Capital income and its taxation

Capital income is defined in § 8 of the Income Tax Act (hereinafter referred to as "ITA") and is taxed at a rate of 15% (or 23% if the statutory threshold is exceeded, which for 2022 was CZK 1,867,728 and in 2023 increases to CZK 1,935,552). Income of individuals is classified as a capital income if it is not employment income (§ 6), business income (§ 7), rental income (§ 9) or other income (§ 10).

Similarly to the so-called other income, which we informed you about in our previous article, in the case of capital income, it is also impossible to declare a tax loss.

Certain types of capital assets are already taxed at the source, such as a bank, corporation or insurance company, at a special tax rate of 15%. The income credited to the taxpayer is then already the net income that is not subject to further taxation, so there is no need to file an income tax return.

The most common types of income where the tax is withheld are as follows:                                                 

• income from share on the profits of a corporation or mutual fund, if the share is represented by a security (i.e. dividend);
• income from holding and subsequent profit from bonds (except for the difference between the value of the bond and its issue price);
• income from silent partner's share on the profits from participation in the business activity;
• income from interest, winnings and other earnings on deposits in deposit books;
• interest on funds in a bank account held for non-business purposes;
• pension insurance benefits with a state subsidy;
• supplementary pension saving benefits;
• private life insurance benefits.

In case the income from capital assets is not subject to taxation at the special tax rate, the taxpayer is obliged to declare such income in the tax return, and such income is only declared in the tax return at the moment of its actual receipt.

The taxpayer submits a tax return in case of receiving the following income:

• interest and other income from loans and borrowings;
• late payment interests ;
• income from a one-off deposit; and
• interest and other income from the holding of bills of exchange.

As the income from capital assets cannot be lowered by the costs related to them, there is no additional annex to the income tax return, as there is in case of business income, rental income or other income.

One special case is foreign capital income. If the capital income is received from abroad (e.g. in the case of dividends paid by companies based outside the Czech Republic), this income must be declared in the Czech income tax return, even if the income has already been taxed abroad. However, the taxpayer has a tax advantage if the Czech Republic has concluded a so-called double taxation treaty with the country in question, which - if the tax abroad was calculated and withheld correctly - allows it to be set off against the tax calculated in the Czech Republic and thus effectively eliminates double taxation.

Another specific example is income from capital assets flowing into the so-called common ownership of spouses. If the income:

• arises from a source which is included in the business assets of one of the spouses, the income is taxable only on the side of that spouse;
• arises from a source which is not included in the business assets of one of the spouses, the income is taxable only on the side of one of the spouses.

Moreover, certain capital income is exempt from income tax according to the ITA and therefore is also not declared in the income tax return. In this context, it is important to point out that in the case of tax-exempt income, any individual must notify the relevant tax office of any income that is exempt from tax and that exceeds CZK 5 million. Such notification must be submitted by the deadline for submission of the tax return for the previous tax period, and the relevant form can be found on the website of the Tax Administration.

For the 2022 income tax return, the primary deadline for submission is 3 April 2023 for a paper submission and 2 May 2023 for an electronic submission. However, if you are unable to prepare your tax return within the deadline, or if you are struggling with its preparation, you can seek help from a tax advisor. By using the services of a tax advisor, the deadline can be extended by up to 3 months, with the deadline for submission set for 3 July 2023.