News 5/2019

First draft of digital tax bill

The introduction of a digital tax has been long debated.  The tax would be imposed on multinational giants such as Google, Facebook or Apple which generate huge profits from the provision of services but have no seat or branch in this country.

During the summer, the Czech Ministry of Finance introduced the first draft of a bill on selected digital services to the professional public. Many amendments were submitted during the comments procedure and the final wording of the law may therefore significantly differ.

There follows a brief look at the basic framework of this brand new tax, set to generate CZK 2.4 to 6.6 billion for the state budget every year.

Who will be affected by the digital tax?

The tax will apply to entities meeting the following two conditions:

  1. companies belonging to a group with a consolidated turnover exceeding EUR 750 million a year and which, at the same time,
  2. receive payments for taxable services provided in the Czech Republic exceeding CZK 50 million in total.

The CZK 750 million limit refers to the total turnover of the group regardless of the source from which it is generated. Thus it need not apply solely to digital services.

What will the tax apply to?

The tax will apply to income from selected digital services rendered for consideration in the Czech Republic. These digital services include:

  1. targeted advertising campaigns on the Internet,
  2. use of a versatile digital interface (a web page or a mobile application), and
  3. sale of user data.

What about the tax base and tax rate?

The tax rate will be 7%, paid in monthly advances amounting to one twelfth of the tax for the previous year.

The tax base will comprise income from digital services provided to Czech users. The domicile of users will be determined by the place of registration of the IP address of a computer or mobile phone. Hence for taxation purposes, the domicile of a digital service receiver will be irrelevant.

How will the digital tax be administered?

The taxation period will be a calendar year. The first taxation period will be 2020 and only services provided after the effective date of the law will be taxed. This is expected to occur in the first half of 2020.

The deadline for the submission of tax returns will be the end of March of the following year. The deadline for the submission of a tax return will not be extendable.

The digital tax will be administered by the Specialised Tax Office currently responsible for the largest taxpayers.