Czech Republic: Tax changes on debt securities
In Tax Flash T20021 Clearstream Banking1 informed customers that the Czech Ministry of Finance was in the process of amending laws in the taxation area that would be part of and published in the Collection of Laws of the Czech Republic.
Clearstream Banking would like to update customers that these amendments have been approved.
taxation principles on debt securities in the Czech Republic will change as outlined below.
The interest income from bonds issued after 1 January 2021 by the Czech Republic government is exempt from tax in the Czech Republic. This exemption applies to all types of investors, foreign and resident in the Czech Republic.
Czech government bonds issued before 1 January 2021 remain taxable and the procedures of relief at source, quick refund and standard refund remain unchanged.
Income from zero-coupon bonds paid at maturity was subject to withholding tax in the Czech Republic. The amendment to the law cancels this withholding tax for zero-coupon bonds issued after 1 January 2021.
Instead, investors will have to register to be taxed in the Czech Republic and file a tax return in the Czech Republic to have their income taxed. The tax base will be calculated as the difference between the nominal value (or early repayment price) and the acquisition price. If the investor is not resident in the EU or EEA, the issuer will withhold a “tax securing” of 1% calculated from the nominal value of the bond. For investors from a country which has a double tax treaty with the Czech Republic, the tax treatment should apply according to the articles of the relevant double tax treaty. Clearstream Banking does not assist in this regard.
The procedure for zero-coupon bonds issued before 1 January 2021 remains unchanged.
Income payments from debt securities remain subject to withholding tax.
The amendment impacts investors who purchase a coupon bond issued after 1 January 2021 for a price lower than its nominal value. In this scenario, the difference paid at maturity will not be subject to withholding tax, but to the same treatment as described for zero-coupon bonds. Clearstream Banking does not assist in this regard.
Redemption/Early redemption of bonds
Redemption or early redemption of bonds issued after 1 January 2021 will not be subject to withholding tax. Instead, such (early) redemption will be treated as a sale of the bond. Clearstream Banking does not assist in this regard.
For further information, please contact the Clearstream Banking Tax Help Desk, Clearstream Banking Client Services or your Relationship Officer.
1. Clearstream Banking refers collectively to Clearstream Banking S.A., registered office at 42, avenue John F. Kennedy, L-1855 Luxembourg, and registered with the Luxembourg Trade and Companies Register under number B-9248, and Clearstream Banking AG, registered office at 61, Mergenthalerallee, 65760 Eschborn, Germany and registered in Register B of the Amtsgericht Frankfurt am Main, Germany under number HRB 7500.