How to Pay Taxes in Installments in the Czech Republic

If a company or entrepreneur is facing financial difficulties, they can request an extension to pay their tax debt. Here are the details and conditions that must be met to exercise this right in the Czech Republic.

As of October 1, 2024, a new methodological instruction from the Financial Administration regarding tax deferral has come into effect due to changes in administrative court practices. If a taxpayer lacks sufficient funds to settle their tax debt, they can ask the tax administrator for a deferral of payment, provided they meet certain legal conditions. The legal framework for income tax payments is outlined in Articles 156-157 of the updated Tax Code.

To have a request for tax deferral approved, at least one condition must be met, and this condition must be both specified and documented. A taxpayer’s inability to repay the debt on time is typically demonstrated through their financial status, which may include details about income and expenses, cash balances, cash books, balance sheets, profit and loss statements, as well as various contracts, receipts, medical prescriptions, and information about dependents.

Companies or individual entrepreneurs can submit a request to consider the possibility of deferring tax payments if:

1. Immediate repayment of the debt would cause severe harm to the taxpayer. This could include situations such as:
   
   • Losing their home (inability to pay a mortgage or contributions to a nursing home)
   • Limited access to medical and social services (inability to pay for personal assistance, medications, care services, etc.)
   • Losing key contracts or employees, which would hinder the company’s operations.
     
2. Immediate payment of the debt would jeopardize the taxpayer’s ability to support themselves or their dependents. This includes costs related to meeting basic living needs.
   
3. Immediate repayment of the debt would lead to the cessation of the taxpayer’s business activities, where the income from those activities is likely to be lower than the tax owed in the next tax period.
   
4. It is impossible to collect the tax from the taxpayer immediately. This refers to situations where settling the debt cannot be achieved even through selling assets or obtaining a loan.

5. There is a reasonable expectation of partial or complete relief from the tax obligation. This applies when the taxpayer is seeking a refund for taxes that are subject to a withholding claim. However, filing a lawsuit or an appeal does not, by itself, create a reasonable expectation of relief from the tax obligation.

Administrative Fee for Tax Deferral Requests

When requesting a deferral of tax payments at the source, an administrative fee of 400 Czech Crowns is charged for each type of tax covered by the application. This fee should be paid to the local tax office’s account, using the constant symbol 1148 along with the appropriate variable symbol.

Tax deferral requests can be submitted through an interactive form available on the Financial Administration’s website. Taxpayers can fill out this form and send it via a data mailbox or to the email address of the registration department at their local tax office. However, it’s important that the request is signed with an electronic signature.

Recommended Content for a Tax Deferral Request:

• Who is making the request: Clearly state your name or your company’s name.
• What the request is about: Specify the type of tax and what you are proposing.
• Relevant facts: Include all details that explain why you are unable to pay the full amount of tax owed.
• Supporting documents: Attach any relevant documents and evidence.
• Proposed payment schedule: Outline a plan for how you intend to make future payments.
• Future payment methods: Describe how you plan to pay the tax in the future, unless your request is based on an immediate threat to your financial situation or that of your dependents.

Maximum Duration of Tax Deferral

According to § 156, paragraph 5 of the Tax Code, a tax deferral can be granted for a maximum period of six years. This timeframe also applies if the debt is secured by collateral. The end date of the deferral period must be set in such a way that there is enough time to take action for tax collection before the deferral period ends, especially in cases where the taxpayer pays the assessed tax either in full or partially.

One example of court practice regarding such cases is the dispute between a taxpayer (the plaintiff) and the Financial Appeals Administration (the defendant), which resulted in decision 25 Af 21/2022–58.

Understanding Interest Rates for Tax Deferrals

If a request for a tax deferral is approved, the company or entrepreneur is required to pay interest on the deferred amount instead of late payment interest. This interest accrues for the entire duration of the deferral. The interest rate is capped at a maximum of half the late payment interest rate as specified in Article 252 of the Tax Code.

The interest on the deferred amount must be paid within 30 days from the date when the conditions for its accrual are met (i.e., when the deferral period ends). 

However, no interest will be charged, and the taxpayer is not obligated to pay it if the total amount owed for a specific tax type to a single tax administrator during one tax period or calendar year for one-time taxes does not exceed 1,000 Czech crowns. The tax administrator also has the discretion to partially or fully waive these interest charges.

If you have any questions about business taxation in the Czech Republic, feel free to reach out to the experts at 360WEDO. We’re here to help you navigate calculations and successfully address all payment matters in accordance with current legislation.

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