New obligation to report tax exempt income

Within the framework of the 2019 tax package, the notification duty was extended concerning income generated by tax non-residents from sources in the Czech Republic that are subject to the withholding tax. Taxpayers are newly obliged to inform the tax administrator of paid income that is exempt from income tax or that is not taxed in the Czech Republic, provided it is so set forth in the relevant double taxation treaty. Such income includes for example dividends paid to a parent company, interests or licence fees. In this respect, the Financial Administrative Office issued a new form “Notification of Income Flowing to Foreign Countries”, which supersedes the original “Report”.

The extended notification duty applies to any income paid since 1 April 2019. It may become necessary to file the first notification of tax exempt income for April already, no later than by the end of the month following the payment, i.e.by the end of May. Where the tax exempt income of the same kind to which the notification duty applies does not exceed CZK 100,000 per month, the taxpayer shall not be obliged to report such income. Should the notification duty be breached, the tax administrator may impose a penalty on the taxpayer in the amount of up to CZK 500,000. In justified cases, the tax administrator may grant an exception from the notification duty for a period of maximum five years.   

We recommend to assess in individual transactions paid to foreign countries whether the notification duty also applies to
the income paid to you.