How Are Taxes Collected?

Administrative process

Irrespective of whether the tax liability arises in the Czech Republic or in some other country, the tax must be assessed and declared in the country where it originates. The same rule applies to the payment. Generally, income that is liable to tax is specified in section 22 of the Income Taxes Act – this section regulates the maximum taxation that may be imposed on income, which may be moderated by a lower tax rate or exempted completely by a double taxation agreement.

The Czech Republic is not spared from the general tendency of tax administrations from all over the globe to transfer the liability for tax to the recipients of goods or services; as a result, in certain circumstances, customers may become obliged to pay the income tax on behalf of their foreign suppliers. For example, organisers who pay remuneration to artist performing in the Czech Republic have the duty to retain and pay their income tax to local tax authorities. The legislator intentionally placed the burden of the responsibility on the domestic contracting party, because this gives the tax administration a greater level of control over the flow of revenue and makes the anti-tax evasion measures much easier to implement.

There are three basic safeguards that aim to guarantee the payment of tax by non-residents by the income payer (customer): advance tax (for the payroll tax), withholding tax and tax security.

It is advisable to keep in check the following issues:

  • At the beginning, enter into a contract that specifies the remuneration
  • The artist needs a confirmation that the tax has been withheld and paid to the tax administration; this confirmation/certificate will be later presented to the local tax authority in his or her tax residence so as to avoid double taxation. The tax residence certification is presented in the official language of the relevant country.
  • In some instances, the artist is exempt from the withholding tax or may apply for a refund.


Gross/net income

Since organisers are required to withhold the income tax, they do not wish to bear the associated costs and hassle as well. Consequently, organisers prefer an agreement under which the tax is deducted from the overall remuneration (gross remuneration arrangement). At the same time, artists prefer to have their remuneration settled at net amount, without any deductions (net remuneration arrangement).

If both the artist and the organiser have their tax residence in the Czech Republic, the individual taxation of the artists does not affect the overall situation of the parties.


A self-employed producer reports a gross annual revenue of CZK 300,000. The producer may deduct the actual documented costs, but in the circumstances, it would be more convenient to deduct costs at a fixed rate laid down in law. The fixed rate of tax-deductible costs for this type of profession is set at 60%. The income tax rate is 15% of the net taxable income, which means that the income tax would amount to CZK 18,000. The producer may subtract from tax the personal tax discount, which is available to each individual taxpayer at the fixed amount of CZK 24,840, which means that the actual income tax payable by the producer would be zero. The sickness insurance is not compulsory for self-employed individuals, but the producer must pay the general health insurance in the amount of CZK 22,868 and the social security insurance in the amount of CZK 24,732. This means that the producer’s net annual income would amount to CZK 252,400.

This is the most straightforward option; many individuals are entitled also to other deductions (gifts, pension insurance contribution) or tax discounts (such as for a dependent minor or a spouse).

Tax clearance certificate

Whenever a person’s income is taxed outside his or her tax residence, i.e. in another country, it is important to document that the tax has been paid, because the tax administration in such person’s home country receives the information about the foreign income from the tax return (if completed accurately), but not necessarily the information that the income tax has actually been settled. The confirmation (certificate) is usually issued by and sent to the artist by the local contract partner (mostly at a request). The artists subsequently file the certificate to his or her tax administration together with the tax return to ensure that the tax authority accounts for the tax paid abroad when reviewing the tax return.

The same course of action applies to foreign artists performing in the Czech Republic, and for Czech artists performing abroad, even though the exact process and the forms used may slightly differ.
Form of the foreign tax authority's certificate on income tax.

Double taxation

One of the basic features of taxation laws is that several countries may wish or may have the right to tax a single income. For example, when a musician performs abroad, the income may be taxed in his or her residence and simultaneously in the country where he or she performs. In order to protect taxpayers against this kind of treatment, the countries enter into double taxation agreements, in which they agree on how to give the right to tax to either country in various circumstances.

Sometimes, a debtor may be compelled to pay tax in the course of administrative proceedings even though the tax administration is not entitled to collect the tax under the double taxation agreement, and then the taxpayer must claim a refund through standalone administrative proceedings. In this manner, the tax administration reserves the time to review whether they may or may not collect the tax and in the meantime the money are kept safely by the Government.  If the tax administration discovers that it does not have the right to keep the tax, i.e. that the person does not have any such local tax liability, it refunds the money. Fortunately, this process is not as gruesome as it sounds; so long as the contract is in good order and you file the certificate from the local tax authority, where the tax was paid, the tax administration should refund the tax without any major protests.

List of Double Taxation Agreements.