What you may (not) know about taxing investments and savings

(This article is NOT tax or financial advice)

In the past, we have written on the blog about how to tax the most common types of investments: from stocks to cryptocurrencies to physical real estate. This time we focused more on tax “specks” that may not be obvious at first glance, especially to novice investors.

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In some cases, investors avoid taxes

In general, everyone must pay taxes properly on their investments, through a tax return and under current laws. But did you know that there are situations where you don't have to tax your investment income?

Most often, these are employees who have a signed tax return with their employer and whose income outside employment does not exceed CZK 20,000 per tax year (This includes, for example, all income from investments, rental of real estate and any other income). If the investor does not exceed the limit of CZK 20,000, he does not have to file a tax return and thus not tax his investments. For “non-employees” there is a limit of CZK 50,000, but earnings from business also fall within it.

Do you have securities like stocks or bonds in your investment portfolio? Then it comes in handy to know that if the annual income from the sale of these assets does not exceed CZK 100 thousand, there is no need to tax (however, this does not apply to income from dividends, which we write about later in the article). In addition, when you have held securities for more than 3 years and only then sold them, you meet the so-called time test and do not tax the income, regardless of its amount.

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Income from the savings account does not belong to the declaration

In addition to investments, it is also necessary to pay taxes on ordinary banking products such as savings accounts or term deposits, namely withholding tax 15%.

However, these revenues They never enter the tax returnbecause the tax is paid by the bank and the client then credits the net income to the account. So if, in addition to investing, you also save, you do not have to worry about taxing income from the “orderly”.

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Dividends are always taxed

Investors in stocks or ETFs sometimes receive income not only from the sale of these assets, but often also from dividends. While the sale of securities is subject to exceptions such as the aforementioned limit of CZK 100 thousand or the three-year time test, dividends belong to a separate category and the investor must tax them at all times, namely as income from capital property under Section 8 of the Income Tax Act.

A dividend is the amount a firm pays to its shareholders as a notional reward for holding its shares. The amount of the dividend depends on the net profit of the company, but also on whether the company decides to pay the dividend.

The specific procedure depends on the location of the firm whose securities the investor owns. In the case of a Czech issuer, the taxation of dividends works in the same way as for interest on savings accounts — the investor gets the dividend directly taxed and does not have to deal with anything else.

‍With dividends from abroad, the situation is different, they must appear on the tax return at all times, regardless of whether they have already been taxed in another state. However, in some cases, the investor can offset the tax paid abroad, thus avoiding double taxation.

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Income on Investown is also subject to taxes

We often get questions from investors about how and if they should tax investment income on Investown. Since we do not provide tax advice, we recommend that you use the services of an expert on this issue.

In general, however, investments in loans secured by real estate (i.e., from bulk investing) are treated as other income and Taxation in accordance with Section 8 (1) (g) of the ZDP.

Income from participations in older investment opportunities is then subject to tax in accordance with Section 10 of the Income Tax Act.

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Foreign currency income must be recalculated

Do you value your money on Investown, or do you have other income from investments in Czech crowns? Thus, you can skip this point in peace.

However, if you collect income from investments in foreign currency, which is required by law to be included in your tax return, you must convert the amount into crowns. Of course, this can not be done arbitrarily, but according to the established rules. The options are two:

• Recalculation according to Current daily ratereported by the Czech National Bank.

• Recalculation according to the so-called Uniform coursenotified by the Directorate-General for Finance for the calendar year in question.

In case you are not sure in which currency you receive income, we recommend that you check this information with an investment opportunity broker/provider.

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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.

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