Windfall Profits Tax newly introduced in the Czech Republic
Written By
On 25 November 2022, the Senate approved a proposed amendment to the Income Tax Act, that, applies, i.e., to windfall profits tax (WFT).
WFT is prepared based on the Regulation of the Council of the European Union, but differs from the European legislation in some key parameters (i.e., mainly in the period for which WFT should apply, the amendment will also introduce a 60% tax rate instead of the 33% rate recommended by the European Union and other differences).
Under the adopted version of WFT, taxpayers who meet certain "qualifying" conditions will be obliged to pay a new 60% WFT for the period 2023 to 2025 in addition to standard corporate income tax (CIT) of 19%.
Banks and other companies that meet the statutory conditions will be subject to WFT. Banks will only be obliged to pay tax if the financial institution had net interest income of at least CZK 6 billion in 2021. Such a bank will be obliged to pay WFT from 2023 to 2025.
Taxable entities other than banks will be subject to WFT if they meet any of the following conditions:
- in any of the tax periods/years 2023 – 2025, they will have an annual turnover from the below mentioned activities of at least CZK 50 million and at the same time achieve an annual turnover of at least CZK 2 billion in 2021 from these activities;
- in any of the tax periods/years 2023 – 2025, they will have an annual turnover from below mentioned activities of at least CZK 50 million and at the same time, in the same year, they will be part of a consolidated group whose members had a combined annual turnover of at least CZK 2 billion from these activities in 2021, or
- in any of the tax years from 2023 to 2025 they have an annual turnover of at least CZK 50 million from any of the following activities: mining of hard coal, extraction of crude petroleum and natural gas, or manufacture of coke oven or refined petroleum products, and at the same time their turnover from these activities in 2021 was at least 25% of their total annual turnover.
Within the above condition of an annual turnover of at least CZK 50 million, or CZK 2 billion respectively, the revenues from the following activities are taken into account:
(i) mining of hard coal, (ii) extraction of crude petroleum and natural gas, (iii) manufacture of coke oven products, (iv) manufacture of refined petroleum products, (v) electric power generation (excluding combined production of electricity and heat in a certain ratio), transmission and distribution, or trade of electricity, (vi) manufacture of gas, distribution of gaseous fuels or trade of gas through mains, (vii) wholesale of liquid fuels and related products, (viii) wholesale of gaseous fuels and related products, (ix) transport via oil-pipeline, or (x) transport via gas pipeline. The amendment further provides exemptions for certain types of activities (e.g., for electricity and gas producers).
The WFT base will be determined in a way that the entire CIT base of the selected corporate taxpayers will be subject to WFT, and such WFT will then be calculated at level of 60% rate of the tax base by which the CIT base is exceeding the average tax base of such taxpayer reported in 2018-2021, increased by 20%.
