Taxation of Foreign Investments 2026
How to Properly Declare Foreign Income and Avoid the Risk of Double Taxation
Foreign investment income may still need to be reported in the Czech Republic even if tax was already paid abroad, when you are a Czech tax resident and the income is not exempt. The correct treatment depends on the type of income and the relevant tax treaty, otherwise double taxation or additional tax may arise. This article explains what to report, how tax credit or exemption methods work and what documents to keep.
Key takeaways
What are the basic rules for taxing foreign income in the Czech Republic?
The Czech tax system distinguishes between tax residents and non-residents, and this distinction has a fundamental impact on what income you must declare. If you are a natural person with a residence in the Czech Republic or you usually stay here, your worldwide income is subject to tax in the Czech Republic. This means that income from American stocks, London real estate, or Singaporean banks must be reported in your Czech tax return.
However, the reality is more complex. Different types of income are subject to different rules—some are included in the partial tax base and are subject to progressive taxation, while others form a separate tax base with a 15% rate. Moreover, many foreign countries have their own tax claim on your income, which leads to the risk of double taxation.
This is precisely why double taxation treaties exist. They determine which state has the right to tax the income and how you can credit the tax paid abroad against your Czech tax liability. Ignorance of these mechanisms or their incorrect application can cost you thousands to tens of thousands of crowns. The lawyers at ARROWS law firm deal with this issue on a regular basis and know from practice what to focus on.
How do double taxation treaties work?
The Czech Republic has concluded double taxation treaties with almost 90 countries, and the list includes all major economic partners, including the USA, Germany, France, Great Britain, Switzerland, and Singapore. Each treaty contains specific rules about which state has the right to tax the income and at what maximum rate. Without knowledge of these rules, you will lose your bearings on how to correctly calculate your tax liability.
In general, treaties work in such a way that income is typically subject to taxation in the country where it arises (the source country), but often only at a limited rate. A resident of the Czech Republic must then declare this income in the Czech Republic but can credit the foreign tax paid.
For example, if you receive a dividend from a U.S. company, the U.S. will tax it with a withholding tax (usually 15% if you have signed a W-8BEN form). In the Czech Republic, you will tax this income at 15%, but you will credit the U.S. tax paid, so you will not actually pay anything extra in the Czech Republic (you only declare the income). However, if the foreign tax were lower than the Czech tax, you would have to pay the difference in the Czech Republic.
It is also important to meet the conditions for applying the benefits from the treaties, including the beneficial owner test. If there is a suspicion that you have received the income through an entity with no real economic activity just to avoid a higher tax, the tax office may deny the treaty benefits.
The lawyers at ARROWS law firm have long-term experience with international investments. Thanks to their network of partner firms within the ARROWS International project, they know how the treaties are interpreted. They can prepare documents for the tax office and advise you on how to structure your investments safely and legally.
What are the tax rates for different types of foreign income?
Each type of foreign income is subject to a specific regime in the Czech Republic. Incorrect classification of income is a common mistake that can lead to a tax assessment. The following are the rules valid for the year 2026.
Dividends from abroad
Dividends from abroad are subject to income tax in the Czech Republic at a rate of 15%. This income is included in the so-called separate tax base within the tax return. It does not enter into progressive taxation like income from employment or business.
If the dividend comes from a state with which the Czech Republic has a double taxation treaty, you can credit the foreign tax paid. If the dividend comes from a jurisdiction that is on the list of non-cooperative states and does not have a treaty with the Czech Republic, the foreign tax cannot usually be credited.
Be aware that if a foreign payer withholds a higher tax than the treaty allows (e.g., 30% instead of the treaty's 15%), you can only credit the treaty's 15% in the Czech Republic. You must claim the difference back from the foreign country, not from the Czech tax office.
Interest from abroad
Interest from foreign bonds, loans, or bank accounts is also income from capital assets (Section 8 of the Income Tax Act) and is included in the separate tax base with a 15% rate. Here too, the option to credit tax withheld abroad according to the relevant treaty applies.
Capital gains from abroad
Income from the sale of securities (stocks, ETFs) and shares in business corporations is taxed in the Czech Republic as other income. However, important exemptions apply here, which were recently amended (consolidation package effective from 2024/2025):
Time test: Income from the sale of securities is exempt if the period between purchase and sale exceeds 3 years (5 years for shares in a limited liability company).
CZK 40 million limit: From 2025, even if the time test is met, only income up to CZK 40,000,000 per taxpayer per tax period is exempt.
Minor income: If the total income from the sale of securities does not exceed CZK 100,000 per year, it is exempt.
This change (the introduction of the CZK 40 million limit) is crucial for large investors. If you plan a sale above this volume, a consultation with experts from ARROWS is essential to correctly determine the acquisition cost and the tax base.
Income from renting out foreign property
If you rent out property abroad, this is income under Section 9 of the Income Tax Act. This income is part of the general tax base and is subject to a progressive tax rate (15% or 23%). For properties located abroad, the exemption with progression method is often applied.
How to calculate and pay the tax – practical steps
If you are a tax resident of the Czech Republic, you proceed as follows. First, you convert all foreign income into Czech crowns. For this, you can use either the uniform exchange rate announced by the General Financial Directorate after the end of the year, or the Czech National Bank's foreign exchange market rates valid on the day the income was credited.
The second step is to complete the documentation. For each foreign income, you must have a document that proves the amount of gross income and the amount of tax withheld abroad. The third step is to fill out the tax return. You will list foreign income in the relevant appendices (Appendix No. 3 for foreign income and the credit method). Here you will perform the tax credit calculation.
The fourth step is filing and payment. The tax return for 2026 is filed by April 1, 2027 (on paper), by May 3, 2027 (electronically), or by July 1, 2027 (if you are represented by a tax advisor or lawyer).
You must keep the documents for at least 3 years from the deadline for filing the return. The lawyers at ARROWS law firm will help you with the entire process, from collecting documents and preparing the return to communicating with the tax office.
What are the risks and penalties for non-compliance
If you ignore your obligations regarding foreign income, you risk fines and late payment interest. Thanks to the international exchange of information (CRS/DAC2), the Czech tax office has an overview of your foreign accounts.
Risks and Penalties | How ARROWS helps (consultation@arws.cz) |
Late filing of a tax return: A penalty of 0.05% of the assessed tax for each day of delay (max. 5% of the tax, capped at CZK 300,000). | We will ensure timely and error-free filing of the return electronically with an extended deadline. |
Tax assessment during an audit: If the office discovers undeclared income, it will assess the tax + late payment interest (CNB repo rate + 8%) + a penalty of 20% of the assessed tax. | If an audit has already begun, we will defend your rights and strive to minimize the impact. |
Failure to file a notification of exempt income: If you have exempt income over CZK 5 million, you must report it. The penalty for non-reporting can be 0.1%, 10%, or 15% of the income amount. | We will also take care of administrative obligations for you, such as reporting exempt income, which is often forgotten. |
Incorrect application of a double taxation treaty: If you credit more tax than the law allows, the office will assess the difference, including penalties. | We will perform a precise calculation of the credit or exemption method according to the specific treaty. |
Obligations for reporting foreign income and the exchange of information
The Czech Republic is part of the automatic exchange of information system (CRS) and has an agreement with the USA (FATCA). This means that foreign banks and brokers automatically report data on the accounts of Czech residents to the Czech tax administration.
As a natural person, you do not file a special "FATCA/CRS report," but you must ensure that the data in your tax return corresponds to reality. If the tax office receives information about income in your account in Austria or the USA and you do not have this income in your return, it will automatically initiate an inquiry.
Another obligation is the Notification of Exempt Income. If you receive exempt income (e.g., from the sale of shares after the time test) exceeding CZK 5,000,000, you must report this fact to the tax administrator within the deadline for filing the tax return. Failure to comply with this obligation is sanctioned with draconian penalties.
Transfer pricing and high-risk structures
If you carry out transactions with related foreign persons (e.g., you invoice your own foreign company or lend it money), you must comply with transfer pricing rules. Prices must be set at an arm's length level. If they are not, the tax administrator will assess the difference and impose a penalty.
The lawyers at ARROWS law firm will help you set up your pricing so that it is defensible and will prepare the necessary documentation, which is crucial during an audit.
Specific obligations for EU entities and the global minimum tax
For large multinational groups (turnover over EUR 750 million), the rules of the global minimum tax apply in both the EU and the Czech Republic, ensuring an effective tax rate of at least 15%. By 2026, this system will be fully operational. Although it primarily concerns corporations, it also affects structures held by natural persons if they are part of such a large group.
Practical advice and common mistakes
From our practice at ARROWS law firm, we see that investors often make mistakes in the following areas:
Incorrect determination of tax residency: Having a residence in the Czech Republic "on paper" is not enough. If you have a family and an apartment here, you are usually a Czech tax resident, even if you work abroad.
Confusing income and investments: Realized profit (from a sale) is subject to taxation, not just holding shares (if they do not pay dividends). But beware of ETFs that reinvest dividends—the tax regime can be complex.
Missing tax confirmation: Without a confirmation from the foreign tax administrator or a credible document from a broker, the tax office will not recognize your tax credit.
Ignoring the CZK 40 million limit: Many investors still believe that the sale of shares after 3 years is completely exempt. From 2025, it is only exempt up to a limit of CZK 40 million per year.
Failure to file a notification of exempt income: The sale of a company for CZK 20 million may be tax-exempt, but if you do not file a notification with the tax office, you will receive a hefty fine.
Conclusion
Taxing foreign investments in 2026 requires precision and knowledge of current legislation. The combination of the Czech Income Tax Act, international treaties, and new rules creates an environment where mistakes are costly.
The lawyers at ARROWS law firm are ready to help you. We provide comprehensive legal and tax advice, prepare tax returns, and represent clients during tax audits. Contact us at consultation@arws.cz and ensure peace of mind for your investments.
About the author
Disclaimer:
The information contained in this article is for general informational purposes only and serves as a basic guide to the issue as of 2026. Although we strive for maximum accuracy, laws and their interpretation evolve over time. We are ARROWS Law Firm, a member of the Czech Bar Association (our supervisory authority), and for the maximum security of our clients, we are insured for professional liability with a limit of CZK 350,000,000. To verify the current wording of the regulations and their application to your specific situation, it is necessary to contact ARROWS Law Firm directly (consultation@arws.cz). We are not liable for any damages arising from the independent use of the information in this article without prior individual legal consultation.