1. Johan Boersma TAXATION OF COMPANIES IN THE CZECH REPUBLIC

2. Johan Boersma Corporate taxpayers are subject to corporate income tax Corporate income tax is governed by the Income Tax Code. There are rules applicable only to companies or only to individuals and there are also common rules applicable to both.

3. Johan Boersma Type of tax system In principle, corporate profits are taxed both at the company level and at the shareholder level. Double taxation is relieved by the distributing company being able to credit against its corporate income tax liability an amount equal to 50% of the withholding tax imposed on the dividends distributed.

4. Johan Boersma A further relief is provided at the shareholder level by taxing dividends at a lower final withholding tax rate. Finally, an exemption from withholding tax applies to certain qualifying redistribution, like resident companies. The shareholder must at least hold 20% of the shares.

5. Johan Boersma Taxable subjects Joint-stock companies: akciová spoločnost (a.s.) Joint-stock companies: akciová spoločnost (a.s.) Limited liability companies: společnost s ručením omezenỹm (s.r.o.) Limited liability companies: společnost s ručením omezenỹm (s.r.o.) Branches Branches Cooperative enterprises. Cooperative enterprises.

6. Johan Boersma General and limited partnerships are also legal entities for corporate income tax purposes. However, general partnerships as such are taxed only on income that is subject to withholding tax (15%). All other income is taxed in the hands of the general partners.

7. Johan Boersma Limited partnerships as such are subject to corporate income tax only on the income attributable to the limited partners. All other income is taxed in the hands of the general partners.

8. Johan Boersma In general, non-profit associations, foundations and other public organizations are subject to corporate income tax with respect to income derived from advertisements, membership fees and leasing.

9. Johan Boersma Residence A company is treated as resident if it has its legal seat or place of management in the Czech Republic.

10. Johan Boersma Taxable income Resident companies are taxable on their worldwide income. Taxable income is the difference between income and expenses incurred in obtaining that income. The taxable income is computed on the basis of the accounting profits and is adjusted for several items as described in the tax law.

11. Johan Boersma Taxable income of taxpayers using double-entry bookkeeping is assessed on an accrual basis, while that of taxpayers using single-entry bookkeeping is assessed on a cash basis. Income taxed in accordance with a special withholding tax system is not included in the corporate income tax base.

12. Johan Boersma Exempt income Interest on mortgage bonds Interest on mortgage bonds Interest on taxes and social security paid in excess. Interest on taxes and social security paid in excess.

13. Johan Boersma Deductions Expenses incurred in generating and maintaining taxable income are deductible, unless they are listed as non-deductible income. Note: Corporate income tax paid abroad if the underlying income is included in the Czech taxable base or separate taxable base, provided that no tax treaty applies.

14. Johan Boersma Losses a.Ordinary losses b.Capital losses.

15. Johan Boersma a. Ordinary losses Losses may be carried forward for 5 years. In the case of a limited partnership, the partnership’s tax loss must be reduced by the amount due to its general partners. No carry- back of losses is allowed.

16. Johan Boersma b.Capital losses Capital losses are generally not deductible with the exception of: -Acquisition costs of options and securities.

17. Johan Boersma Rates The general rate of corporate income tax is 20%. (20: 19%) A final withholding tax of 15% is levied (see income tax).

18. Johan Boersma ANTI AVOIDANCE General The law on tax administration contains a general anti-avoidance clause. This substance-over-form provision entitles the tax authorities to look through any transaction and access tax according to the real substance of the transaction.

19. Johan Boersma Transfer Pricing If the agreed price for a transaction between persons associated either economically or personally or otherwise is different from the fair market price, and this difference cannot be satisfactorily explained, the fair market price will be substituted for tax purposes.

20. Johan Boersma Thin capitalization According to the thin capitalization provision of the Income Tax Code, interest paid on credits or loans provided by related parties in excess of the ratio 4:1 between the aggregate value of foreign debt and all equity of the company is not deductible for tax purposes. The ratio for banks and insurance companies is 6:1.

21. Johan Boersma The debt/equity provisions do not apply in the year of a company’s foundation or in the subsequent 3 years. Loans for the acquisition of fixed assets and any interest-free loans are not treated as debt for thin capitalization purposes.

22. Johan Boersma Controlled Foreign Company There is no CFC legislation.

23. Johan Boersma From 1 May 2004, under the domestic law implementing the provisions of the EC Interest and Royalties Directive (2003/49/EC), outbound interest payments are exempt from withholding tax, provided that the beneficial owner of the interest is an associated company of the paying company and is resident in another Member State or such a company’s permanent establishment situated in another Member State. Two companies are “associated companies” id (a) one of them has a direct minimum holding of 10% in the capital of the other or (b) a third EU company has a direct minimum holding of 10% in the capital of the two companies. A minimum holding period of 2 years is required. The recipient must obtain an approval from the Czech authorities. From 1 May 2004, under the domestic law implementing the provisions of the EC Interest and Royalties Directive (2003/49/EC), outbound interest payments are exempt from withholding tax, provided that the beneficial owner of the interest is an associated company of the paying company and is resident in another Member State or such a company’s permanent establishment situated in another Member State. Two companies are “associated companies” id (a) one of them has a direct minimum holding of 10% in the capital of the other or (b) a third EU company has a direct minimum holding of 10% in the capital of the two companies. A minimum holding period of 2 years is required. The recipient must obtain an approval from the Czech authorities.

24. Johan Boersma The EC Interest and Royalty Directive precludes any taxation on royalty payments to associated EU companies. The Czech Republic, however, has been granted a transitional regime under which it enjoys an exemption from the application of the Directive with respect to royalties until 1 July 2005. Thereafter, the Czech Republic may levy a withholding tax on royalties at 10% for 6 years. The EC Interest and Royalty Directive precludes any taxation on royalty payments to associated EU companies. The Czech Republic, however, has been granted a transitional regime under which it enjoys an exemption from the application of the Directive with respect to royalties until 1 July 2005. Thereafter, the Czech Republic may levy a withholding tax on royalties at 10% for 6 years.