For corporate entities, the tax residence is determined with a view to the place from which the entity is effectively managed. Under Act 586/19992 Sb., on Income Taxes, taxpayers are sorted into tax residents and non-residents. Similar to individuals, corporate entities become tax residents of the Czech Republic if their registered office or the place of effective management is situated in the Czech Republic. Residents tax both their income generated in the Czech Republic and abroad. (As a side note, taxable entities that do not have a legal personality but are set up or existing under Czech law are treated as having the registered office in the Czech Republic). Taxpayers are non-residents, if they do not have a registered office in the Czech Republic or if they are designated as non-residents by applicable international treaties. Non-residents pay the income tax locally only on income generated in the Czech Republic.
The Income Taxes Act grants a special status to public benefit organisations, whose primary objects, as defined in their constitutional documents, or as laid down in law or stipulated by a decision of a public authority, entail non-profit activities. While those organisations are still liable to tax in general, they are exempt from income tax to the extent of their:
- Non-business income provided the costs expended to pursue those activities exceed this type of income,
- Subsidies, grants, or other similar aid from public budgets,
- (A subsidy from the Wine Fund)
- A revenue from tax, charge or other levy collected by a municipality or a region,
- A payment that represents an income for the Government budget from
- A transfer or the use of the Government property between or by public organisations, agencies or departments,
- A lease and sale of Government property,
- An income from the gratuitous acquisition of property under the Act on the Property Settlement with Churches and Religious societies.
At the same time, even public benefit organisations pay tax on their income from advertising, membership fees, interest and leases (Government property leases excepted).
As always, it is highly advisable to consult the text of the law with respect to each individual set of circumstances.