From 1 January 2023, the reporting obligation will be extended based on decree no. 109/2022 Coll., amending decree no. 74/2014 Coll., on Determining the Types of Income and Assets for the Purposes of Automatic Exchange of Information within the framework of international cooperation in tax administration.

Up to now, information has been exchanged on income from employment, rental or lease of immovable property or a dwelling, disposal of immovable property, life insurance, pension insurance and other pensions arising by law or on the basis of a contract. Revenue from royalties will newly be reported as well.

Under Act No. 586/1992 Coll, on Income Tax (“ITA”) and the double taxation treaty, royalties are understood to mean payments of any kind received as compensation for the use of, or the right to use, any copyright to a literary, artistic or scientific work, including cinematographic films and computer programs, any patent, trademark, design or model, plan, secret formula or manufacturing process, or for information relating to experience acquired in an industrial, commercial or scientific field. Among other things, the double tax treaty also defines royalties as compensation that a person would be required to pay for unauthorized copying or infringement of such a right.

The taxpayer is obliged to submit information on royalties to the tax administrator by means of a notification of foreign income under article 38da of the ITA. The payer is obliged to report all income paid to tax non-residents that is normally subject to Czech withholding tax, even if such income is exempt from tax or if an international treaty provides that it is not subject to taxation in the Czech Republic. If the taxpayer fails to comply with the notification requirement, although he should have done so, it would be a failure to comply with an obligation of non-monetary nature under article 247a of the Code of Tax Procedures.

The automatic exchange of information according to the type of income and assets within the framework of international cooperation takes place between the competent authorities once a year at minimum, within six months of the end of the tax period of the Member State, during which they were obtained. From 1 January 2023, the Czech Tax Administration should also start automatic sharing of information on royalties paid or received from abroad.

If you are interested in this topic or if the reporting of royalty income concerns you, please contact us. We will be happy to advise you.