Article par David James et Lucia Rablova dans l’Entreprise, Decembre 2010.


Golden Charles of Praha
"Golden Charles of Praha" by Éole via Flickr

David James et Lucia Rablova de Baker Tilly Tchequie ont ecrit cette article avec Mme Valerie Malnoy de Baker Tilly France, qui est apparu dans l’edition de decembre 2010.  Nous esperons que ce contient sera interessant pour nos lecteurs francophones.

Les firmes associes de Baker Tilly sont a meme de servir des clients francophones en francais dans le plupart de la region de l’Europe de l’Est.

2010-12-08~1527@L_ENTREPRISE Rép Tchèque

Et ici vous trouverez le site de Baker Tilly Republique Tcheque en francais.

Wide-ranging changes to all major Polish taxes in 2011 – from TGC Poland


The following important update has been provided courtesy of our friends at TGC

Dear Quoracy.com readers,

The new year has brought a number of changes pertaining to VAT, CIT and PIT. Please find below the major changes effective as of 1 January 2011.

VAT

Several amendments to the VAT Act entered into force on 1 January 2011, thus jointly constituting the greatest change of this tax since 2004.

  1. From 1 January 2011 the basic tax rate amounts to 23% and the reduced rates amount to 8% and 5%, respectively. The long-term plan provides for further increases in the VAT rates, if the level of public debt of Poland exceeds the so-called prudential threshold of 55%. Due to the change of the VAT rates, several interim provisions have been introduced that regulate the rules of transition to the new rates and the ultimate return to the VAT rates applicable at the end of 2010.
  2. Pursuant to the adopted amendment, the Polish Classification of Products and Services (Polska Klasyfikacja Wyrobów i Usług – PKWiU) of 1997 will no longer be used for VAT purposes, being replaced with the PKWiU of 2008. Due to the significant differences between the two classifications, in order to determine the correct VAT rate for a given product or service, it is necessary to verify the practices applied so far.
  3. The appendix number 4 to the Act – including the list of exemptions – has been deleted and the said list has been included directly in Article 43 of the VAT Act. It should be pointed out that the scope of many exemptions has been modified, thus it is necessary to verify the practices applied so far.
  4. New rules have been introduced with regard to the settlement of gratuitous delivery of goods and gratuitous provision of services.
  5. The changes in the VAT Act have introduced new regulations with respect to the manner of specification of the right to deduct VAT charges in relation to the purchase of a real property used within the scope of the conducted business activity and for private purposes.
  6. The changes in the regulations provide that from 1 January 2011 until the end of 2012 purchasers and lessees of passenger cars equipped with a cargo partition, who until the end of 2010 had the right to a full deduction of tax, will be permitted to deduct only 60% of the VAT amount, and not more than 6,000 zlotys. Moreover, deduction of tax on purchased fuel for such cars will no longer be possible. This applies also to vehicles purchased on previous, more favourable terms.

CIT

  1. The long-announced exemptions for foreign investment and pension funds (from the EU and EEA member states) have been introduced.
  2. Pursuant to the amendments to Article 20 clause 3 point 4 and Article 22 clause 4 point 4 of the CIT Act, it was specified that the exemption under the said provisions is possible only on the condition that the company earning income (revenues) from dividends and other revenues on account of participation in profits of legal entities is not exempt from income tax, irrespective of the source of the latter.
  3. New rules have been introduced with regard to determining the initial value of assets constituting a contribution in kind to a company in the form of an enterprise or its organised part.
  4. Income from the sale of shares or stocks to a company for the purpose of their redemption is no longer classified as income from participation in profits of legal entities.
  5. The amended provisions of the CIT Act have introduced new rules of taxation with respect to the settlement after liquidation and withdrawal from the partnership.

PIT

  1. New provisions have been introduced with regard to the taxation of income earned by natural persons on account of participation in partnerships,
  2. Rules of filing joint tax returns by married couples have been modified (by way of an automatic extension of the possibility of filing joint tax returns at the request of one of the spouses only in the subsequent fiscal years, upon fulfillment of specific conditions),
  3. The term “single parent” used for purposes of joint tax settlement with a child has been narrowed down in order to specify the group of persons entitled to such settlement,
  4. A possibility has been introduced to apply a tax exemption in respect of the purchase of shares of companies within the scope of incentive programs, irrespective of the manner of purchase of such shares, which will also apply to companies whose registered seats are located in other EU and EEA member states.
  5. Several changes have been introduced to the rules of documenting tax reliefs and exemptions, including, inter alia, the Internet relief and rehabilitation reliefs, extension of the exemption pertaining to benefits on account of employees’ accommodation to a certain limit (applicable to all forms of such accommodation).

The changes indicated above constitute only a part of the changes in taxes that will affect your business activity in 2011. Should you need a detailed interpretation of specific examples related to the aforementioned issues, please contact our experts:

Marcin Eckert
Tel. +4822 6533804
E-mail: meckert@tgc.eu

Sebastian Stec
Tel +4822 6533629
E-mail: sstec@tgc.eu

TGC Corporate Lawyers
ul. Królewska 27
00-060 Warsaw, Poland

Tel: +48 22 653 3644
Fax: +48 22 827 6915

Website:  http://www.tgc.eu

So you want to start a business in the Czech Republic? What do you set up, a Company or a Branch?


The main considerations are grouped under headings

LEGAL

• The scope of business of the branch may not be broader than the scope of business of the foreign entity.

• The branch must publish the financial statements of the foreign company in the registry of documents kept by the Commercial Register, which effectively means getting the whole report of the company the branch is part of and translating it into Czech, and publicising it even if the accounts were not liable to be made public in the jurisdiction of the Company.

ACCOUNTING

• In general the same statutory obligations apply for both branch and legal entity from accounting and financial reporting point of view, i.e. every corporate entity doing business in Czech Republic must keep the books in Czech language and must file the financial statements to the Commercial Register.

• The only difference we can see is that the statutory financial statements of branch are to be incorporated into the statutory accounts of the founder whereas in case of legal entity financial statements stands alone and the financial asset (i.e. investment in the subsidiary) is to be shown in the accounts of the parent company.  Branches do not really have separate equity, as they are not legal persons, but in order for the balance sheet to balance the capital employed needs to be shown as if they were, on a pro-forma basis. Likewise purchases of goods by the branch from the company it is part of is legal nonsense, as there is no tranfer of ownership to a branch, but still in order to give a picture of the performance of the branch as well as to be above board with regard to international transfer pricing, again branch accounts should be done with these intra-company “sales” and “purchases” included as pro forma. Remember that the branch has its own tax life in the country where it is.

AUDIT

• The same statutory obligations apply for both branch and legal entity to have its accounts audited.

• The general rules are as follows:

1) joint stock companies One of the following criterions is met for two consecutive accounting periods: a) gross assets of 40.000K CZK b) revenues of 80.000K CZK c) average number of employees over 50.

2) other legal entities (limited liability companies, branches, etc.) Two of three above criterions are met for two consecutive accounting periods.

 TAX

• From the Czech corporate taxation point of view the branch must register for corporate income tax only if having taxable income in the Czech Republic through a permanent establishment, the legal entity must register in any case.

• In case of the branch the income and costs need to be allocated to branch activities, however keeping in mind transfer pricing and substance-over-form principle that are applicable under both structures, i.e. under both branch and legal entity constructs.

• Profits/losses will be included in profits of the founder of the branch taking into consideration double taxation reliefs.

• From the VAT perspective in case of the branch the VAT payer is actually the headquarter that has Czech VAT registration while in case of the legal entity it is actually the entity itself being Czech VAT payer.

• Profit repatriation in the case of the legal entity must be taken into account, however, if the parent company being an EU entity with more than 10% shareholding for more than 12 months dividend payments are tax exempt.

  Subsidiary Branch
Tax registration obligatory Only if taxable income from sources in the Czech Republic
Tax at operational level 19% CIT 19% CIT
Tax at parent/headquarter level in respect of subsidiary’/branch’s profits Participation exemption or tax credit (in cases of dividend distribution) Tax rate of the headquarter (note: double taxation relief ® participation exemption or tax credit)
Withholding tax (dividend, interest, royalties) Often (note: EC Directives and tax treaties) Rarely
Loss settlement with foreign parent company/headquarter In principle no Yes (unless exempt under headquarters’ domestic tax law)
Liability debt (claims) at operational level Local operating company (=subsidiary) Headquarter

The above was based on the amiable co-operation of TGC Corporate Lawyers and Baker Tilly sro in Prague and Brno.