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The system of direct taxation in Czechoslovakia is made up in the main of the following taxes:

Its basis is the income tax (Einkommensteuer or Globalsteuer),2 which is levied upon the total income of every individual. This tax is supplemented by the following schedular taxes: the general tax on profits (allgemeine Erwerbsteuer) imposed on individuals and partnerships; the special tax on profits (besondere Erwerbsteuer), levied upon companies; the land tax (Grundsteuer); the buildings tax (Gebäudesteuer); the capital yield tax (Rentensteuer); the directors’ percentages tax (Tantiemensteuer); and the tax on high salaries (Besoldungssteuer).3 Each of these taxes is levied upon income from a specific source — e.g., income from profit-making concerns, income from land, income from personal and other property, directors’ percentages and from salaries in excess of a certain figure.

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The provisions governing direct taxation in Czechoslovakia are embodied in the Law of June 15th, 1927 (No. 76 of the Collected Laws and Decrees), as amended by two laws, the more important of which is that of November 27th, 1930 (No. 167 of the Collected Laws and Decrees). Unless otherwise stated, the paragraphs quoted below refer to Law No. 76, of 1927.



This tax is imposed exclusively upon individuals and estates in abeyance (hæreditas jacens). It is assessed upon the net income of each household — i.e., on the total income in cash and in kind accruing, after deduction of expenses necessary to acquire and preserve that income and of legal abatements, to the head and members of a family. The wages and salaries of the latter, however, are not included in the reckoning.

Liability to pay this tax rests with the following persons, irrespective of nationality:

(1) Persons who are domiciled in the country or reside there for more than a year. —Whatever their nationality, their tax-liability is unlimited—that is, they are taxable in respect both of income derived from abroad and of income they acquire within the country. Under certain conditions, however, they are exempt from the tax in respect of the part of their income derived from real estate or enterprises situated abroad or from salaries or pensions paid by a foreign Government. In order that exemption may be granted, proof must be forthcoming that the part of the income in question has already paid income tax or a similar tax abroad: further, the foreign State must grant reciprocal exemption, in virtue either of its domestic law or of treaties with Czechoslovakia (such as have already been concluded by Germany, Austria, Italy, Hungary and Poland).

An individual’s domicile (Wohnsitz) is the place where he is living under conditions which imply an intention to reside there permanently (Section 252 of the law on direct taxation). In practice, a person who lives in Czechoslovakia for at least a year acquires a residence (Aufenthalt) in the country, which creates, in his respect, an unlimited fiscal obligation. The difference between domicile and residence is a matter of intention. An individual who comes to Czechoslovakia with the intention of remaining there permanently acquires a domicile in the country and becomes liable to tax forthwith. If he does not intend to remain in the country indefinitely, but does stay there for over a year, he becomes liable for that year and for the length of his stay.

(2) Persons who are not domiciled in the country and do not reside there for more than a year. —These persons have a limited tax-liability; they are taxable:



The tax is assessed for each calendar year on income actually received during that year, even if the obligation to pay tax has arisen or has lapsed in the course of that year (paragraphs 23, 24). If the taxpayer’s regular accounting period does not coincide with the calendar year, tax may, at the taxpayer’s request, be computed on the results of the accounting period closed in the course of the taxable year, provided that this period covers a full twelve months.

The commercial profits of taxpayers whose accounts are kept in conformity with the Commercial Code1 and customary usage are determined on the basis of those accounts, regard being had to the special provisions of the law on direct taxation (paragraph 10).


On the expiry of the fiscal period, and, in any case, not later than February of the following year, every taxpayer has to make a return of his income on a form prescribed by law. This return serves as the basis for determining the taxable income.

The return is checked with the taxpayer’s participation. He may be required to furnish documentary confirmation of his statements and evidence by experts or other witnesses; and the competent authority — i.e., the tax commission — must take account of any proof the taxpayer may submit. If the taxpayer for no valid reason fails to make his return within the prescribed time or does not comply with the invitation to assist the authorities in checking his return, the tax is assessed on the basis of whatever material is at the authorities’ disposal.

The taxpayer may be represented by a proxy (paragraph 263), who must be a Czechoslovak national enjoying full civil and political rights and who must produce his power of attorney. The latter must be in writing and must confer on the proxy the right to represent his principal in all matters pertaining to taxation.

Taxpayers living abroad must appoint a proxy who is domiciled in Czechoslovakia; the same applies to any owner of an enterprise who is domiciled abroad and has no agent in the country. If taxpayers fail to conform to this rule, official notices, more particularly demand notes, are served on them as follows: the document is delivered to the authorities of the commune in which the taxpayer was last known to have been domiciled. These authorities make public announcement of delivery and, if the person concerned does not respond within four weeks of this announcement, the document is deemed to have been served (paragraph 257).


The tax is computed as a fraction of the taxable income and increases progressively from 1 to about 29 per cent (see Annex).

Persons, however, whose incomes do not exceed a certain sum are exempt. This sum, in principle 7,000 Czechoslovak crowns, increases with the number of persons maintained by the taxpayer and may amount to as much as 11,000 crowns. But, as the tax-free minimum also includes income not liable to tax by reason of its origin (income, for example, received by a foreigner which is not liable to tax in Czechoslovakia), it is possible, though very rare, for tax to be levied on income below the above-mentioned sums.

Large families with incomes below 52,000 Czechoslovak crowns pay the tax at a reduced rate according to the size of the family (paragraph 20). On the other hand, bachelors, and married persons without children, whose incomes exceed 26,000 crowns, pay a surtax of 15 and 10 per cent respectively (paragraph 19).

Salaries and wages are taxed at a reduced rate. The tax on income other than salaries and wages is assessed by tax committees, each consisting of an official and of representatives of the taxpayers.


Each taxpayer is informed of the amount of tax he owes through a demand note. He may appeal against his assessment by application to the higher administrative jurisdiction within thirty days of receiving the note. He may also, if necessary, appeal against the decision of this jurisdiction to the Supreme Administrative Court.

The tax is, in principle, payable by the taxpayer himself in four equal instalments on January 1st, April 1st, July 1st and October 1st of each year (paragraph 269). Until the taxpayer receives the demand note for the current year, he must make his quarterly payments on the basis of the note received the year before (paragraph 270), amounts thus paid being credited to the tax account for the current fiscal year.

The tax on salaries and wages is collected by deduction at the source and is paid to the Treasury by the employer.



This tax is imposed upon individuals and partnerships (as such) carrying on an occupation or engaged in trade or industry in Czechoslovakia (paragraph 46). By “persons” in this connection the law understands, not only individuals, but also partnerships not liable to the special tax on profits. That is, ordinary partnerships (offentliche Handelsgesellschaften), limited partnerships (Kommanditgesellschaften) and joint ventures (Gelegenheitsgesellschaften).

The tax is not imposed on salaries or wages, on profits from agricultural, horticultural and forestry operations, hunting and fishing conducted or engaged in by taxpayers on their own land, or on profits from enterprises liable to the special tax on profits. It is levied upon every enterprise forming an independent economic unit. The same applies when an enterprise has several establishments or operates in different places.

If an enterprise liable to this tax extends its operations to foreign countries from an establishment in Czechoslovakia (or, if it has no establishment proper, from the owner’s domicile), tax will be assessed upon the total profits.

On the other hand, if such enterprise operates abroad permanently, and especially if it has a foreign branch, factory, purchase or sales office, agency or other establishment, it will be taxed on its foreign profits, only if these have not already been taxed abroad. At the same time, at least one-quarter of the enterprise’s total profits will always be deemed to have been earned in Czechoslovakia.

Foreign enterprises which similarly extend their operations to Czechoslovakia are liable to the general tax on profits, only is respect of that part of their business which is situated in the country (paragraphs 48 and 49).



The sum taxable is the net profit of the enterprise.

The taxable income of partnerships includes the share of profits accruing to each partner.

The taxable net income, for purposes of this tax, is, in principle, determined in the same way as for purposes of income tax. It may, however, be well to indicate the items that may or may not be deducted from gross profits in order to obtain net profit.

1. The following deductions are allowed:

(a) All expenses necessary in order to earn and maintain profits — viz.:

Expenses of operation and administration, general overhead and interest on business debts;

Normal depreciation to provide against deterioration and wear and tear of buildings, machinery, tools and all other plant or materials used in the business;

Capital losses (in particular, falls in the rate of exchange, actual or anticipated);

Premiums paid for the insurance of assets invested in the enterprise;

Rent and royalties paid for the use of building, land and patents used in the business;

Direct taxes and their surtaxes including turnover and other taxes which are assessed by the means of assessment lists and contributions in lieu of surtaxes or local taxes (these contributions must, however, be directly connected with the conduct of the business and must actually have been paid to the competent authorities).

Since 1927, taxpayers who keep regular books are also allowed to deduct a reasonable sum representing a reserve put aside for payment of the general tax on profits. In order to benefit by this provision, the taxpayer must show that, during the following fiscal year he applied the sum so deducted to the payment of profits tax and surtaxes within the legally prescribed time-limit.

(b) In the case of taxpayers keeping regular accounts who build or rebuild premises for the conduct of their business or the accommodation of their staff, or who build annexes to these premises, and in the case of enterprises which renew their machinery and tools: 20 per cent of the actual cost of this building or of these tools or machines. This deduction may be made during the five years following the year in which the buildings were completed or the tools and machinery replaced; apart, too, from the deductions which these enterprises are already entitled to make for depreciation. If within ten years of their completion such buildings are put to some other use than that originally intended, the taxpayer must pay tax on the sums which he had originally been allowed to deduct from his taxable income under the heading of these new buildings.

(c) Enterprises which derive income from the possession or exploitation of real property are allowed to deduct from their profits liable to general tax on profits a sum corresponding to the amount on which land tax or buildings tax was levied.

(d) Enterprises which keep regular books and can show that for the two preceding business years they have uninterruptedly held at least 20 per cent of the shares, mining shares, bonus shares, etc., of another national enterprise liable to the special profits tax need not include the income from these securities among profits liable to tax if they bought them out of their own funds. If these securities were not acquired altogether out of the enterprise’s own funds, only so much of the income therefrom may be deducted from taxable profits as exceeds the sum necessary to pay the interest on capital borrowed for the purpose.

2. The following deductions from taxable income are not allowed:

(Payments by the taxpayer for the purpose of insuring his staff against sickness or accident, retiring pensions and pensions for widows and orphans of employees may only be deducted up to the amount which the employer is legally bound to pay. An enterprise may not deduct from its profits the taxes it pays on behalf of its staff, even if under contract to pay them.)

(i) The tax on capital yield withheld by the debtor enterprise and paid on its creditor’s behalf.


The normal rate of tax is 2.5 per cent of the taxable profit. This, however, is reduced to 0.5 per cent in respect of profits not exceeding 30,000 Czechoslovak crowns and is increased to 4 per cent in respect of profits in excess of 140,000 crowns. Various advantages are further granted in respect of profits of less than 15,000 crowns.

In the case of enterprises whose capital exceeds 100,000 Czechoslovak crowns, the tax may not be less than 0.5 per thousand of the capital engaged in the business.

The tax on profits is subject to a surtax on behalf of the local authorities.


The collection of the general tax on profits, like its assessment, is governed by the same rules as apply to income tax. A different method of collection is only adopted in respect of hawkers, itinerant vendors, etc. In their case, the tax is paid in advance and once for all. Partners who are personally responsible for the debts of their partnership are regarded as joint sureties for payment of the general tax on profits for which the partnership is liable. Similarly, a lessor is responsible for the profits tax owing by his tenant or lessee.



The special tax on profits is levied upon what are regarded by fiscal legislation as legal entities — viz.:


If a Czechoslovak enterprise liable to the special tax on profits extends its activities from its establishment within the country to a foreign country where it has no permanent establishment, it is taxable in respect of all profits from these extended activities. If, however, the enterprise has some permanent establishment abroad, such as a branch, factory, purchase and sales office, agency or other means of conducting business, the foreign profits will be taxed in Czechoslovakia, only if they have not already paid abroad a schedular income tax levied by a foreign State. In these circumstances, the proportion of profits not taxable in Czechoslovakia may not exceed a certain maximum fixed as follows:

The above rules are subject to a number of exceptions applying to operations in countries with which Czechoslovakia has concluded double-taxation conventions. Such countries are Austria, Hungary, Germany, Poland and Italy.


The special tax on profits is fixed annually on the basis of a declaration which taxpayers are required to make within a fortnight of the passing of the accounts by the general meeting of shareholders and within six months of the close of the taxable business period.


The taxable amount consists of the net profits as legally established for the business period ending in the course of the tax year. The taxable profit is computed on the basis of the profits shown in the balance-sheet, plus expenses and losses not legally deductible and minus items which the law allows to be deducted.

(1) The following are the items which have to be added to the profits as shown in the balance-sheet.

(2) The following items must be deducted from the profits figuring in the balance-sheet:

When the legally deductible expenses concern enterprises or profits which are only partially liable to the tax (as in the case of firms doing business both in Czechoslovakia and abroad), deduction is confined to the fraction of expenses corresponding to the amount of profits taxable, and, if it is impossible to establish an exact relation between these expenses and profits, deductible expenses are apportioned on the basis of gross receipts.


The normal rate of the tax is 9 per cent. Co-operative societies which only trade with their members (Selbsthilfsgesellschaften) pay tax at 2 per cent of their capital. The rate is increased from 2 to 5 per cent according to the amount of profit taxable, when manufacturing or agricultural co-operatives (Erwerbs- und Wirtschaftsgenossenschaften) are allowed under their statutes to trade with persons who are not members of the co-operative. The tax rate varies from 1 to 4 per cent for saving banks, welfare institutions, educational establishments, etc. The tax is subject to surtaxes on behalf of various public corporations. Further, when taxable profits exceed 6 per cent of the paid-up capital, the tax is supplemented by an “excess-profits tax” called the Rentabilit\ba\atszuschlag. The rate of this surtax is from 2 to 6 per cent of taxable profits in the case of share companies, limited partnerships with share capital, mining companies and limited liability companies, and from 2 to 4 per cent in the case of co-operatives trading with third parties. The surplus assets of taxable enterprises in course of liquidation are subject to the special profits tax inasmuch as they do not comprise amounts which have not already been taxed, but the excess-profits surtax is replaced by a liquidation surtax fixed at 4 per cent of taxable profits.

The excess-profits and liquidation surtaxes are not subject to supplementary taxes on behalf of public corporations. The special tax on profits may not fall below 1 per thousand of the capital invested in the enterprise. In the case of insurance companies incorporated in the form of share companies, the tax may not be less than 1 per thousand of the total net premiums received during the tax year.


The provisions governing the payment and assessment of the special tax on profits are the same as those governing income tax. The assessment, however, is made, not by a tax commission, but by the fiscal administration itself.


The land tax is imposed upon all income from arable land and agricultural estates in Czechoslovakia, irrespective of the domicile or residence of the beneficiary of such income. Land situated abroad is not subject to this tax, even if it belongs to persons domiciled or resident in Czechoslovakia.

Certain forms of land, especially unproductive land, land built on together with its appurtenances, roads, railways and their annexes, are automatically exempt from the tax.

At the owner’s request, the law also allows the exemption of certain real property, such as nursery gardens and vineyards, dykes, canals and reservoirs. Temporary exemption may also be granted to land newly taken into cultivation, recently planted or grafted vines and, finally, land on which agricultural settlements have been newly established.

The tax is payable by the registered owner of the land.

The taxable income is obtained by multiplying by 20 in the case of forests, and by 17 in the case of other land, the value of the property as recorded in the land register. (The original register dates from 1869 and has been only summarily revised.) Since the tax is assessed on cadastral income, no return need be made, and the authorities do not normally deliver individual demand notes. Taxpayers are informed of the tax due from them by public notice issued in the commune where the taxable property is situated. As a rule, they only receive a personal demand note, if, as the result of changes in the register, the amount of tax is different from that of the previous year. A demand note will, however, be sent to any taxpayer at his express request. The tax, which is fixed at 2 per cent of the taxable total, is increased by an additional tax of 1 ½ per cent collected at the same time as the principal tax, and by various surtaxes levied on behalf of the provinces, districts, communes and other public corporations.


The buildings tax, like the land tax, is purely territorial and is levied exclusively on income from buildings situated in Czechoslovakia. The persons liable to buildings tax are the owners or usufructuaries of the taxable property.

The tax is imposed, not only on the income from buildings permanently attached to the soil, but on the soil itself upon which these buildings and annexes thereof (courtyards, etc.), stand. Exemption is granted to Government buildings occupied by a public service, buildings exempted under special conventions concluded by the State, buildings belonging to foreign States and in use by their diplomatic and consular representatives (subject to reciprocity), churches, barracks, buildings for the use of social insurance institutions, industrial buildings, etc. Further, certain buildings, and particularly those which are devoted free of charge to some public purpose, may be exempted at the owner’s request. Lastly, temporary exemption is granted to new buildings.

The tax is divided into two categories:

The graduated tax is assessed on the basis of the entries in the land register, while the rent tax is determined according to the returns which the taxpayers in question are required to furnish to the authorities. Both categories of buildings tax are subject to provincial and local surtaxes.

Annual demand notes are sent in respect of the rent tax only. In the case of the graduated tax, taxpayers are informed of the amount due by a notice published by the competent communal authority.


The tax on capital yield is levied on income from personal and real property which is not taxable under the heading of land tax, buildings tax or general or special tax on profits. Individuals who are domiciled in Czechoslovakia or who have resided there for more than a year and corporations having their head office in the country are liable to this tax in respect of any income, of whatever origin, which by its nature comes within the purview of this tax. Other individuals and legal entities are only liable in respect of income of this kind when they derive it from, or receive it in, Czechoslovakia.

In particular, the following income is liable to this tax: interest on loans contracted by the State or public corporations or by private companies, partnerships and individuals domiciled in Czechoslovakia; interest on deposits with savings banks and credit institutions, current accounts, sureties and other credits; interest and commissions on discount operations; income from the lease of a business; annuities (with certain exceptions); maintenance allowances; annual royalties from the concession of patents or other similar property: interest and dividends from foreign bonds and securities.

These last, however, are not subject to tax on capital yield if it can be shown that they are subject abroad to a special direct tax other than income tax. Further, shares in foreign enterprises which have an establishment in Czechoslovakia and which are there subject to the special tax on profits are not regarded as foreign securities and are therefore not liable to tax on capital yield.

The rate of the tax is 3 per cent if paid direct, and 6 per cent if deducted at the source. In some cases, however, the rates differ, the scale ranging from 1 to 10 per cent. If the tax is paid by the taxpayer himself, it is subject to a surtax in favour of the provinces, districts, communes, etc., but, if it is collected at the source, no surtax is imposed.

The tax is collected at the source in the case of payments made by the State, provinces or other public institutions; by districts or communes or by enterprises liable to the special tax on profits; if these payments are interest or other income from bonds or securities issued by these institutions and enterprises (whatever may be the manner in which payment is made or shown) or interest on deposits with savings banks; when individuals or corporations professionally engaged in banking pay their customers, or credit their customers’ accounts with, interest of almost any kind. The only interest excepted is interest on exchange or discount operations and interest credited to another person also professionally engaged in banking.

As a general rule, institutions or enterprises which withhold the tax at the time of paying the taxable income pay the sums thus withheld twice a year to the Treasury accompanied by a list of the sums, but not mentioning the names of those to whom the payments were made.

In all cases not enumerated above, the tax is paid direct by the beneficiaries of the taxable income on the basis of a return. If the taxable income consists wholly or in part of products of the soil or of nature, these products are assessed at their market value. Further, it is not usual to deduct from taxable income the interest on debts attaching to that income.


The remuneration paid to directors of share companies or limited partnerships with share capital is liable to directors’ percentages tax. The tax is at the rate of 10 per cent and is not subject to any surtax on behalf of public corporations. It is deducted by the companies in question at the time of paying the taxable income and is paid by them to the Treasury. When the total of such remuneration paid by a company does not exceed 5,000 Czechoslovak crowns a year, it is tax-free. Salaries and emoluments payable by companies to their directors under service contracts are not liable to directors’ percentages tax, but pay the tax on high salaries.

In the case of remuneration paid to persons domiciled abroad, the tax has also to be deducted at the time of paying the remuneration. Thus, Czechoslovak branches of foreign share-companies or limited partnerships with share capital have to withhold and pay the tax, not only when they themselves distribute the taxable remuneration, but if they transmit these payments to the foreign enterprise to which they belong.

In order, however, to avoid double taxation, certain exceptions to this principle have been provided for by international agreement. Thus, Austria and Hungary have arranged that the tax on directors’ percentages shall be collected exclusively by the country in which is situated the head office of the debtor enterprise.


Salaries and emoluments liable to income tax are further subject to the tax on high salaries if, after deduction of expenses which are directly and economically related to the income, they exceed an annual sum of 100,000 Czechoslovak crowns. This tax, which is at the rate of 3 per cent, is subject to the surtaxes in favour of public corporations.

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