Taxation
of investment yields
Taxation
of investment yields
Natural person non-entrepreneur
A/ Yields from holding
Bank account and deposit interest
Interest on deposits in bank accounts and deposits at banks (for example so-called “money market deals”) is subject to 15% withholding tax, so the paid out yield is already reduced by this amount (the yield is no longer included in the tax base). In case of tax non-residents, the withholding tax rate may differ.
Coupon yield (bond)
A bond coupon yield is subject to 15% withholding tax, so the paid out yield is already reduced by this amount (the yield is no longer included in the tax base). In case of tax non-residents, the withholding tax rate may differ.
A coupon yield from foreign bonds (e.g. Erste Certificates) is taxed in a tax return; any tax paid abroad can be taken into account in a tax return if the legal terms and conditions are met.
Interest yields from mortgage bonds issued up to 31 December 2007 are not subject to taxation. Interest yields from mortgage bonds issued from 1 January 2008 are subject to taxation.
Income from the right to bond repayment
For bonds a yield is also any difference between the amount paid out by the issuer with its (early) repayment and the price for which the payer purchased the bond. This type of income comes about especially in so-called “zero bonds” – that is bonds for which no coupon is paid out, but income is the difference between the purchase and payment price. According to the bond issue date (see below) this income is subject to tax either by withholding tax, or in the investor tax return. Note: if, on the other hand, this bond is sold to a third party, it is not repayment by the issuer and the income from such a sale is taxed as capital yield.
Bonds issued from 1 January 2021
Income from the right to the repayment of bonds issued from 1 January 2021 inclusive is taxed in a tax return. The obligation is to state in a tax return the difference between the amount paid by the issuer with its (early) repayment and the price for which the payer purchased the bond.
Bonds issued up to 31 December 2020
Income from the right of the repayment of bonds issued up to and including 31 December 2020 is subject to 15% withholding tax, so the paid out yield is already reduced by this amount (the yield is no longer included in the tax base). In case of tax non-residents, the withholding tax rate may differ.
However, in the case of foreign bonds (e.g. Erste Certificates), this income is taxed in a tax return; any tax paid abroad can be taken into account in a tax return if the legal terms and conditions are met.
Dividends
A dividend yield from the Czech Republic (Czech shares registered under a Czech ISIN) is subject to 15% withholding tax, so the paid out yield is already reduced by this amount (the yield is no longer included in the tax base). In case of tax non-residents, the withholding tax rate may differ.
A dividend yield from abroad (foreign shares registered under a foreign ISIN) is taxed in a tax return. Moreover, they can also be subject to foreign withholding tax under the laws of a given country. The amount of withholding tax can be included in a Czech tax return up to the limit according to the relevant double taxation agreement (also withholding tax abroad should be reduced to the rate according to the agreement, alternatively an application can be made for a tax refund).
B/ Capital yield
If income from the sale of notes (securities) is made, this income is generally taxed. Therefore, a citizen must declare this income in a tax return. In a tax return it is also possible to apply against this income, expenses, purchase prices respectively, for which sold notes (securities) were purchased.
Nevertheless, there are exceptions where capital yields are exempt. In such a case, exempt yields are not declared in a tax return. However be aware that the moment when individual exempt income exceeds 5 million CZK, each such individual exempt income must be declared to the tax office on a special form.
Time test – holding for more than 3 years
If a given note (security) (including mutual funds) is held for more than 3 years after purchase, the yields from the sale of this note (security) are exempt from income tax. Likewise, any loss from the sale of this note (security) enjoys “exemption” and therefore cannot be set-off against taxable profit (made within three years after purchase) from the sale of another note (security).
From 2025 this exemption will be limited to an aggregate annual limit of 40 million CZK; if this limit is exceeded, the net profit on the sale of all notes (securities) will have to be calculated in the given year and then the exemption will be applied on a pro rata basis (for example, exemption will be applied to annual income from the sale of notes (securities) of 50 million CZK of 40/50 = 80% of the profit; the remaining 20% of the profit will be subject to taxation).
Annual limit of 100,000 CZK for exemption from tax
The second exception is a situation when the payer only made a very low income from the sale of notes (securities) (including mutual funds) in the given year.
Regardless of the holding duration, exempt from tax is income from the sale of notes (securities) if the sum of this (gross) income does not exceed 100,000 CZK in the tax period. Therefore, if in the given year notes (securities) are sold for less than 100,000 CZK, then such earned income is exempt from income tax. On the contrary, if notes (securities) are sold for more than 100,000 CZK, the obligation will arise, in case the time test is not met, to declare the entire income in a tax return (in annual gross sale income, you will always tax the profit on the entire income of 110,000 CZK, regardless of the net amount of this profit). In a tax return it is also possible to apply against this income the expenses, purchase prices respectively, for which sold notes (securities) were acquired.
Notice: The Act on Banks does not allow Česká spořitelna to provide our clients any tax or legal advice services. In this regard, if clients have any queries, they must contact their text and legal advisors.
Natural person – entrepreneur
(investments are included in business assets)
A/ Yields from holding
Interest on deposit in bank accounts
Interest on deposits in bank accounts if, according to the bank’s terms and conditions, are intended for business, is taxed in a tax return together with other business income.
On the contrary, interest on deposits in banks (for example so-called “money market deals”) is taxed by 15% withholding tax, so the paid out yield is already reduced by this amount (the yield is no longer included in the tax base). In case of tax non-residents, the withholding tax rate may differ.
Coupon yield (bond)
A bond coupon yield is subject to 15% withholding tax, so the paid out yield is already reduced by this amount (the yield is no longer included in the tax base). In case of tax non-residents, the withholding tax rate may differ.
A coupon yield from foreign bonds (e.g. Erste Certificates) is taxed in a tax return; any tax paid abroad can be taken into account in a tax return if the legal terms and conditions are met.
Interest yields from mortgage bonds issued up to 31 December 2007 are not subject to taxation. Interest yields from mortgage bonds issued from 1 January 2008 are subject to taxation.
Income from the right to bond repayment
For bonds a yield is also any difference between the amount paid out by the issuer with its (early) repayment and price for which the payer purchased the bond. This type of income comes about especially in so-called “zero bonds” – that is bonds for which no coupon is paid out, but income is the difference between the purchase and payment price. According to the bond issue date (see below) this income is subject to tax either by withholding tax, or in the investor tax return. Note: if, on the other hand, this bond is sold to a third party, it is not repayment by the issuer and the income from such a sale is taxed as capital yield.
Bonds issued from 1 January 2021
Income from the right to the repayment of bonds issued from 1 January 2021 inclusive is taxed in a tax return. The obligation is to state in a tax return the difference between the amount paid by the issuer with its (early) repayment and the price for which the payer purchased the bond.
Bonds issued up to 31 December 2020
Income from the right of the repayment of bonds issued up to and including 31 December 2020 is subject to 15% withholding tax, so the paid out yield is already reduced by this amount (the yield is no longer included in the tax base). In case of tax non-residents, the withholding tax rate may differ.
However, in the case of foreign bonds (e.g. Erste Certificates), this income is taxed in a tax return; any tax paid abroad can be taken into account in a tax return if the legal terms and conditions are met.
Dividends
A dividend yield from the Czech Republic (Czech shares registered under a Czech ISIN) is subject to 15% withholding tax, so the paid out yield is already reduced by this amount (the yield is no longer included in the tax base). In case of tax non-residents, the withholding tax rate may differ.
A dividend yield from abroad (foreign shares registered under a foreign ISIN) is taxed in a tax return. Moreover, they can also be subject to foreign withholding tax under the laws of a given country. The amount of withholding tax can be included in a Czech tax return up to the limit according to the relevant double taxation agreement (also withholding tax abroad should be reduced to the rate according to the agreement, alternatively an application can be made for a tax refund).
B/ Capital yield
In the case of entrepreneurs, all capital yields from the sale of notes (securities) are included in business income and no exemption can be applied (especially the 3-year time test). So an entrepreneur must declare them in a tax return. In a tax return it is also possible to apply expenses, purchase prices respectively, against this income, for which sold notes (securities) were acquired.
Legal entity
A/ Yields from holding
Interest on deposit in bank accounts
Interest on deposits in bank accounts and deposits at banks (for example so-called “money market deals”) is taxed in the annual tax return of a given corporation. In case of tax non-residents without permanent business premises in the Czech Republic, withholding tax at the basic rate of 15% is applied. The withholding tax rate may differ according to the tax residence of the legal entity and delivered documents (0% - 35%).
In case of selected non-profit payers (e.g. societies, associations of property owners, churches or schools) this interest is subject to 21% withholding tax. So non-profit organisations receive it already after tax and do not declare it in their tax return.
Coupon yield (bond)
A bond coupon yield is subject to 15% withholding tax, so the paid out yield is already reduced by this amount (the yield is no longer included in the tax base). For tax non-residents, the withholding tax rate may differ.
A coupon yield from foreign bonds (e.g. Erste Certificates) is taxed in a tax return. Moreover they can also be subject to foreign withholding tax under the laws of a given country. The amount of withholding tax can be included in a Czech tax return up to the limit according to the relevant double taxation agreement (also withholding tax abroad should be reduced to the rate according to the agreement, alternatively an application can be made for a tax refund).
Interest yields from mortgage bonds issued up to 31 December 2007 are not subject to taxation. Interest yields from mortgage bonds issued after 1 January 2008 are subject to taxation.
Dividends
A dividend yield from the Czech Republic (Czech shares registered under a Czech ISIN) is subject to 15% withholding tax, so the paid out yield is already reduced by this amount (the yield is no longer included in the tax base).
A dividend yield from abroad (foreign shares registered under a foreign ISIN) is taxed in a tax return. Moreover, they can also be subject to foreign withholding tax under the laws of a given country. The amount of withholding tax can be included in a Czech tax return up to the limit according to the relevant double taxation agreement (also withholding tax abroad should be reduced to the rate according to the agreement, alternatively an application can be made for a tax refund).
B/ Capital yield
In case of a corporation all capital yields from the sale of notes (securities) are included in the annual tax return and no exemption can be applied (especially the 3-year time test). So the company must declare them in a tax return. In a tax return it is also possible to apply against this income the expenses, purchase prices respectively, for which sold notes (securities) were acquired.
An exception is exemption of dividends received from a subsidiary – (holding participation at least of 10%) – however in the given case this is not an investment held by a broker.