The UK is to leave the EU on 29 March 2019.  With respect to the present development and uncertainty concerning the agreement, the possibility of the UK leaving the EU with no deal is highly probable.

That’s why the Ministry of Finance has prepared a bill regulating some relationships in connection with the United Kingdom leaving the European Union with no deal, which is to prepare the Czech Republic for a situation where the United Kingdom will be regarded as a third country with respect to national legislation. The bill solely concerns the effectiveness for a so called transition period,  i.e. from 29 March 2019 to 31 December 2020.

The bill also includes regulations on the Corporate Income Tax. For Czech tax purposes within the taxable periods that include 29 March 2019, tax residents from the UK will be regarded as EU tax residents. This will not apply to taxation by withholding tax and to tax security; in that case the UK residents will be regarded as third-country residents.

From 29 March 2019 on, changes may thus be expected in taxation of dividends and certain licence fees from the Czech Republic to the UK; other taxable income from the Czech Republic not subject to withholding tax (e.g. the income of permanent business premises of UK companies) may also be affected. 

From the perspective of Czech tax residents, the UK will be considered as an EU-member for tax purposes until the end of the taxable period in which the act expires (however, for taxable periods commencing in 2020 at latest). It may thus be assumed that for a certain period of time Czech tax residents will still be able to enjoy the existing advantages of incoming payments from the UK, such as incoming dividends, applied within the EU, including tax exemption.  

The Double Taxation Treaty between the Czech Republic and the United Kingdom remains effective without amendment.

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Matěj Čaňo, Lucia Čechová
Tax and Legal Services