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Czech Flat Tax Now A Certainty, Says PM

by Ulrika Lomas, Tax-News.com, Brussels

27 March 2007

Czech Prime Minister Mirek Topolanek has reportedly stated that his government's plan to introduce a flat income tax is a near certainty.

In comments made to the daily Hospodarske Noviny newspaper, Topolanek said that at the moment, a 15% flat tax rate is "certain".

According to the report, the only thing left to be resolved in the final legislation is the approval of a number of deductions. The reform package will be published by the government in April.

The centre-right coalition of three parties has dusted off plans for a flat tax after they were abandoned by last year's minority government in the face of opposition from the Social Democrats. Initially, the coalition had planned to introduce a flat tax at a rate of 17% to 19%.

Corporate tax in the Czech Republic was reduced to 24% last year, and personal income tax rates are levied at progressive rates to a maximum of 32%. The standard rate of VAT is 19% for most goods and services, with a 5% discounted rate for certain specified goods.

While the Czech Republic's tax rates are currently not the lowest in the region, the country has nevertheless managed to attract high volumes of foreign investment in recent years, with investors attracted by a skilled workforce, advantageous geographic location and favourable operating costs.

In 2006, CzechInvest mediated for the Czech Republic a total of 176 investment projects, worth US$4.6 billion (EUR3.6 billion) - the largest inflow of foreign investment into the country in the government business and development agency's fifteen-year existence.

Most of the investment projects and the largest volume of investment (US$2.2 billion) were directed to the Moravia-Silesia region, in the country's industrial north-east. The second most attractive location was the Usti region, which borders Germany in the north, with a total volume of US$0.6 billion. The Moravia-Silesia and Usti regions are among the areas worst affected by structural problems.

The largest investment project in 2006 was that of South Korea's Hyundai Motor Company, which invested over US$1.2 billion into a plant in the Moravia-Silesia region, creating 3,000 jobs.

Since it was established in 1992, CzechInvest has been involved in 771 investment projects with a total value of US$18.566 billion.

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