How to properly tax the most common types of investments?
Spring is coming and with it the filing of tax returns. For investors, this means that, among other income, they must tax their investments properly. Do you know how to do it? Different rules apply to each asset.
(This article is NOT tax advice.)
Tax laws change over time, and so even experienced investors sometimes hesitate if and how to tax income from their assets. Let's take a quick look at how it is with the taxation of stocks, bonds, real estate or cryptocurrencies at natural persons.
Securities or Taxes on Sales and Dividends
You have in your portfolio stock, share sheets, debentures, ETF or other securities? By purchasing them, you did not incur tax liability. You only have to pay taxes when the securities sell, or if you receive a dividend from them.
Tax rate of sale of securities maketh 15% of the tax base and according to Section 10 of the Income Taxes Act it belongs to the so-called other income. For example, the purchase price of a security or fees may be a deductible item from the tax base.
Income tax on the total tax base (i.e. including, for example, employment or business) of 15% applies to individuals with incomes up to 48 times the average wage. If your tax base is higher, a 23 percent rate applies.
However, there are two situations in which you do not need to tax this income. First, if the income from the sale of securities in the tax period did not exceed 100 000 CZK. Secondly, if you are a security held for more than three years — that way you have fulfilled time test and you don't tax.
Dividend income then they fall under income from capital property and are taxed under section 8 of the same act. However, no expenses can be applied to dividends, so the tax is 15% of the entire dividend.
If you dividend paid by a company that is a Czech tax entity, the dividend is subject to a 15% withholding tax and the company pays it for you. If he has company tax domicile abroad, the situation is more complicated.
Income from real estate loans: how to tax on Investown?
It is also necessary to tax investments in loans secured by real estate, which we also provide at Investown. But they do not fall under the property tax, are treated as other income and income from capital assets.
While the yield of by participation on older investment opportunities subject to tax under Section 10 of the Income Tax Act, profit from Opportunities for mass investment belongs under section 8 (1) (g) of the ZDP.
For physical property, do not forget about rent
A different situation occurs if you have invested in physical real estate And you became its owner. In this case, you need to think of two types of taxes — tax on real estate and rental income tax.
Tax of immovable things It is always paid in a given year. In the first year after the purchase of the property, you file a tax return by January 31 of the year following the acquisition of ownership. In subsequent years, the state will invite you to pay this tax. U rent you tax income for the tax period, which you include in the tax base. You can find out the amount of profit by deducting real expenses from all rental income, or you can apply a 30% flat rate of expenses.
If you have sold a property in the past year, in some cases you need to pay income tax on the sale of real estate. This does not apply to you if you have lived in the property for at least 2 years prior to its sale or if you have met the 10-year time test.
Cryptocurrencies? From a tax perspective, it's not an investment.
Bitcoin, Ethereum and other cryptocurrencies are tax-specific because they are Czech tax laws do not consider it an investment. They view them as movable property. Because of this, cryptocurrencies are not subject to a tax exemption for income up to CZK 100,000 per year or a three-year time trial.
All cryptocurrencies need to be taxed under Section 10 of the Income Tax Act, similar to securities only in the event of a sale or other transaction (when buying goods and services with cryptocurrencies, it is also necessary to tax). Taxable income in this case is the difference between sales income and expenses for the purchase of cryptocurrencies. You can also include any transaction fees of the exchange as part of your expenses.
You do not need to include cryptocurrency income or other income in your tax return if all your income from other activities did not exceed CZK 30,000 in the tax period.
This article is not tax advice
Investown does not provide tax advice and not liable for how investors pay their taxes. This is an article with basic information regarding taxation of investments. We recommend that you always use the services of a tax or financial advisor.