Corporate income tax for an s.r.o. in Czechia: rates, dividends, costs

Taxing an s.r.o. looks simple at first glance — one rate on profit — but it is actually made up of several layers. First the company itself taxes the profit, and when the shareholder wants to take the money out, a second taxation comes in. Add to that the rules for costs, depreciation and loss, which materially affect the final tax.

Let's go through it step by step: from the rate and the tax base, through the double taxation of dividends, to costs and loss.

The rate and the tax base

The corporate income tax rate is 21 %. But it is profit that is taxed, not turnover — the tax base is the difference between revenues and tax-deductible costs, adjusted for items the law recognises differently from accounting. The better a company records and claims its costs, the lower the tax base and the lower the tax.

Not every expense is tax-deductible, though — the law excludes or limits some costs from deductibility, for example part of the cost of entertainment. The actual tax is therefore not computed directly from the accounting profit, but from the tax base adjusted according to tax rules.

Double taxation of dividends

Here lies the core difference from a trade licence. Profit is first taxed at company level at 21 %, and when the shareholder distributes a share of profit (a dividend), they pay a further 15 % withholding tax on it. Example: on a profit of CZK 1,000,000 the company pays tax of CZK 210,000; on the distributed CZK 790,000 the shareholder pays a withholding tax of CZK 118,500, leaving CZK 671,500. The effective taxation of distributed profit is thus around 33 %. Money left in the company, meanwhile, is not subject to the second tax until you distribute it.

Tax-deductible costs and depreciation

The tax base is reduced by tax-deductible costs — that is, expenses incurred to achieve, secure and maintain income. Long-term assets, however, do not reach costs at once, but gradually through depreciation. Assets are placed in depreciation groups according to the depreciation period: group 1 is depreciated over 3 years, group 2 (for example vehicles and machinery) over 5 years, group 3 over ten years and buildings, depending on type, over 20 to 50 years. Depreciation thus spreads the cost of acquiring an asset over several years.

The choice between straight-line and accelerated depreciation also affects how quickly the cost feeds into taxes — accelerated depreciation gives a higher cost in the early years.

Tax loss and advances

If a company ends in a loss, it is not deprived of it — a tax loss can be claimed in the following periods and also two years back, reducing the tax in profitable years. Depending on the amount of the last known tax liability, the company may then have advances on tax payable during the year. These advances are subsequently offset against the final tax in the return. How and when the return is filed is covered in the article tax returns in Czechia.

Conclusion

An s.r.o. taxes profit at 21 % and a distributed share of profit by a further 15 %, making the effective taxation around 33 %. The tax base is reduced by costs, depreciation and tax loss. Whether an s.r.o. is the right form compared with a trade licence is covered in the article sole trader or limited company.

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