For 'foreign experts', the tax exempt amount, which under the 1996 law was equal to 25% of gross taxable income, has been abolished completely. This is an unexpected development, as the Ministry of Finance had previously proposed a gradual phase out of this relief. The abolition of this relief will raise the top marginal tax rate for most expatriate personnel to 40%.
A new provision has been introduced requiring Czech companies to withhold tax from salaries of foreign workers who, although legally employed from abroad, actually work under instruction of management of a Czech company. This provision has been apparently been designed to capture payroll taxes from workers who are temporarily assigned to the Czech Republic from neighbouring countries such as Slovakia and Ukraine. However, the changes could impact other management service agreements in place between foreign group companies and their Czech subsidiaries.
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