Czech Business Concerned Over New Taxes On Foreign Workers

by Ulrika Lomas, Tax-News.com, Brussels

09 February 2004

Recent changes to the Czech labour laws have closed off a significant tax saving enjoyed by expatriates over their native peers, and members of the business community fear that the new rules may act as a disincentive to foreign investment.

The amended legislation came into effect on January 1st this year and the changes dictate that foreign workers must now contribute more in tax by making health insurance and social security contributions as paid by Czech nationals. Typically, this will add about 35% on to the wage bill of an employer (26% for social security and 9% for health insurance).

In addition, employees also make contributions at 8% in social tax and 4.5% in healthcare levies. Many observers fear that as a result of the changes, foreign workers will now be too expensive to hire.

"Many companies are still wondering what to do," observed Ton Kemp, head of tax services at the international legal advisors, Linklaters, according to the Prague Post.

Kemp also drew attention to the Czech Republic’s impending accession to the European Union, which potentially throws up further legal questions in terms of the tax status of foreign nationals.

"There is confusion to a certain extent because the changes are not easy to understand and on May 1 the situation will change again," he noted.

Others critics point out that the present tax situation could put the Czech Republic at a serious disadvantage to its neighbours in terms of attracting investment. This is particularly so in the case of Slovakia, where a 19% flat tax rate has recently been enacted, which now contrasts very favourably against the Czech Republic’s top bracket of 35%, on top of the social and health levies.

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