The year 2024 brought important changes in the area of taxation in the Czech Republic. One of the main changes is the increase in corporate income tax from 19% to 21%. This change applies to all tax years starting on 1 January 2024.
Our new article explains what this change means for businesses, what the impact may be and how to prepare for the tax increase.
Why has corporation tax increased?
Corporation tax has been increased from 19% to 21% as part of a wider tax reform aimed at increasing government revenue and reducing the public deficit. Another reason was to bring corporate taxation closer to the average in the European Union, which is around 21.3%.
What are the corporate tax rates in other EU countries?
| Country | Corporate income tax rate |
|---|---|
| Belgium | 25% |
| Bulgaria | 10% |
| Czech Republic | 21% |
| Denmark | 22% |
| Estonia | 20% |
| Finland | 20% |
| France | 25% |
| Croatia | 18% |
| Ireland | 12.5% |
| Italy | 24% |
| Cyprus | 12.5% |
| Lithuania | 15% |
| Latvia | 20% |
| Luxembourg | 24,94% |
| Hungary | 9% |
| Malta | 35% |
| Germany | 29,83% |
| Netherlands | 25.8% |
| Poland | 19% |
| Portugal | 21% |
| Austria | 24% |
| Romania | 16% |
| Greece | 22% |
| Slovakia | 21% |
| Slovenia | 19% |
| Spain | 25% |
| Sweden | 20.6% |
Note: Data as of 25.11.2024. The above rates are in some cases given as the so-called effective tax burden. These are situations where a given country applies different tax rates depending on the turnover of the company in question, or includes different amounts of so-called solidarity tax (e.g. Luxembourg).
How to prepare for the impact of this change?
If you own or run a business, it is important to prepare for this change and factor it into your financial planning. Here are some steps you can take to minimise the negative impact of the increased tax burden:
Review your financial plan
Business owners and managers should review their financial plans to prepare for the higher tax. It is important to have sufficient funds to cover the increased tax liability.
Optimize costs
Audit your costs and see where you can save. Optimising your operating costs can help offset the tax increase. This step is especially important for companies that might have cash flow problems due to a higher tax burden.
However, keep in mind that reducing costs that are tax deductible may increase the resulting tax liability. Therefore, focus especially on non-tax deductible costs (typically entertainment costs, gifts, fines and penalties, personal consumption costs, etc.).
Take advantage of tax reliefs and allowances
In the Czech tax system, there are various reliefs and discounts that companies can use to reduce their tax liability. Consulting a tax advisor can help you find out what options you have.
If it is within your financial means, consulting a tax advisor should become a regular part of your financial management. Quarterly consultations are recommended, with the worst meeting once every six months. Investing a few thousand in regular consultations with a “tax guy” who knows your business can save you from a costly one-time analysis. During this, tax advisers or one-offs will go through your entire accounts to find any opportunities for tax savings. If this is an issue for you, we are happy to offer the services of our experts.
Invest for the long term
Despite the increased tax, it’s a good idea to continue to invest in innovation and development over the long term if the situation allows. Investing in productivity improvements can help businesses cope with higher costs. Some investments can also be included as a cost to reduce the tax base. Again, consultation with a tax advisor or accounting and tax specialist is recommended.
Conclusion
The increase in corporate income tax will be felt by most companies in 2025. So you should expect to have to pay a higher percentage of your income next year. If you need any advice on preparing for these changes, please do not hesitate to contact us. Proper planning and effective use of the tools available can help you minimize the negative impact of this change.
