Income tax (help expats!)

Dear all,

As an expat it is hard for me to know details about income tax that I have to pay on gains and on dividends in the Czech Republic. Add another level of difficulty with information in Czech :sweat_smile:(google does all the job here).

Anyway, as T212 is available in many countries and we have many “locals” here, maybe you can help your expats counterparts. The idea would be to give info regarding the percentage one should pay on this kind of income, and whatever else you think might be important to know about this topic. It doesn’t need to be anything long, of course. I would just suggest to add the name of your country in the beginning to be clear. I’m sure it is going to be useful to somebody!

I appreciate the help!

1 Like

Ahoj and howdy, fellow expat.
Time to break the silence. I believe you’ve already became more experienced in the meantime, so I’m curious about your knowledge now. I’m in a similar situation now, preparing for my first self-made Czech tax clearance in the coming quarter.
So, here’s my current take on the matter.

Let’s put aside for now the exchange rate dilemma and calculate directly with CKR.
Example scenario:
[1] In Jan, You bought shares worth 300,000 CKR (300k).
[2] In Aug, You sold them (value: 400k = You gained 100k) and reinvested those 400k in another stock.
[3] In Nov, You sold them again (value: 350k = You lost 50k).

How would the tax calculation look like?

  1. The gov only taxes the capital gain.
    That would be +100k (from Aug) - 50k (from Nov) = +50k to report.
  2. There is a threshold that you do not have to report capital gains if the value of all sold shares is below 100k CKR in a year. That’s hard to undercut. In this case, we have two selling actions (Aug + Nov) totaling at 750k CKR. Nice try.
  3. Another exception would be if we had hold the shares for more than 3 years. So if you had hold let’s say 200k CKR in shares (without touching them!) already since 2017 outside of above scenario, any gains from selling these shares can be ignored.
  4. Sum up: We have to write these 50k into the form (no clue where exactly) and they will become part of the generally taxed income with 15%, i.e. your trading success enriches the Babíš with 7,5k CKR.
1 Like

Now, what remains unclear to me:

  1. What exactly do the Czech tax authorities require from us to send to them along with the pink paper? Like, what data from T212 do we have to request/export/calculate? Would it be i.e. a printed Excel sheet eventually?
  2. (More generic) Have you already had experience with such semi-self tax services like https://www.czechtaxesonline.cz? It seems to be a well-known platform among expats and is quite affordable.

Apart from that, here are some links I found useful:
(1) English version of the infamous Pink Paper: https://www.investicnigramotnost.cz/wp-content/uploads/2017/12/DPFO-Uplny-opis-k-tisku.pdf (Kudos to victor :))
(2) Czech source summing up the regulations, especially exchange rate calculation:
< obsolete, check out victors reply below >

1 Like

Ahoj Marketa, thanks for not leaving me alone here =D

Well, to be honest, I haven’t gone through many details yet, but I have found it helpful to understand tax on dividend income by reading here: https://www.investicnigramotnost.cz/dane-dividend-ne/ (next year it will be my first time filling such data). I only sold one stock, made a profit, but far below that threshold you mentioned:

On the website I mentioned above, they cover everything regarding investment tax; Google is our best friend to translate those. Maybe check this for examples of how to fill up the form: https://www.investicnigramotnost.cz/investor-a-dane-5-kompletni-danove-priznani-priklad/

1 Like

These are great links! :heart:
And, true, the dividends - that’s yet another trap to count in for me… :frowning:

1 Like

Czechia for Czech tax residents
(not a tax advisor here)
First of all, if you want to make sure you tax everything correctly, you can hire a tax advisor who fills in all the necessary documents for you based on the reports you provide. When you submit your tax return through a tax advisor, they become liable for any damage caused by incorrect advice (but not for any incomplete or wrong data that you provide).

When trading, the first aspect to consider is:

Am I an active trader (do I sell just occasionally or quite regularly)?
If you do trade actively for profit, it can be considered a business activity which must be registered at the Trade Licensing Office (Živnostenský úřad).
Unlike occasional trading, which is simply reported after the year end, a business must be registered upfront.
Furthermore, as any other business activity, you are not only liable to pay the income tax from trading, but also social insurance, health insurance and no tax exemptions I mention the section on income from the sale of shares apply to you. As this is a complex case that I haven’t properly dived into yet, I will not elaborate it further.

Provided that your activity is not considered a business:

There are two types of income to consider with regard to holding and selling shares.

  • Dividend income
  • Income from the sale of shares

All of them are taxable according the the Income Tax Act (Zákon o dani z příjmů, ZDP)

Dividend income is subject to the so-called withholding tax, which is deducted at the source, usually in another country. The dividend income is credited to your brokerage account after the tax is deducted.
The problem is: Not only the “source” state wants to tax it. The Czech Republic wants to tax it too. To prevent double taxation, the Czech Republic has tax treaties with several countries (not with all of them) that ensure you pay the tax only once, and, in the best case, at the Czech rate 15 % instead of whatever tax rate applies in that source country (thanks to that, you can enjoy 15 % dividend tax on U.S. stocks instead of the normal 30 % U.S. tax - unless you are a U.S. person afaik).

The rule for dividend income is:

  • If it is a Czech stock (e.g. Kofola), it has been already taxed in the Czech Republic and you have nothing to do
  • Any other dividend income is taxed under §8 of ZDP (there is a box for it in the tax return form):
    • First of all, the dividend income before tax must be converted to Czech Crowns (CZK, see the section on currency conversion)
    • Supposing you don’t want to be taxed twice, you can fill in Annex 3 of the tax return for each country you have income from. The official tax return form at https://adisepo.mfcr.cz/ does some calculations for you, so you only need to enter how much the dividend income before tax was and the amount of the withheld tax.

It is not always that the whole tax paid abroad is counted in. This always depends on the respective tax treaty.

The problem with T212 is that they don’t state the amount of withheld tax in their dividend income report (yet) so you may end up paying the tax twice anyway.

Income from the sale of shares
In general, the income from the sales of shares is computed as the price you sell it for minus the price you purchased that particular shares for (cost basis, incl. fees if any). Fortunately, both numbers can be found in the monthly statements T212 provides.
Just make sure to use the instrument’s currency.

Now:

  • If the sum of all the sales (not gains!) in a calendar year is <100k CZK
    • Nothing to report nor to tax. But be ready to prove it was <100k if someone asks
  • If the sum of all sales (not gains!) in a calendar year is >=100k CZK
    • Go through the report of sales and exclude all the sales of lots that you had held for longer than 3 years. You should be able to see it from the T212 report.
    • The rest (and I believe even if it’s less than 100k CZK) will be taxed under §10

If you have anything to report, under §10, simply fill in:
“D - prodej cenných papírů” (the sale of securities), a text comment e.g. “obchodování na burze” (trading on a stock exchange - I don’t think this plays a big role), then fill in the income, the cost basis as expenses and use Kód Z (foreign income / income from abroad).

That should be it.

So in Marketa’s example:

[1] In Jan, You bought shares worth 300,000 CKR (300k).
[2] In Aug, You sold them (value: 400k = You gained 100k) and reinvested those 400k in another stock.
[3] In Nov, You sold them again (value: 350k = You lost 50k).

Total income: 400+350 = 750k
Total expense: 300+400= 700k
The form will calculate there is 50k to tax.

Currency conversion to CZK
It is crucial to understand that all the income is taxed in CZK.
As the exchange rate may fluctuate, it may occur that you make a loss in a foreign currency but profit in CZK. If none of the tax exemption from the previous point can be applied, you must tax it as if it were profit.

You probably know that there are two ways of converting foreign currencies to CZK. You must choose one and use it consistently.

Either you follow the accounting rules (more complicated) or use the exchange rates set for major currencies every year by the Ministry of finance.
This exchange rate is called Jednotný kurz, it is issued sometime in January/February for the preceding year as an average exchange rate, and can be looked up online as a PDF.

According to a recent decision of the Nejvyšší správní soud (?? supreme civil service court ??), you must apply the respective exchange rate valid on the year of the purchase/sale event, i.e.
if you buy in 2018 and sell in 2020, use the exchange rate valid for 2018 for calculating the cost basis and the exchange rate for 2020 to calculate the income.

Pitfalls

  • If you held fractional shares of TSLA or AAPL at the time they split in the summer of 2020, your income from their automatic sales is not included in the statement T212 has provided.
    Only after two weeks of constantly asking the T212 support, I got the data needed to calculate the income and cost basis
  • As mentioned in the section on dividend income, T212 does not provide the information on the tax withheld. Therefore, I have personally decided to treat the income as if it were not taxed at the source to avoid problems.
  • Currently, T212 statements mix up currencies. Some columns are in your account’s currency, some in the instrument currency and it is not clear which is which. For conversion to CZK, I would prefer to stick to the instrument currency to be on the safe side.

FAQ

  • Do I need to submit any trading reports together with my tax return to the financial authorities?
    • No, but you must be able to prove what you claim in the tax return in case the financial authority asks for it (they can ask you to explain your tax returns up to 3 years retrospectively). Given the way T212 statements are structured and the fact some data is missing (see above), it might be quite challenging.

Please let me know should anything be unclear or wrong.

3 Likes

Wow, such a detailed essay you wrote there! Really, really helpful! Thanks for the time and for sharing your knowledge.

May I ask, do you know how does it apply the 6.000 CZK threshold? Is it dividends + gains from selling stocks in a calendar year? If adding up all money I made with dividends and gains is still less than that, I don’t need to mention anything on the form?

Děkuju moc, @chovanecm !

Well, I’m actually pretty bad in writing concise explanations :smiley: But thanks for appreciating it.

As for your question, to be honest I am not completely sure. I’ve read that as an employee, you don’t have to file your tax return at all if your taxable income besides your employment does not exceed 6000 CZK. So your employer does the taxes as usually and you don’t have to mention the <6000 CZK income anywhere.

But I don’t know how this works if you already do your own tax return (e.g. because you are an OSVČ - sole trader or for another reason). Sorry.

1 Like

Wow. Wow wow wow.
That’s by far the most comprehensive and helpful post I have seen in this forum.
Děkuju milionkrad! :slight_smile:

Edit: And I’m very happy now that I did not choose the ‘Dividend hunter’ road.
Also, next destination: Pumping ‘Proper dividend reports’ threads. :smiley:

1 Like

I really hope they get a better reporting too. For now, I moved my funds somewhere else where I do pay commission but have the reports I need. Maybe I come back in the future once the platform is more mature.

And also thank you for your positive feedback on my writing :smiley: I’m glad you found it helpful.

1 Like