In addition to the traditional annual road tax return and the real estate tax return, 31 January is now the deadline for notification of foreign income as well. While the Czech laws started requiring the notification of foreign income in connection with the withholding tax a long time ago, this deadline is a novelty. So what exactly is changing?
The change concerns the income earned by tax non-residents in 2021 which could have been subject to withholding tax, but is for some reason exempt, or an international treaty stipulates that it is not taxable in the Czech Republic. However, this applies only if each type of income exceeded CZK 300,000 in any calendar month in 2021. As we have already informed you in our news for 2021, it is not only the limit that has changed (from the original CZK 100,000 to CZK 300,000), but also the deadline, which is now more favourable for taxpayers: for income not subject to withholding tax, an annual notification needs to be filed instead of monthly notifications, and that by 31 January of the following calendar year. The reporting duty applies, for example, to income from profit shares paid to an EU-based parent company, which was exempt under the EU Directive and domestic law. Further, this concerns interest income paid to tax residents in countries where the double taxation treaty grants the right to apply tax in the recipient’s country, or an exemption has been granted to the recipient who is a related person from another EU member state. The same may be true for royalties in the case of directly connected persons who have been granted an exemption. Exemptions for interest and/or licences are valid for a maximum of three years. We thus recommend that you review them at the beginning of the new year each year and remember that even if you have such an exemption that does not mean that you do not have to file the notification by 31 January. The duty to report income paid abroad can only be waived in justified cases and applied for separately.
If you miss the deadline, it will not be considered late filing because this offence only applies to tax returns, but a fine of CZK 500 thousand can be imposed for the violation of a non-pecuniary obligation.
For the sake of completeness, please note that the above-mentioned reporting obligation may include income from services, business, technical or other consulting, management and intermediary activities and similar activities performed in the Czech Republic. In other words, this obligation is very broad.
If you are unsure whether the obligation to report foreign income applies to you, or if you would like help with filing it, please contact us.