Czech Republic: Increase of withholding tax rate comes into force
Further to our Taxflash T12027, dated 19 July 2012, and effective
1 January 2013
the maximum rate of withholding tax on income paid from Czech securities (both bonds and equities) to undisclosed holdings or to beneficial owners that are not eligible for tax relief is increased from 15% to 35%.
Background
On 19 December 2012, the Parliament of the Czech Republic approved the amendment of the Law including an increase in the withholding tax rate to 35% for beneficial owners that are neither Czech residents nor residents of:
- Countries that are members of the European Economic Area (EEA); or
- Countries that have a Double Taxation Treaty or agreement on tax information exchange (commonly called “a treaty country”) in force with the Czech Republic.
Furthermore, this new tax rate also applies to undisclosed holders.
Impact on customers
After submission of the required certification described below, the following categories of final beneficial owners may obtain reduced tax rates:
| Eligible beneficial owners | Interest | Dividends |
| Czech resident individuals | 15% | 15% |
| Czech resident legal entities | 0% | 15% |
| EEA residents | 15% or treaty rate, whichever is lower | 15% or treaty rate, whichever is lower |
| European Union (EU) pension funds | 0% | 0% |
| Treaty country residents | Treay rate | Treaty rate |
Beneficial owners that are not eligible for tax relief or did not certify by the prescribed deadlines will be taxed at the maximum 35% rate.
Documentation requirements
For relief at source
For eligible beneficial owners to benefit from exemption or relief at source, the following documentation must be submitted:
- A One-Time Certificate for Czech Republic Withholding Tax Purposes regarding Debt Securities and Equities held in Clearstream Banking - The original, completed and duly signed by the customer and specifying, among other things, whether or not the customer is the sole beneficial owner of all the Czech securities held in the account, must be provided once before the first interest payment and remains valid until revoked. Any changes to any details must be communicated in a new One-Time Certificate.
And
- A Declaration of Beneficial Ownership – A one-time declaration per beneficial owner that holds Czech securities in Clearstream Banking. The same certificate is valid for all interest and dividend payments. When applicable, it must be clearly stated in the Declaration of Beneficial Ownership that the customer or third party was appointed as the beneficial owner’s attorney-in-law with authority to complete and sign the declaration on the beneficial owner’s behalf.
or - A Declaration of an EEA Pension fund – A one-time declaration confirming that the final beneficial owner is a pension fund, operating in the EU, Norway or Iceland, whose income is not attributable to a permanent establishment of the company in the Czech Republic. The declaration must be signed by the final beneficial owner’s authorised representative(s). It does not need to be notarised.
And
- A Power of Attorney – Only needed if the customer or third party is completing the Declaration of Beneficial Ownership / Declaration of an EU/EEA Pension Fund on behalf of the beneficial owner.
And
- A Certificate of Residence - Per beneficial owner that is not a Czech resident, issued by the beneficial owner’s local tax authorities annually before the first income payment in the respective year. To be accepted by the Czech Tax Authorities, the Certificate of Residence must be in English/Czech and should cover the record date of the income payment for which it is used. The name of the beneficial owner must be the same in the Certificate of Residence and in the Declaration of Beneficial Ownership / Declaration of an EU/EEA Pension Fund.
And
- A List of Beneficial Owners - Per beneficial owner, indicating the name and complete address, the applicable withholding tax rate, the common code or ISIN and the nominal amount or number of securities.
All tax certificates (except the Certificate of Residence and the List of Beneficial Owners) must be submitted under the letterhead or with the stamp of the signatory entity. Deadline for relief at source
Documentation must be received by Clearstream Banking1 by 10:00 CET at least five business days before the applicable income payment date.
For quick refund
A quick refund is available, for interest payments only, if relief at source has not been obtained by the eligible beneficial owner and if the issuer or paying agent has not remitted withheld tax to the respective tax office.
Note: Clearstream Banking can give no guarantees with regard to the quick refund procedure as it is based on market practice and all applications depend on the good will of the paying agent. Although Clearstream Banking will assist customers with quick refund applications, it can only remit to customers' accounts the amounts that it receives.
To apply for a quick refund from withholding tax on interest from Czech debt securities, the same documents as for a relief at source must be submitted to Clearstream Banking. Deadline for quick refund
Documentation must be received by Clearstream Banking at the latest by 10:00 CET on the 15th calendar day of the month following the month in which the income was paid (or, if the 15th is not a business day, the last business day before that). This deadline may be subject to change at the decision of the issuer and, in such cases, customers will be informed accordingly.
For standard refund
Beneficial owners that are residents of treaty or EEA countries and did not apply for relief at source or quick refund may recover the tax withheld at source via standard refund. Beneficial owners resident in the Czech Republic cannot apply for a standard refund through Clearstream Banking.
Note: Although the standard refund procedure is covered by the Tax Act, the procedure to be followed has not been yet defined by the Czech Tax Authorities. Therefore, it should be noted that Clearstream Banking would urge its customers to try to apply for the relief at source procedure and to avoid having to apply for a standard refund.
For eligible beneficial owners to reclaim withholding tax through the standard refund procedure, customers must provide the following documentation:
- A Declaration of Beneficial Ownership – A one-time declaration per beneficial owner that holds Czech securities in Clearstream Banking. The same certificate is valid for all interest and dividend payments. When applicable, it must be clearly stated in the Declaration of Beneficial Ownership that the customer or third party was appointed as the beneficial owner’s attorney-in-law with authority to complete and sign the declaration on the beneficial owner’s behalf.
or - A Declaration of an EEA Pension fund – A one-time declaration confirming that the final beneficial owner is a pension fund, operating in the EU, Norway or Iceland, whose income is not attributable to a permanent establishment of the company in the Czech Republic. The declaration must be signed by the final beneficial owner’s authorised representative(s). It does not need to be notarised.
And
- A Power of Attorney – Only needed if the customer or third party is completing the Declaration of Beneficial Ownership / Declaration of an EU/EEA Pension Fund on behalf of the beneficial owner.
And
- A Certificate of Residence - Per beneficial owner, issued by the beneficial owner’s local tax authorities annually before the first income payment in the respective year. To be accepted by the Czech Tax Authorities, the Certificate of Residence must be in English/Czech and should cover the record date of the income payment for which it is used. The name of the beneficial owner must be the same in the Certificate of Residence and in the Declaration of Beneficial Ownership / Declaration of an EU/EEA Pension Fund.
And
- A Credit Advice - Identifies income payment details, including the security type, gross amount of payment, date of payment and amount of tax withheld. The Credit Advice must reconcile with the information in the Declaration of Beneficial Ownership / Declaration of an EU/EEA Pension Fund and the Letter of Request to Clearstream Banking for Reclaim of Czech Withholding Tax.
And
- A Letter of Request to Clearstream Banking for Reclaim of Czech Withholding Tax - Authorises Clearstream Banking to reclaim withholding tax from the Czech Tax Authorities on the customer's behalf.
All tax certificates (except the Certificate of Residence) must be submitted under the letterhead or with the stamp of the signatory entity. Deadline for standard refund
The statutory deadline for reclaiming withholding tax using the standard refund procedure is three years after the year in which the respective income payment was made.
The deadline by which Clearstream Banking must receive the documentation for a standard refund application is, at the latest, two months before the statutory deadline. All standard refund applications received after this deadline will be processed by Clearstream Banking on a “best efforts” basis. However, in such cases, Clearstream Banking will apply an extra charge and accepts no responsibility for forms that have not reached the Czech Tax Authorities by the date considered as being the statute of limitations deadline.
With respect to tax reclaims in general, customers are reminded that Clearstream Banking accepts no responsibility for their acceptance or non-acceptance by the tax authorities of the respective country. It is the customer's responsibility to determine any entitlement to a refund of tax withheld, to complete the forms required correctly and to calculate the amount due.
Further information
For further information, customers may contact the Clearstream Banking Tax Help Desk on:
| Luxembourg | Frankfurt | |
| Email: | tax@clearstream.com | tax@clearstream.com |
| Telephone: | +352-243-32835 | +49-(0) 69-2 11-1 3821 |
| Fax: | +352-243-632835 | +49-(0) 69-2 11-61 3821 |
or Clearstream Banking Customer Service or their Relationship Officer.
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1. Clearstream Banking refers collectively to Clearstream Banking AG, registered office at 61, Mergenthalerallee, 65760 Eschborn, Germany and registered in the Register B of the Amtsgericht Frankfurt am Main, Germany under number HRB 7500 (CBF) and Clearstream Banking, société anonyme, registered office at 42, avenue John F. Kennedy, L-1855 Luxembourg, and registered with the Luxembourg Register of Commerce and Companies under number B-9248 (CBL).
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