Taxation in Agriculture

Chapter 12. Czech Republic

Abstract

This chapter contains a description of tax provisions applied to agriculture in 2019, unless otherwise specified. They include taxes on income and profit, property, good and services, environmental taxes, and tax incentives for R&D and innovation.

12.1. Overview

In 2017, agriculture contributed 2.4% to GDP and employment. There are 46 055 farms with a utilised agriculture area of over 3.522 million hectares. Farms of over 50 hectares account for 92% of the utilised agriculture area but represent just 16% of all farms. While only 10% of farmers in the Czech agriculture sector are a legal person, in terms of the share of cultivated land they account for 70%.

For agriculture, tax relief takes the form of a lump sum tax deduction for expenses of up to the amount of CZK 800 000 (an amount higher than that received by self-employed in other sectors), accelerated depreciation on capital investment on farm machinery, exemptions or reduced real estate taxes, a refund of excise duty on mineral oils, exemptions from paying water abstraction charges in times of drought and from paying fees associated with changing land use, and a 25% reduction on the road users charge for vehicles involved in crop production.

12.2. Income taxation

For personal income tax a single rate of 15% with an additional “solidarity surcharge” of 7% is levied on gross income exceeding CZK 1 438 992. Under the Income Tax Act taxable personal income includes income from self-employed activities, income from self-employment, income from capital, rental income and other income. A general tax credit of CZK 24 840 is available on taxable personal income, plus additional deductions can be made for dependents. The income of farm employees is taxed under the same personal income tax rules as income from other employment and there are no special provisions for the sector.

Farmers registered as self-employed are allowed to deduct a flat rate of 80% of their agricultural income as expenses (without needing to provide evidence of the actual business expenses incurred). This tax measure is not specific to farmers and applies to certain self-employed from other sectors. However, the maximum amount that farmers can claim, i.e. CZK 800 000 is greater than the maximum entitlements of other self-employed.

The corporate tax rate is set at 19%. No differences exist for the taxation of corporate income tax for entities engaged in agricultural activities.

Enterprises engaged predominantly in agricultural and forestry production can apply 20% higher depreciation rates on eligible farm machinery in the first year of depreciation. A higher depreciation rate makes investment activities more attractive.

Capital gains are treated as ordinary income and there is no wealth tax. There are tax exemptions on income earned on transfers of farmland between close relatives when a farmer retires.

12.3. Property taxation

Real estate tax is imposed on land and buildings. In the case of land, the basis of the tax is the land area and land price which is set according to a decree on land prices in CZK per m². The rate of tax depends on how the land is used and the location of the land. Municipalities are able to set coefficients for these parameters based on the relevant cadastre. This leads to regional variations in the tax rates for agricultural land.

As far as real estate tax is concerned this is a significant relief for agriculture. Arable land, hop gardens, vineyards, fruit orchards and permanent grasslands may be exempt from land taxes in some municipalities or pay two to five times less tax. The tax rate for agricultural land ranges from 0.25% (for pasture and forestry) to 0.75% (for arable crops) of the tax base, depending on the type of land. Furthermore reclaimed agricultural land is not required to pay land tax for five years with reclaimed forest land exempt for 25 years.

There are inheritance and gift taxes in the Czech Republic. In the case where property, including farms, are inherited by a close relative the beneficiary is not required to pay inheritance tax on the value of the property.

Tax on the acquisition of real estate is 4% and is payable by the buyer of the property regardless of the relationship between the seller and buyer. The tax base is the higher of either the estimated property price, or the actual selling price.

12.4. Tax on goods and services

Since 1993, the value added tax (VAT) has been applied in the Czech Republic. VAT registration is obligatory for persons with turnover exceeding CZK 1 million for a maximum of 12 consecutive months. The tax is paid monthly or quarterly depending on the turnover of the taxpayer.

A reduced rate of 15% VAT applies to most agricultural outputs, i.e. food and beverages (excluding alcoholic beverages), animal feeds; live animals, seeds, plants and additives for the preparation of foodstuffs. A 10% VAT applies to infant nutrition.

Conversely, most farm inputs (fertilisers, plant protection products, machinery, etc.) are subject to the standard VAT rate of 21% on which VAT registered taxpayers can claim a deduction.

As the majority of farmers are registered as VAT payers, the refunded VAT usually exceeds the amount of VAT that they have paid for sold agricultural commodities.

Excise duties are levied on mineral oils, alcohol, beer, wine and tobacco products. An important relief for farmers is the refund of part of the mineral oil tax to persons using these oils for crop production (so-called “green diesel”). From 1 January 2016 the refund was extended to motor oils used in livestock production. The objective of this measure was to encourage farmers to maintain or potentially increase the number of animals they farm to improve soil condition using manure from the animals. Forty per cent of the excise tax on diesel is refunded for crop production, forestry and fish farming and refunds range from 40% to 87% for animal production depending on the livestock intensity. From 2019, the excise tax return will also reflect whether the farmer grows grape vines or sensitive crops such as fruit or vegetables.

Taxes are applied on energy and transport. Taxes on gas for heating and fuels used for vehicles are applied to end users and also to suppliers at the following rates: EUR 1.15 per MWh for heating and for fuels for engines not used on public roads; EUR 0 to EUR 10.15 per MWh according type of gas for fuel for vehicles used on public roads. Tax for fossil solid fuels is CZK 8.5 per GJ of heat. Tax from liquid fuels including liquid gas used as fuel are EUR 18 to EUR 527 per 1 000 litres according to different types of fuels.

Levies and tolls charged for use of highways and roads are set according to type of vehicle (e.g. level of emissions) and the capacity of the engine. Vehicles used for crop production activities are eligible for a 25% reduction on the road users tax.

12.5. Environmental taxes

Use of surface water is charged according to specific conditions in each watershed. During periods of serious water deficits farmers are not required to pay the levy. Ground water abstractions of more than 6 000m³ per year are levied. For drinking water the fee is CZK 0.077 per m³ and for water for other uses the fee is CZK 0.115 per m³.

Discharges of polluted water to surface water bodies are taxed at different levels according to the pollutant substances. Waste water discharged into groundwater are taxed at a level equivalent to EUR 13.50 per inhabitant per year.

Air polluters are taxed for emissions of specific substances for large sources of pollutions (from EUR 41 to EUR 161.50 per tonne of substance per year). It is unlikely this tax would apply to farm level sources.

Changing land use from agricultural to another use (e.g. construction) incurs a fee. For a permanent change a lump sum fee is charged, while for a temporary change there is annual payment. The level of the fee is set according to land price and the level of protection of land.

Farmers are exempt from the permanent land use change charge where the land is being used for the following: the construction of buildings for primary production, farm roads, creation of ponds for aquaculture or ducks, investments to increase soil fertility, construction of water purification plants, farmyards, space around farm houses, green belts around farm houses and sanitary and similar facilities on farms. Farmers are exempt from paying the temporary levy in the case where the land is being used for production of Christmas trees or trees for energy production.

Environmental taxes are applied on energy and transport in the Czech Republic (see the section above).

12.6. Tax incentives for R&D and innovation

Tax deductions can be made to support R&D or in support of vocational training. Up to 100% of expenses associated with R&D projects can be deducted as a special tax allowance. Eligible expenses include direct costs (for personnel costs and materials), depreciations of fixed assets used for R&D activities and operational expenses associated with the R&D project (e.g. telecommunications, electricity, water etc.). R&D costs can be deducted twice, once as a normal tax-deductible cost and secondly as a special tax allowance. Another 10% can be applied as an allowance on the increase of spending on R&D between years. Deductions can be made for up to three years. Use of these tax incentives by the agricultural sector is not significant.

12.7. Other taxes

Employers are obliged to pay the insurance premiums to cover participation of their employees in the social security insurance. This amounts to 25% of their employees' incomes. Contributions are for health, disabilities, pension and unemployment insurances. These are charged at the following rates: health insurance premiums (2.3%), retirement insurance premiums (21.5%) and contribution of state employment policy (1.2%). At the same time, the employer is obliged to deduct premiums of 6.5% from employees’ wages. Self-employed persons must pay the pension insurance premiums and the state employment policy contribution.