Employee's tax return for 2015

The time for the income tax return submission expires at the end of March. It is necessary to submit the tax return on a valid form. Although only forms in the Czech language are accepted, you can see and compare the English translation of the income tax return form  and the instructions for filling out the income-tax return form.
tax return 2015For more tax return forms and supplements, click here. A tax return can be submitted at whatever office of the Financial Authority without any respect to your local affiliation.
The majority of foreigners living in the Czech Republic are employed and probably have already been informed about the possibility to apply a personal tax reduction. What is less known is the possibility to apply tax reductions for children, spouse, study and reduction of tax base for allowances such as charity donations, interests from mortgage, pension and life insurance contributions and others.
The most frequent annual tax reductions:

Kind of tax discount

Amount of discount for 2015

Tax payer

CZK 24 840

For maintained children (1st, 2nd, 3rd)

CZK 13 404, CZK 15 804, CZK 17 004

For maintained spouse

CZK 24 840

For student

CZK 4 020

For kindergarten

CZK 9 200

In year 2015 there is quite new personal tax reduction for kindergarten expenses paid for your children. The reduction goes for to the actual price charged by the care taking service for up to 9,200. Different tax reduction rate is applied for first, second or third child respectively.
It is very important in this situation to determine your tax residency (see below) because the benefits named above can only be applied to a Czech tax resident or non-resident having more than 90% of his worldwide incomes from the Czech sources. Another difference is that a Czech tax resident can ask his employer for an annual tax reconciliation. On the other hand, a non-resident has to apply the benefits (if applicable) only on his own in a personal tax return to the Financial office.
A “solidarity tax” has been introduced three years ago for all people who have a monthly gross salary higher than CZK 106,444. Even if in a single month only, such  tax payers pay additional 7% (on top of flat 15%) of the amount exceeding the monthly limit. In addition to that, they have to always file their tax returns to the Financial Authority themselves, without any respect to their tax residency. The employer cannot legally do that for them. Tax payers who only exceeded  the above mentioned limit for the solidarity tax in some months and otherwise the yearly income was lower than CZK 1,277,328 may have the solidarity tax returned.
Many taxpayers make a common mistake in determining their tax residency according to the length of their stay (183 days) in the country. The definition is included in a local and also in most  foreign income tax laws. The majority of foreigners living in the Czech Republic come from so called “contractual countries” which means that the Czech Republic concluded with their country of origin a Treaty for the avoidance of double taxation (Double Taxation Treaty) with a higher force than local laws.
Article 4 in each of the treaties defines a tax residency in 4 descending steps and in a quite different way than local laws. According to the conventions, you become a tax resident in a country 1) where you have your own or rented flat 2) where your personal and economic relations (center of vital interests) are, 3) where you usually stay, 4) of which you are a citizen, or 5) where competent authorities come to such an agreement.
The determination of tax residency is often complicated task for tax advisors let alone for normal people. If your employer has not helped you with the matter, you can visit a professional. Anyone who is not sure about their tax obligations can visit a professional registered tax advisor. This can bring at least two advantages.The deadline will be prolonged for 3 months till the end of June which gives you additional time to organize all necessary documents. And second, the tax advisor assumes full responsibility for the tax return and takes care of possible follow-up negotiations with the Tax Authorities.
This article has been written in cooperation with  Michael Hájek from Bell Consulting.


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