The Czech Republic to Tax Multinational Corporations

The Czech Republic is set to levy a tax of 15 percent on multinational corporations operating within its borders. The Senate passed the law and it applies to companies with revenues exceeding 750 million euros (18.5 billion Czech koruna). The state can now tax these companies up to 15 percent if their effective taxation is lower. The law is still awaiting the president’s signature.

This move is an implementation of an EU directive into Czech legislation. The change was approved in 2022 during the Czech Republic’s presidency in the EU Council. According to Finance Minister Zbyněk Stanjura, if the Czech Republic did not implement this directive, companies would pay this tax in states that adopted it, and the Czech budget would not benefit from it.

“Large multinational groups will pay a minimum tax of 15 percent in the Czech Republic, which is an important step towards ensuring fair and balanced taxation in our country. We will join the states that refuse to allow the diversion of corporate profits to so-called tax havens,” said Stanjura. He expects the law to impact several foreign groups.

The finance department estimates that the law would affect units of multinational groups and about 3200 companies that these groups gather. The law is expected to yield two billion crowns annually. However, the department added that it’s difficult to predict the actual impact of the measure. The primary reason for the law is to prevent companies from shifting their profits to other states and taking advantage of their tax benefits.

Under the current tax rules, the government initially expected tax revenues of four to six billion crowns. However, the government’s consolidation package increases the corporate income tax rate from 19 to 21 percent starting next year, which could bring in about 22 billion crowns annually. As a result, the annual revenue from the compensatory tax is expected to decrease to half or a third. This is because the higher tax rate will increase effective taxation, and fewer groups will remain below the taxation threshold at which the compensatory tax would apply.