What to do if you get a tax audit in Czechia

When the tax office initiates an audit: understanding the formal notice

A tax audit in the Czech Republic is a formal investigation process governed by the Tax Code (Act No. 280/2009 Coll.) that begins the moment you receive written notice from the Czech Financial Administration. This is not an informal inquiry or a routine administrative check.

It is a structured legal procedure with strict timelines, specific taxpayer rights, and potentially severe financial consequences. The notice itself is the critical triggering event that shifts the burden of proof and activates your response obligations.

The written notice must specify several essential pieces of information: which tax or taxes are being examined, the period or periods under review, what documents the tax authority requires you to provide, and the deadline for submission.

This notice is typically delivered to your data box, which is the official communication channel for all companies in the Czech Republic. From the moment you receive this notice, a defined timeframe begins—typically you have between 15 and 30 days to gather and submit the requested documentation.

What many business owners don't realize is that the initiation of a tax audit also interrupts the statute of limitations for the tax authority's assessment. Generally, the statute of limitations is three years, but once the audit formally begins, this period starts running anew.

Importantly, they can expand the scope of the audit if they discover issues that suggest broader compliance problems. This is why early preparation and professional guidance matter enormously—an audit that appears straightforward can evolve into a much more extensive investigation if initial responses raise additional questions.

The tax authority selects companies for audit based on specific risk indicators, though audits are also conducted randomly. Companies that are commonly selected include those reporting long-term losses or those with unusually high deductions or VAT refund claims.

If your company falls into one of these categories, the probability of audit is higher, and maintaining meticulous documentation is therefore essential. Other triggers include entities in a tax loss position, companies utilizing research and development allowances, and organizations with transfer pricing arrangements involving related parties.

Two types of tax procedures: the difference matters

The Czech tax system includes two distinct procedures that operate very differently, and confusing them—or failing to distinguish which one applies—can seriously damage your position. Understanding this distinction is fundamental because your rights and obligations differ significantly depending on which procedure the tax authority initiates.

The procedure for eliminating doubts: a preliminary stage

The first procedure is called the "Procedure for Eliminating Doubts" (Postup k odstranění pochybností, under Section 89 of the Tax Code). This is a specific procedure initiated when the tax authority has concrete doubts regarding the correctness, truthfulness, or completeness of a filed tax return.

The procedure is designed to resolve specific issues or verify facts quickly, without launching a full audit. During this procedure, the tax authority sends you a notice requesting that you explain or prove specific facts necessary for correct tax determination.

You typically have 15 days to respond with documents, calculations, explanations, or other evidence. The key distinction is that this procedure occurs before any tax is formally assessed for the given period. If your response satisfies the tax authority, the matter ends there.

However, many businesses inadvertently transform this procedure into a full audit or an unfavorable assessment by providing incomplete or contradictory information. Each response creates a written record that the tax authority can later use against you. 

ARROWS Law Firm regularly advises clients that even requests within this procedure demand careful, documented responses — silence or vague replies often force the authority to escalate.

The traditional tax audit: the formal investigation

The second procedure is the formal tax audit (daňová kontrola), governed by Sections 85 and following of the Tax Code. This is the comprehensive examination that most people associate with the term "tax audit."

A formal audit is initiated by written notice and is a structured legal process in which the tax administrator systematically verifies whether you have correctly determined and fulfilled your tax obligations. The scope of a formal audit can be broad and may expand during the process if the tax authority discovers issues suggesting a wider pattern of non-compliance.

The audit typically focuses on one specific tax (such as corporate income tax or VAT) and one specific period (such as a calendar year or a quarter). However, the examination can encompass multiple years if the tax authority believes there is a systematic issue.

During a formal audit, the burden of proof rests with you—any information you've reported in your tax return must be substantiated by documents, expert opinions, or witness testimony. The practical reality of formal audits is far more complex than the law suggests.

Tax audits in the Czech Republic commonly last months, sometimes stretching over a year or longer in complex cases. The tax authority has up to three years from the deadline for filing your tax return to initiate an audit. During this entire period, your business operations continue while the uncertainty of potential assessments hangs over your financial planning.

Legal tips on tax audit procedures in Czechia

1. What is the practical difference between a "procedure for eliminating doubts" and a formal tax audit?

A procedure for eliminating doubts is a targeted inquiry focused on specific discrepancies in a filed return; your response determines whether the matter ends or escalates. A formal tax audit is a more extensive legal investigation that can cover the entire tax liability and usually takes much longer. The distinction affects procedural deadlines and the scope of the tax administrator's powers.

2. Can the tax authority expand the scope of an audit after it begins?

Yes. If the tax authority discovers issues suggesting broader non-compliance, they can expand the audit to include additional tax types or periods beyond those originally specified in the initiation notice. This is why early professional guidance is critical.

3. How long does the tax authority have to complete an audit?

The tax authority must initiate a formal audit within the statute of limitations (generally three years). Once initiated, the statute of limitations is interrupted and starts running anew. However, the total period for assessment generally cannot exceed ten years. Complex audits often take one to two years to complete.

What documents must you produce?

Once a formal tax audit begins, the tax administrator will request specific documents—typically within 15 to 30 days, though this deadline can be extended if you request it before the original deadline expires.

The documents most commonly requested include invoices, bank statements for all company accounts, complete accounting records, and general ledgers. You will also need to provide employment contracts, payroll documentation, supplier and customer contracts, and property ownership or rental documentation.

The Czech legal system operates under a principle that places the burden of proof squarely on the taxpayer (Section 92 of the Tax Code). This means that any deduction you've claimed, any income you've reported, and any tax position you've taken must be substantiated by documentary evidence.

If you cannot produce documents supporting your tax position, the tax authority can make an assessment based on incomplete information or even reject your position entirely. The mandatory retention periods for tax and accounting documents are defined in Czech law under the Accounting Act and VAT Act (Act No. 235/2004 Coll.).

Financial statements and annual reports generally must be retained for 10 years. Tax documents relevant for VAT (invoices) must be preserved for 10 years from the end of the tax period in which the transaction occurred. Payroll records regarding pension insurance must be retained for 30 years.

If you've disposed of documents before these periods expired, you face significant risks. Many business owners believe that if they've "lost" invoices, they can simply request the other party to issue a replacement. This is a dangerous misunderstanding.

ARROWS Law Firm regularly advises clients that document management must be treated with the same seriousness as the tax return itself; a single missing invoice can become the basis for a 20% penalty.

Preparing your response: why documentation quality matters

When the tax authority requests documents, you face a critical choice about how to respond. The response you provide becomes the foundation for everything that follows.

A well-organized, complete, and clearly explained response can resolve the audit favorably or at least limit the damage. The documents you submit must be organized logically and must clearly demonstrate the tax position you've taken.

If the tax authority has questioned a specific deduction or expense, you must produce not only the invoice but also supporting documentation. This includes the business purpose of the expense, evidence that it was actually paid, and documentation linking the expense to income generation.

For transfer pricing, the documentation requirements are even more stringent—you must demonstrate that the price charged was consistent with arm's length pricing principles. The deadline for submitting documents cannot simply be ignored. If the tax authority sets a deadline and you submit documents late without prior arrangement, you risk procedural fines.

One practical complexity that emerges in real-world audits is the distinction between "document preparation" and "substantiation." A simple invoice showing a purchase price is not automatically sufficient proof that an expense should be deductible.

If the tax authority questions the business purpose or necessity of an expense, you must provide additional substantiation, such as email correspondence explaining why the expense was incurred. For international transactions or transactions with related parties, these substantiation requirements expand significantly.

ARROWS Law Firm's experience handling tax audits for hundreds of Czech and international businesses reveals a consistent pattern. Clients who prepare responses in-house often overlook critical documentation or fail to frame their explanations in the way tax authorities expect.

A professional response, prepared by lawyers and tax specialists experienced in audit procedures, dramatically increases the likelihood of a favorable outcome and significantly reduces the time the audit consumes. 

Consequences of audit mishandling

Your rights during a tax audit

The Czech Tax Code grants taxpayers specific rights during audit procedures, but many business owners are unaware of these protections or fail to exercise them. Understanding and asserting your rights can fundamentally change the dynamics of an audit and protect your business interests.

The right to representation and professional assistance

You have the explicit right to be represented during a tax audit by a person of your choice—an attorney, a certified tax advisor, or another representative (Section 29 of the Tax Code). This right is not negotiable, and the tax authority cannot refuse to deal with your representative.

ARROWS Law Firm's experience representing Czech and international businesses through tax audits demonstrates consistently that professional representation reduces the duration of audits and frequently results in lower assessments. Professional representation costs money upfront, but it typically saves far more in reduced assessments and avoided penalties.

The right to be informed and to respond to findings

During an audit, the tax authority is obligated to inform you of its preliminary findings and to give you an opportunity to respond before final conclusions are reached. This right to be heard is fundamental to Czech administrative law.

In practice, near the end of an audit, the tax administrator will communicate the "result of the inspection findings." ARROWS Law Firm regularly prepares detailed responses to preliminary audit findings that successfully challenge or reduce the tax authority's proposed assessments.

The right to inspect your own file

You have the right to inspect the tax authority's file regarding your tax matter (Section 66 of the Tax Code). This file contains all documents collected during the audit, including any internal notes, communications, or evidence the tax authority intends to use against you.

This right is valuable because it allows you to identify what evidence the tax authority has relied upon and to prepare counter-arguments or additional evidence. You can then prepare responses specifically addressing these gaps or misunderstandings.

Legal tips on taxpayer rights during Czech tax audits

1. What happens if I don't respond to a tax authority request for documents?

The tax authority will likely assess tax based on "aids" —essentially their own estimates or industry averages. You will lose the opportunity to defend your position with evidence, and you will almost certainly face an unfavorable assessment plus penalties. Failure to respond also opens you to procedural fines of up to CZK 500,000. Always respond to tax authority requests, even if your response is incomplete.

2. Can I refuse to answer questions during an audit interview?

You generally have the right to remain silent only if answering might expose you or a close person to criminal prosecution. However, as a taxpayer, you have a duty to cooperate. Refusing to cooperate beyond the scope of self-incrimination exposes you to procedural fines and causes the tax authority to make unfavorable inferences. 

3. Can the tax authority force me to allow an inspection at my business premises?

The tax authority can conduct an on-site inspection of your business premises and can examine your documents there during regular business hours. However, inspections of private dwellings (residences) require judicial authorization in advance unless the dwelling is also used for business.

When the audit concludes: the tax inspection report

A tax audit formally concludes when the tax inspection report is signed or delivered. Prior to this, you will have received the results of findings and had an opportunity to respond.

Following the conclusion of the audit, if additional tax is assessed, the tax authority issues a separate payment order specifying the additional amount due, penalties, and interest on late payment. This payment order is the document you appeal if you disagree with the assessment.

The date you receive this payment order is critical—a strict 30-day appeal period begins from that date, and this deadline generally cannot be extended (Section 109 of the Tax Code). If the audit results in an additional tax assessment, you will almost certainly face penalties.

The penalties are calculated as a percentage of the additional tax assessed: 20% if the additional tax assessment is upward, or 1% if a previously declared tax loss is reduced. Additionally, if you owe additional tax and the assessment is upheld, you will owe interest on late payment.

This interest accrues from the original due date of the tax until the date of payment. ARROWS Law Firm's experience handling tax assessment appeals demonstrates that professional representation significantly improves outcomes—many appeals that appear weak when reviewed by non-specialists have merit when examined by experienced tax lawyers.

The new 2026 changes to mandatory audits

Beginning January 1, 2026 (or effectively with the financial year starting in 2026), the Czech Republic is applying updated thresholds for the categorization of accounting entities and mandatory financial statement audits. These changes reflect the implementation of EU Directive 2013/34/EU as amended.

Under the updated regulations, the thresholds for defining "micro", "small", "medium", and "large" entities have increased to reflect inflation. The new asset turnover threshold is CZK 250,000,000 (up from CZK 200 million) and the total assets threshold is CZK 125,000,000 (up from CZK 100 million).

Critically, these changes affect the timeline for filing your corporate income tax return. Companies subject to mandatory financial statement audits have six months after the end of the tax period to file their corporate income tax return.

ARROWS Law Firm advises clients on how these threshold changes affect their specific situation and ensures that tax filing deadlines are met appropriately. Careful tracking of when your company transitions to the new regime is essential, as the rules typically apply to the accounting period starting after the effective date of the legislation.

Special considerations: transfer pricing audits and international operations

If your company has related-party transactions or is part of an international group, you face specialized audit risks that extend beyond domestic audit procedures. Transfer pricing—the pricing of transactions between related entities—is one of the most intensively audited areas of Czech tax administration.

The OECD Guidelines and Section 23(7) of the Income Tax Act establish that related-party pricing must be consistent with what unrelated parties would have charged in comparable circumstances. Failing to meet this standard exposes you not only to Czech assessment but potentially to double taxation if your pricing is also challenged in other jurisdictions.

The documentation requirements for transfer pricing are extensive. Czech tax authorities expect you to maintain comprehensive transfer pricing documentation (Master File and Local File) demonstrating that prices charged were arm's length.

ARROWS Law Firm is a leading Czech law firm with extensive experience in transfer pricing matters for both domestic and international clients. Our lawyers regularly represent clients in transfer pricing audits, prepare transfer pricing documentation compliant with OECD Guidelines, and defend pricing positions before Czech tax authorities.

We maintain relationships with transfer pricing specialists across the ARROWS International network, allowing us to coordinate transfer pricing positions across multiple jurisdictions. If your company has transfer pricing exposure, contacting consultation@arws.cz for specialized advice is essential.

Executive summary for management

Tax audits in the Czech Republic are formal legal proceedings with strict procedures, significant financial consequences, and specific taxpayer rights. The typical audit involves substantial documentation demands, can last months, and commonly results in additional assessments.

The burden of proof rests with the taxpayer—if you cannot produce documents supporting your tax position, the assessment is made against you. The updated mandatory audit thresholds for 2026 may affect your company's filing deadlines and audit requirements, making it essential to assess whether your company's size classification has changed.

Transfer pricing audits and international transactions face specialized and heightened scrutiny, with documentation requirements that exceed typical domestic audits. Professional representation during audits improves outcomes measurably and reduces audit duration.

ARROWS Law Firm handles tax audits and assessment appeals routinely, providing representation in all phases of audit procedures, negotiation with tax authorities, and aggressive defense in appeal proceedings.

Conclusion of the article

Receiving notice of a tax audit is stressful, but understanding the process, your rights, and the practical steps required dramatically improves your ability to manage the situation effectively. Tax audits in the Czech Republic follow defined procedures governed by the Tax Code.

The most common mistakes made by businesses during audits are failing to gather requested documents completely, providing inadequate substantiation of tax positions, and attempting to handle audits without professional guidance. Each of these mistakes compounds, turning a routine audit into a financially damaging assessment.

The penalties and interest that accrue from unfavorable audit conclusions can exceed the original disputed tax by significant multiples. This makes the cost of professional representation during the audit itself look negligible by comparison.

ARROWS Law Firm's lawyers have extensive experience representing Czech and international businesses through tax audits, and they handle this work daily, which significantly reduces the time required. We serve as regular partners of corporate legal departments for specialized matters.

If you've received an audit notice or anticipate an audit, do not delay in seeking professional guidance. The decisions you make in the first weeks of an audit determine the outcome far more than anything that happens later.

Contact ARROWS Law Firm at consultation@arws.cz to discuss your situation and to arrange representation through the audit process. Given the complexity of Czech tax audit procedures and the financial stakes involved, professional guidance is not an expense—it is essential protection for your business.

Frequently asked legal questions about tax audits in Czechia

1. How long does a typical tax audit take?

Tax audits in the Czech Republic commonly range from several months to over a year, depending on the complexity of your business, the period being audited, and the scope of the examination. Simple audits might conclude faster, but complex audits involving multiple years, transfer pricing, or international transactions can extend significantly.

2. What happens if I simply cannot find a document the tax authority has requested?

If you genuinely cannot locate a requested document, you must notify the tax authority, explain why, and attempt to substantiate the transaction through other means. You may submit substitute documentation—such as bank statements, correspondence, contracts, or witness statements—that corroborate the transaction. 

3. Can I appeal a tax assessment if I disagree with the audit findings?

Yes. You have 30 days from the date you receive the payment order to file a formal appeal to the Appellate Financial Directorate (filed via your local tax office). This deadline is strict and generally cannot be extended, so immediate action is necessary. 

4. Will I have to pay the additional tax immediately if I appeal?

Filing an appeal against a payment order generally has a suspensive effect regarding the enforceability of the payment. This means the tax is not legally enforceable (the tax executor cannot seize assets) until the appellate body issues a final decision. However, strictly speaking, interest on late payment continues to accrue during the appeal process if you eventually lose. 

5. What is the difference between a procedural fine and a penalty (sanction)?

A procedural fine is imposed if you obstruct the tax authority's work—for example, by failing to provide requested documents, not appearing for scheduled meetings, or providing false information. A penalty is a sanction of 20% (or 1%) of the additional tax assessed when an audit reveals that you underpaid tax.

6. Can the tax authority audit me again for the same period if they already conducted an audit?

Czech law includes the principle of "ne bis in idem" (not twice for the same thing), which generally prevents being audited twice for the same tax and period. However, there is an important exception. If new facts or evidence become known after the first audit was completed that suggest the original tax was assessed incorrectly, a repeated tax audit may be permitted.