Will you have to file a corporate income tax return (“CITR”) soon? You may appreciate 10 practical tips for avoiding unnecessary mistakes and managing all obligations correctly and on time.
The ordinary CITR must be filed within three months subsequent to the end of the taxation period. If your company is obliged to have the financial statements audited by a statutory auditor or the CITR is prepared and filed by a registered tax advisor, this deadline will be extended by another three months. However, the deadline may only be extended if a power of attorney granted to the tax advisor has been delivered to the tax administrator within three months after the end of the taxation period.
If serious reasons prevent you from filing the CITR within the deadlines specified in the above section, it will be possible to request that the tax administrator extend the deadline for filing the CITR. Such request must be made before the expiry of the deadline for filing the CITR, whereby an extension of up to three months may be requested. If the income of your company is also subject to tax abroad, an extension of up to 10 months may be required. It should be noted that the tax administrator does not have not comply with your request; nevertheless, it is obliged to extend the deadline at least by the number of days remaining to the ordinary deadline for filing the CITR as of the date when the respective request was made.
If you have a data box or are subject to a duty to have the financial statements audited by a statutory auditor, you will have to file the CITR solely in an electronic form. In case of filing the CITR in a printed format, you may be subject to a penalty of CZK 2-50 thousand for failure to comply with a duty of a non-monetary nature.
I you do not manage to file the CITR within the required deadline, you may be subject to sanctions for failure to comply with a non-monetary duty (ie a penalty for failure to file the CITR form) as well as for the late payment of tax (ie late payment fee and default interest).
The penalty and default interest are calculated from the 6th day of delay, with the penalty amounting up to 5% of tax (but no more than CZK 300 thousand) and default interest of up to 14.5% of tax for each day of delay according to the following formula: default interest = due amount*0.0145*(number of days of delay/365).
Regardless of the number of days of delay, the late payment fee is calculated as 20% of the due amount (or 1% of the tax loss decreased by the tax administrator).
In case you find yourself subject to any of the sanctions referred to above, there is no need to despair as the Tax Code allows payers to ask the tax administrator for a decrease (or remission of) in the amount of the sanction. Accordingly, up to 75% of the late payment fee or 100% of the default interest may be remitted to companies, always considering the circumstances or the Company’s cooperation in tax audits.
If you find any errors in the filed CITR, your course of action will be affected by when this fact has been identified. If errors are found before the date of the ordinary CITR, you will simply file a correcting CITR which will only be considered by the tax administrator in the tax assessment. If, however, errors are only identified after the deadline for filing the ordinary CITR, you will be obliged (in case of increasing the tax liability) or authorised (in decreasing the tax liability) to file an additional CITR until the end of the month following the one in which this fact was identified.
Filing the correcting CITR does not entail any sanctions; however, additional CITRs may be subject to some sanctions. Nevertheless, if you file the additional CITR (and the tax liability, if any, thus is not additionally assessed by the tax administrator as a result of tax audit), you may “only” be required to pay a penalty and default interest; the late payment fee does not apply in this case.
If your tax liability amounted to at least CZK 30 thousand, you will have to make tax prepayments. These are calculated in relation to the amount of the tax liability, falling due on the 15th day of the stated quarter (or six months) starting from the maturity of the tax liability in the initial CITR. The amount of prepayments arising from the tax liability only relating to a part of the taxation period (shorter or longer than 12 months) is often determined incorrectly – in these cases, prepayments are calculated as if they relate to a taxation period of 12 months.
In terms of cash flow, some payers may come up with an idea that when the initial tax liability is considerably lower than the sum of prepayments determined under previous CITRs, filing the ordinary CITR prior to the maturity of the last prepayment will eliminate the duty to make this prepayment. This course of action, however, would be a fundamental mistake which is not allowed by Czech legislation.
The situation may be addressed in a number of ways: for example, it is possible to decrease excessively high prepayments by filing a request with the respective tax administrator for determining prepayments in another manner.
In determining the amount of a tax liability, we recommend giving increased attention to the combination of items deductible from the tax base (ie losses, deduction for research and development and deduction for supporting professional education) and items decreasing the tax base (provided gratuitous supplies, ie gifts).
It is entirely up to you which form of deduction you will apply at first (however, we recommend considering the number of years over which individual deduction forms may be transferred). As gifts may only be applied in the year in which they were provided (ie they cannot be transferred to other periods), it seems to be logical to prefer gifts to deduction in certain cases. Nevertheless, this course of action is not allowed by the Income Taxes Act in arriving at the tax base – companies are authorised to deduct the gifts only after the tax base has been reduced by the relevant deductions to the maximum extent.
Not only CITR but also selected annexes must have statutory elements. A binding structure of some annexes is published directly on the tax portal of the Tax Administration. For example, this relates to selected information in the profit and loss account and balance sheet.
Remember that even in the case of a tax liability amounting to zero (or a tax loss), you will have to file the CITR (as opposed to the Local Sales/Purchases Report).
Prepayments made in an amount exceeding the tax liability give rise to a right to overpayment. However, the overpayment will not be automatically refunded to you by the tax administrator. You have to file a request for its refund in which case the overpayment will be returned within 30 days from receiving the request.
If the tax liability amount exceeds prepayments made, the underpayment falls due on the day of tax return filing. At this point, we would like to draw your attention to foreign accounts – banks quite often charge a transfer fee from the transferred amount and the company may suddenly become a debtor. The key role has the amount credited to the account of the tax administrator.
If the preparation of tax returns places an excessive administrative burden upon you and insufficient computerisation and automation of processes entails an increased error rate, we recommend that you visit our website presenting Deloitte’s technology solutions, explaining how technology enables preparing CITRs, check tax depreciation and how Deloitte processes research and development deductions as well as many other practical products.
This topic will be debated in greater detail at our regular webcast on 5 June.
Seminars, webcasts, business breakfasts and other events organized by Deloitte.
