Friday, November 28, 2008

The Flat Tax is Finalized in the Czech Republic

October 15, 2007

By Alvin Rabushka

The flat tax is now the law of the land in the Czech Republic. On October 5, 2007, President Vaclav Klaus signed into law the government’s tax reform plan. Previously, on August 21, 2007, by a narrow vote of 101 to 98, the Chamber of Deputies (the lower house of the Czech Parliament) approved the tax reform, followed on September 19, 2007, by a vote of 49 to 27 in the Senate (the upper chamber).

The reform is in two parts. One involves the personal income tax. Beginning January 1, 2008, the current system of four rates, 12, 19, 25, and 32%, will give way to a flat rate of 15%, followed by a further reduction to 12.5% in 2009. In exchange for the lower rates, social and health insurance contributions will be included in the tax base of the personal income tax. When the 12.5% rate takes hold, the flat rate on gross income will come to 19.4%.

The other involves the corporate income tax, which will be reduced from 24 to 21 percent in 2008 and to 19 percent in 2009. In effect, this puts the Czech Republic on a level playing field with neighboring Slovakia, which imposes a 19 percent flat rate on both personal and corporate income taxes.

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