On September 13, 2017, the General Financial Directorate Coordinating Committee and the Czech Chamber of Tax Advisers considered the issue of dividends distributions under Act No. 90/2012 Coll., on Business Companies and Cooperatives (the Business Corporations Act) and their taxation under Act No. 586/1992 Coll., on Income Tax.
Beginning on January 1, 2014, the rules on the distribution of dividends from joint stock and limited liability companies were significantly changed. The current rules on dividends distributions, as set out in the Business Corporations Act, are more flexible and allow for distributions based on any conceivable formula.
It is, thus, often the case that when drafting a company’s Memorandum of Association (Articles of Association in the case of a joint stock company) or a general meeting resolution, shareholders choose to distribute dividends in a way that does not reflect the extent of their holdings.
The General Financial Directorate Coordinating Committee and the Czech Chamber of Tax Advisers agreed that dividends payments that were disproportionate with a shareholder’s holdings should be taxed in the normal way, i.e. subjected to a 15% withholding tax, with a possible exception for distributions made to a parent company.