A practical look at the new reporting obligation for payments abroad
From 1 April 2019, the reporting duty for taxpayers to the tax administrator has been amended, extending the list of cases where the taxpayer is obliged to submit a notification.
Obligation until 31 March 2019
The taxpayer was obliged to notify the tax administrator if he deducted income tax on foreign nationals (non-residents) from sources in the Czech Republic.
This obligation remains the same after 1 April 2019, only the form has changed.
New (additional) obligation from 1 April 2019
The new obligations relate to income earned by foreign nationals, tax non-residents, even if their income from withholding tax is exempt or such income is not taxed under an international agreement (typically a contract on the avoidance of double taxation).
The taxpayer is now obliged to notify the relevant tax administrator of this income, even though no tax has been withheld.
What income is it?
Income that has a source in the Czech Republic. Such income is exhaustively listed in the Czech Income Tax Act, its taxation can be mitigated (by rate, exemption, exemption from taxation, etc.) by an international treaty.
Basically, whenever it is paid from Czech Republic abroad, it is appropriate to assess whether it is reported income. It will not usually involve ordinary trade, i.e. buying “things” or “regular” services, but one needs to be wary of licences, rents or various types of financial performance.
Some examples of when a taxpayer is newly required to report:
- profit-sharing income, paid by a subsidiary of a foreign parent company;
- interest income paid to a foreign national, unless it is taxed in the Czech Republic under an international agreement.
Exemption based on income level
The Act contains an exemption from the above obligation, in the case of amounts not exceeding CZK 100,000 per calendar month.
The stated limit of CZK 100,000 is considered SPECIAL for each type of income to EVERY person.
For example: If a profit share of CZK 100,000 is paid out within one month to a subsidiary of a foreign parent company and at the same time the interest of the foreign company is paid in the same month (if such interest is not taxed in the Czech Republic under an international agreement) in the amount of CZK 60,000, then the obligation to report does NOT ARISE. This is because there are different types of income – profit sharing and interest – so the amounts are not “summed up” and the obligation does not arise even if both incomes are paid to the same foreign national.
When is the notification submitted?
At the same time as if the tax were withheld if the income was not exempt; usually by the end of the month following the month in which the deduction is made.
For example: In May 2019 a foreign parent company will receive a profit share from a subsidiary. The tax entity (subsidiary) is obliged to notify the tax administrator of the income by the end of June 2019, i.e. by the end of the following month after payment.
When is the first notification submitted?
For the reported revenues, which would be subject to a tax deduction in April 2019, the notification must be submitted to the tax administrator by the end of May 2019.
What is the form of notification?
The notification is made solely on the form of the Ministry of Finance of the Czech Republic available on the website of the Financial Administration (or on the form with the same data, e.g. printout from the accounting / tax programme). Currently, only a pdf version is available; we assume that the “fill in” form will be added. It is sent electronically (signed data message – data box, EPO…) basically in the same way as most tax returns are currently done.
Are there exceptions to the notification requirement?
In justified cases, it is possible to request a waiver of the duty to notify the tax administrator.
Only administrative practice will show us what will be considered a “justified” case. The obligation does not apply to income from employment (employment and similar income).
Are consequences specified in case of failure to notify?
In the event of failure to comply with the obligation to submit a notification, the taxpayer exposes himself to the potential risk of a fine of up to CZK 500,000.
These are just a few examples and combinations thereof where the need to report must be evaluated. It can be assumed that future practice will seek to resolve the controversial issues that will arise and that we are all certainly already thinking about.
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