As noticed before, starting from 2014 there was a principal change at taxation of executive heads, Czech tax nonresidents. The remunerations of executive heads-nonresidents are not considered as income from dependent activity, but as a special income which is taxed by a withholding tax. The executive head is namely newly considered always as a member of the statutory body. The withholding tax rate is fixed and it amounts according to the country of a nonresident either 15% or 35% (35% in case of countries outside EU with those the Czech republic hasn’t concluded any agreement on information exchange/on avoidance of double taxation). The base for the calculation of withholding tax of nonresidents is the same like the tax base for the calculation of an advance for a wage tax of residents, namely including the increase by the social security and health insurance premium (super gross wage). When the nonresident does not levy insurance premium in the Czech Republic, the payer uses the so-called fictional insurance premium.

The new way of taxation can have various impacts on the tax burden of an executive head-nonresident depending on his income amount. In case of executive heads-nonresidents with the remuneration above approx. 135 thousand CZK per month the new way of taxation is generally favourable as they do not levy the solidarity tax increase (7% of the difference exceeding 48-multiple of the average wage).

In case of executive heads-nonresidents with the remuneration up to approx. 135 thousand CZK per month the tax burden is increased. Compared to income taxed by the withholding tax he namely cannot set up a claim to the basic tax relief for the tax payer and also no other eventual tax reliefs and tax privilege.

The difference between the withholding tax and the advance tax disappears in case of tax residents of another member country of European Union or European Economic Area, provided that they include the income taxed by withholding tax into their personal income tax return. In such case the withholding tax becomes advance tax. Generally this procedure is worthwhile to executive heads-nonresidents with a lower income or is worthwhile to those who want to claim high tax-free amounts of the tax base, tax reliefs (for example for a dependant spouse) and tax privileges for children.

This change has also impacts from the standpoint of stipulating the country in which the income will be taxed. In case of application of the double tax treaty, newly in case of executive head remuneration the art. Tantiémy (Royalty) (instead of the art. Zaměstnání-Employment) will be used. In compliance with this article the executive head remuneration shall be taxed in the country according to the company registered office (regardless of the place where the work is physically exercised). This is principal for those executive heads-nonresidents exercising the activity for a Czech company abroad.