such cases confirmation in the legally specified manner needs to follow within a deadline of five days of the original delivery date. However, for those taxpayers whose databox has been established as a result of an obligatory process (based on legal requirements), all submissions must be filed exclusively via legally regulated electronic means. This applies to all state bodies, companies and other legal entities registered in the Czech Commercial Register (obchodní rejstřík), advocates, tax advisors and insolvency administrators.
Although there are various ways in which submissions can legally be made, they are not all permitted in all instances. On certain occasions, the tax authority has the discretion to define the form of submission, and, in these cases, is obliged to publish the relevant rules. This could apply when submissions need to follow a specified format, for example so called form submissions (formulářová podání), ie reports where the content, arrangement and design is prescribed by the tax authority. These include tax declarations (including personal and corporate income tax returns, annual payroll tax reconciliations, VAT returns, European sales lists, VAT control statements, etc), all types of tax registration applications and notifications of changes in registration data, including any of their relevant attachments.
Submission must be made to the relevant tax authority which is competent by subject-matter (věcně příslušný) as well as territorially (místně příslušný). If, however, submission is made to a tax authority other than the competent one, the recipient has an obligation to advise the taxpayer and to forward it on to the relevant competent tax authority. In such cases, submission is only deemed to have been made when it has been received by the competent tax authority. Such delays can thus lead to sanctions.
As far as the tax authorities are concerned, they are required to deliver all documents issued by them (including decisions, calls, summons, notifications, etc) either as part of oral (personal) proceedings with taxpayers or via electronic means since, as the state body, they have access to the databox. If such form of delivery to a particular taxpayer is however not possible, then it can be done in some other form, such as regular mail, or delivery by an authorised official or via another state body, including the police.
In accordance with the rule discussed above, for those taxpayers who have access to the databox (regardless of the reason), documents must be delivered exclusively in that form.
In the case of a taxpayer who has authorised an attorney (including a tax advisor) to act on their behalf, the documents should generally be delivered only to the appointed attorney. Thus, in such cases delivery made solely to the taxpayer will not be valid. However, if a taxpayer is required to do something in person (eg if they are to be interrogated as a witness), the document will need to be delivered both to the appointed attorney, as well as directly to the taxpayer.
The local competency of the tax authority is determined as follows:
In addition, as far as value added tax (VAT) is concerned, for any taxable person who does not have a registered office or place of residency in the Czech Republic, then the locally competent tax authority is the Tax Office for the Moravian-Silesian Region.
The method of determination of tax periods differs depending on the specific tax concerned.
Personal income tax (PIT)
In the case of individuals who are subject to PIT, the tax period is always the calendar year. Thus, even if their accounting records are based on a different financial year, they are still obliged to file their tax return for the calendar year and they cannot alter this in any way.
Payroll tax
Payroll tax works on a similar basis since, although primarily administered by the employer, it is still a form of PIT. Thus, the reports which need to be submitted by the employer are aligned with the same period as for PIT.
Corporate income tax (CIT)
Legal entities subject to CIT do however have a greater degree of flexibility. Their tax period can be one of the following:
Value added tax (VAT)
Different rules apply with respect to VAT. A tax period is generally a calendar month. However, it is possible to opt to prepare VAT returns on a quarterly, rather than a monthly basis, provided that such a decision is notified to the tax authority by the end of January of the calendar year concerned (this would normally be done within the December VAT return of the preceding calendar year) and is also subject to the following conditions being satisfied:
However, such a decision on change of tax period cannot usually be made for the first calendar year in which the taxpayer was registered for VAT, nor for the immediately following calendar year. In this case, it may be done only for reasons worthy of special attention based on a request to the tax authority which can then exercise its discretion to make a decision.
The different tax periods associated with the different taxes determine the deadline for submission of the related tax declarations.
Firstly, we need to define what is meant by ‘tax declaration’. The Tax Code stipulates that a tax declaration is a tax return, a tax statement or a tax reconciliation. Thus, it is the taxpayer's submissions to the tax authority, which represents the basis for the correct determination and assessment of the declared tax liability and typically is a so-called form submission (formulářové podání). It can take the form of either a ‘regular’ or an ‘additional’ submission. The focus of this article is on the timing of regular submissions.
One of the most significant changes introduced within the Tax Code at the beginning of 2021 was the change in the deadlines for submission of regular (personal as well as corporate) income tax returns.
These returns relate to taxes which are usually calculated retrospectively for a tax period of at least 12 months. Thus, they must be submitted within three months after the end of the tax period concerned (eg if the tax period is the 2021 calendar year, then the deadline is the first working day of April 2022).
However, this basic deadline can be extended to four months, provided that the tax return is submitted electronically (eg if the tax period is the 2021 calendar year, then the deadline now becomes the first working day of May 2022). This is an extension which does not need to be notified to the tax authority, or applied for, since it is automatically applicable if the submission is not made directly by the taxpayer within the basic three months’ deadline.
In addition, the basic deadline of three months is extended to six months (ie to the first working day of July), provided that:
Once the conditions for extension are fulfilled, the longer extension is always applicable. Thus, should the tax advisor file the tax return electronically in mid-April, the deadline is extended directly to six months (not four months).
Since the deadline for the submission of a tax return also determines the deadline for payment of the corresponding tax liability and the time limit for any recovery of eventual tax overpayment (30 days from submission deadline if the return is submitted on time), then the actual timing of submission of the tax return could be crucial for cash flow planning.
The situation is more complicated in the case of individuals who are also obliged to submit overviews on social security and health insurance, ie those with business income. The deadline for these overviews is one month following the deadline for the submission of the Personal Income Tax return. Thus, in the case of electronic submission of the tax return, the deadline for submission of overviews is the first working day of June. If an individual is represented by a tax advisor when submitting their personal income tax return and it is submitted within the extended deadline of six months, then the deadline for submission of overviews is the first working day of August.
Further extension to deadlines for submission of the income tax returns is possible on the basis of an application for an extension of the deadline for submission of a tax return by up to three months (however, this may be shorter, eg two months as shown in the graphic below), or even up to a total of 10 months (ie by first working day of November), if the taxpayer has received income from abroad. However, such a request needs to be duly justified, as there is no legal right to an extension and will be decided by the tax authority based on the seriousness of the reasons stipulated in the request. The request must be delivered to the tax authority by the deadline for submission of the tax return at the very latest and is subject to an administrative fee.
The graphic below summarises the deadlines in case of various types of submission:
Click image to view larger version
Taxpayers who are paying income abroad to Czech non-residents which is considered as sourced in the Czech Republic, and thus is subject to withholding tax, are also obliged to submit notification of such payments. Should such payments be subject to withholding tax, the notification must be submitted by the end of the month when the obligation to deduct the withholding tax arose. The withholding tax needs to be paid over to the tax authority, by the very latest, on the same day. Subsequently, the annual reconciliation must be submitted within three months after the end of the relevant calendar year.
On the other hand, if the income paid abroad to a Czech tax non-resident is effectively not taxed (either based on the local legislation or based on the international double tax treaties), it must be notified to the tax authority by 31 January of the calendar year following that when the obligation to deduct tax would have arisen if the income concerned would have been subject to taxation in the Czech Republic. However, in this respect, an exception applies to income not exceeding CZK 300,000 per month (the limit is applied to one type of income to one foreign beneficiary).
Similar obligations apply to employers in relation to payroll tax. An employer is obliged to submit the following tax declarations:
Finally, individuals who receive income which is exempt from personal income tax and exceeds the threshold of CZK 5,000,000, are obliged to notify this to the tax authority, in accordance with the same deadline as for the submission of the personal income tax return for the period in which the income was received.
Once again, different rules apply with regard to VAT. Since the tax period in this case is shorter than 12 months, the tax return accompanied with other tax declarations (namely European Sales List and the VAT Control Statement) must be submitted within 25 days after the end of the relevant tax period.
In all of the above cases, please be aware that if the relevant deadline falls on a weekend or a national holiday, then it is shifted to the closest following working day.
Written by a member of the TX-CZE examining team