Taxation for Israeli Investors in the Czech Republic

As of 2003, Israel's territorial tax system was replaced by a personal tax system.

What is the significance of the transition to the personal tax system?

As of 2003, Israeli citizens are required to pay taxes in Israel on all their income, wherever generated. In order to avoid levying double taxes on Israeli citizens who generate income outside the country, Israel has entered into tax treaties with other countries to determine how taxes are levied and distributed in each country and thus reduce taxes.

Israeli residents who purchase real estate in the Czech Republic as an investment and have revenues from rentals and/or capital gain from the sale of property would supposedly have to pay double taxes – under Czech tax laws and also in Israel according to the personal tax system.

This is where the tax treaty between Israel and the Czech Republic comes into play. It determines that the first right to tax belongs to the country in which the taxed property is located (i.e., the Czech Republic) and only then must Israeli residents report their revenues to the Israeli tax authorities, whereupon the tax paid to the Czech Republic shall be deducted from the tax levied in Israel.

Tax on revenues from property rental in the Czech Republic

In the case of revenues from property rental in the Czech Republic, there are 2 routes for calculating the tax owed in Israel

15% route

In this route, tax payers may deduct from their rental revenues only depreciation expenses of the building and they cannot receive credit for tax paid for rental revenues generated in the Czech Republic

Marginal tax route (over 30%)

In this track it is possible to deduct any expense accrued by virtue of the property rental and it is also possible to receive credit for tax paid on rental revenues in the Czech Republic. The tax rate in this course can be as high as 50%.

Tax on revenues from property sale in the Czech Republic

In the case of revenues from property sale in the Czech Republic, the tax rate in Israel is 25%.

In summary

Revenues from rentals and capital gain for property purchased in the Czech Republic for purposes of investment are taxable both in Israel and in the Czech Republic, however by virtue of the tax treaty between Israel and the Czech Republic the latter has first tax rights.

Tax payers must report these revenues in Israel and calculate the tax according to the customary rules in Israel, and then deduct any tax paid in the Czech Republic from the tax owed in Israel, according to the rules determined in the Income Tax Order and in the Tax Treaty.

For additional information – please contact us and we will be glad to be of assistance.

This article was written by Mr. Avi Babay, CPA

Please note that the article was written merely as a general overview on the subject of tax for Israeli investors in the Czech Republic and does not take the place of professional counseling by a CPA or certified tax advisor.