Subject: Czech tax residents having bank account abroad and automatic exchange of information

Dear Madam / Sir,

We kindly inform you that tax residents of the Czech Republic are subject to income tax on their worldwide income. In general, all income, profits and gains are taxable, unless specifically exempt by law. Consequently, tax residents are obliged to declare in the Czech Republic all foreign income including employment income, dividends, capital gains and interest. Moreover, an income on foreign bank account (e.g. interests, received payments, etc.) needs to be declared as well.

Starting from the 1st of January 2016 all financial institutions (especially banks, trusts, investment funds, insurance companies, brokers, etc.) established in the countries or having branch in the countries which signed the Convention on Mutual Administrative Assistance in Tax Matters (including especially the EU countries, Switzerland and some countries called “tax havens”) will automatically (always by 30th September of the following year (first time by 30th September 2017 for the year 2016)) send information about the balance, value and movement of the assets of residents from contracting countries to the Czech Financial Administration. The report will be in the required format due to its computerised processing. Cash, trust investment, insurance and pension agreements, investments in funds, shareholding, shares and other financial instruments will be reported.

Failure to declare taxable foreign income and/or income on foreign bank account in the tax return is considered at least as tax evasion. Under certain conditions it may be considered as tax related criminal offence as well. From 1st January 2016 Financial Administration will be eligible to require from tax subjects declaring their incomes used for increasing of their assets and also proof that these incomes were taxed. If tax subjects fail to declare and prove, Financial Administration may apply special tax assessment and special sanction in rate up to 100 % of additionally assessed tax. Special tax assessment can, in some cases, break the general statute of limitation for assessment of tax, which can be prolonged by a specific act in tax proceeding up to maximum 10 years. This way even income gained in the tax period which is over the general statute of limitation may be subject to additional tax assessment. This may apply even though an individual is not direct holder of assets / income but rather through a legal structure or intermediary who holds assets on individual ́s account.

Statutes of limitation for committing the tax related criminal offence vary up to fifteen (15) years taking into account all facts and circumstances. In order to avoid or at least substantially mitigate the risk of potential penalties for non-compliance, it is generally recommended voluntary disclosure of the income in the Czech Republic. We will be pleased to provide you more details on the automatic exchange of information and on potential penalties, statutes of limitation and voluntary disclosure benefits during our first free consultation.