Proving Tax-Deductible Corporate Expenses in 2026: Processes and Evidence

Mgr. Daniel Půlpán
Mgr. Daniel Půlpán
15.5.2026 | ARROWS law firm

Optimising the tax base is a natural objective for every company; however, in 2026 the tax authorities are scrutinising corporate expenses with the utmost strictness. The burden of proof regarding the tax deductibility of costs always rests exclusively with the company and its management. In this article, you will learn how to set up internal processes correctly, what documentation to collect on an ongoing basis, and how to safely withstand a potential tax audit.

The photograph shows a specialist during a consultation regarding the tax deductibility of costs.

Key takeaways
  • Principle of the burden of proof: Today, a received invoice and a formally correct contract alone are not enough to defend a tax-deductible expense; the company must be able to demonstrably document the actual performance.
  • Strict regime for entertainment: Business lunches, alcohol, and expensive gifts for clients are strictly non-deductible for tax purposes, and no VAT deduction can be claimed on them either.
  • Risks of external consulting: Broadly worded invoices for intermediation or marketing must be supported by specific tangible outputs and email correspondence.
  • Holding invoicing: Services charged between related companies must meet the arm’s length principle, and there must be no artificial duplication of managerial activities.
  • Limitations for luxury assets: For passenger cars, the strict depreciation cap of CZK 2,000,000 still applies, and artworks in offices usually cannot be depreciated for tax purposes at all.

Introduction to tax-deductible expenses under Czech law

The cornerstone of corporate taxation is the provision of the Czech Income Taxes Act that defines a tax-deductible expense. This is an expense that the company has demonstrably incurred in order to generate, secure, and maintain taxable income. If this direct link between the expense and the company’s revenue is missing, the expense cannot be included in the tax return.

In recent years, the Financial Administration has fundamentally changed its approach to audits. In the past, it was often sufficient for officials to be presented with a formally flawless invoice and a bank statement. In 2026, however, absolute emphasis is placed on the so-called material aspect of the transaction. The authority examines whether the invoiced service or supply actually and genuinely took place.

During audits, tax administrators focus on the logic of a company’s processes. They look for an answer to why the company needed the service at all and what specific economic benefit it brought. If a managing director cannot meaningfully explain the economic substance of the incurred expense, the authority will uncompromisingly exclude this expense from the tax base.

Disallowing an unjustified expense has harsh consequences for a company. It automatically increases the tax base from which corporate income tax at 21% is calculated. The tax office will then assess the outstanding tax liability and add statutory penalties and default interest for each day of delay. If, after an audit, you are considering correcting your tax assessment, it may be useful to review the procedure for a supplementary tax return.

Experience from legal practice shows that prevention is always cheaper than subsequently resolving disputes in court. Legal and tax experts from ARROWS advokátní kancelář (office@arws.cz) recommend that companies implement robust internal policies for approving and documenting all high-risk purchases.

Entertainment expenses: Where advertising ends and a tax problem begins

Entertainment expenses have historically been the most common subject of disputes between entrepreneurs and tax officials. They typically include spending on business lunches with clients, refreshments at company meetings, purchases of alcohol, or tickets to sporting and cultural events. The law is clear: these items are fully non-deductible for tax purposes.

Many entrepreneurs mistakenly believe that if they agree a million-crown contract with a client over an expensive dinner, it is obviously an expense incurred to secure income. From the perspective of Czech tax law, however, a specific exclusion applies that strictly removes hospitality and entertainment from tax-deductible expenses, regardless of their actual business benefit.

The only exception is advertising and promotional items. However, for a client gift to be tax-deductible, it must meet strict statutory conditions. Its acquisition cost must not exceed CZK 500 excluding VAT, and the item must bear the name or trademark of the provider.

At the same time, with the exception of still wine, no alcoholic beverage may qualify as a promotional item. Therefore, if at the end of the year you give clients bottles of expensive cognac or champagne with your company logo engraved, this is a non-deductible expense, and in addition no input VAT deduction can be claimed.

Correct classification of these expenses requires careful work by the accounting department. The practical impact on accounting and the assessment of what is still a standard expense and what is already a risk item is also illustrated by the article on advances on profit distributions. Hospitality expenses must be posted to analytical accounts for non-deductible expenses so that they do not mistakenly reduce the tax base at year-end. The same rules also apply to coffee, mineral water, and refreshments for meeting rooms.

Related questions on entertainment expenses and advertising

1. Can coffee and tea for employees at the workplace be included as tax-deductible expenses?
The law does not allow coffee and ordinary refreshments to be claimed as a tax-deductible expense, whether for employees or business partners. It is a non-deductible expense. The only exception is the provision of drinking water at the workplace or protective beverages in professions where this is required by occupational health and safety regulations. For benefits and other items provided to employees (including mandatory items under OHS rules), it is advisable to assess the setup also from the perspective of employment law under Czech legislation.

2. We purchased promotional T-shirts with the company logo. Is this a tax-deductible expense?
Yes, provided the value of one T-shirt does not exceed CZK 500 excluding VAT. Such an item is considered a tax-deductible advertising and promotional expense of the company. At the same time, you can claim an input VAT deduction on it.

3. Can we deduct the costs of a Christmas party for key customers?
Corporate Christmas parties, venue hire for these purposes, buffets, and accompanying entertainment programmes fall fully within the category of entertainment expenses. This is a typical example of a non-deductible expense. During an audit, the authority will always disallow these costs, even if you prove that only your most important business partners attended.

Business trips and travel reimbursements for managing directors

Business trips are an essential part of business development, but the tax authority often views them as a hidden form of private holidays, especially in the case of company owners and managing directors. Every invoice for flights, accommodation, or car rental abroad must be subjected to a strict test of tax deductibility.

If a managing director flies to a trade fair in Dubai or to a business meeting in New York, they must be able to document that this business activity actually took place. The costs incurred must be defensible. It is not enough to merely present an accommodation invoice from a hotel and a valid airline ticket.

The tax office will require specific evidence of what actually happened on site. Such evidence includes email communication with foreign partners regarding the meeting date, official invitations to the trade fair, minutes from business meetings, or photos from the exhibition stand.

A major risk is combining business trips with private recreation. If a managing director travels for a two-day business meeting but then spends an additional week at the seaside with their family, the company may claim as costs only the portion of the expenses that is proportionately attributable to the proven performance of work. Accommodation costs for family members are always non-deductible for tax purposes.

In the case of luxury accommodation, the tax administrator may also examine its reasonableness. Although Czech law does not set price limits for hotel rooms, in the case of extremely expensive resorts the authority may argue that this is personal consumption rather than an ordinary expense necessary to generate income. ARROWS advokátní kancelář will be happy to assist you with setting internal policies for travel reimbursements (office@arws.cz).

Education, coaching, and personal development of management

Investments in the education of employees and management are, by their nature, very beneficial. The problem arises when the tax office begins to examine the connection between the given course and the actual performance of the job position. Not every educational program is automatically considered a tax-deductible company expense.

If you send an accountant to a seminar on updates in tax legislation, this is a trouble-free and fully deductible expense. However, if the company pays for its managing director to attend an expensive personal development course, spiritual leadership training, or scuba diving training, the tax office will almost certainly challenge these costs.

The key criterion is the so-called deepening or maintaining of qualifications for a specific job role. Studying costly management programs such as an MBA is usually defensible if the graduate subsequently holds a senior executive position. Nevertheless, it is necessary to have arguments prepared as to how exactly this study helped the company’s development.

Special attention should be paid to language courses. Paying for English lessons for a manager who actively communicates with foreign suppliers is perfectly fine. However, teaching exotic languages without an obvious link to the markets where the company actually operates will be classified as a personal benefit and excluded from tax-deductible costs.

Related questions on business trips and education

1. I flew to a business meeting in London. Can I also claim theatre tickets?
No, tickets for cultural or sporting experiences during a business trip are purely personal consumption and cannot be included in the company’s tax-deductible costs. The company may claim only transport and accommodation expenses and, where applicable, reimburse the statutory per diem, which covers ordinary personal needs while travelling.

2. We provide employees with company yoga classes to reduce stress. Is this a tax expense?
Costs of leisure activities and sports for employees are generally not tax-deductible expenses for the company. Although this is a popular employee benefit, from the perspective of Czech corporate income tax these items do not meet the definition of an expense incurred to generate and maintain income.

3. Do I have to attach a travel order to the accommodation invoice as well?
Yes, a properly completed travel order and the related business trip settlement are basic accounting documents. They contain information about the purpose of the trip, its duration, and approval by a supervisor. Without a travel order, proving the legitimacy of costs for both foreign and domestic trips during a tax audit is very difficult.

Possible issues when defending expenses

How ARROWS helps (office@arws.cz)

Disallowance of costs for external consultants: Missing evidence of what specific analyses or advice were actually delivered.

We will review contract wording and help implement a process for ongoing documentation of all delivered outputs.

Risk with holding management fees: Invoicing for general management of subsidiaries without demonstrating added value and arm’s-length pricing.

We will prepare expert transfer pricing documentation and clearly define a defensible scope of the services provided.

Challenging managing directors’ business trips: Combining business with private stays abroad without records of business meetings.

We will prepare an internal travel reimbursement policy and advise on how to properly draft minutes from business meetings.

Non-deductible expenses for personal consumption: Misclassifying representation or corporate events as tax-deductible promotional expenses.

We will conduct a tax audit of historical expenses and set strict rules for approving high-risk purchases.

Limitations on depreciation of expensive assets: Incorrect accounting for luxury cars or improper classification of artworks.

We will assess current legislative limits and ensure that depreciation of fixed assets is reported flawlessly.

Management fees and invoicing between related parties

In groups of companies and holding structures, it is common practice for the parent company to provide its subsidiaries with management, administrative, or IT services. These so-called management fees are then invoiced to the subsidiaries, resulting in a lawful transfer of funds within the holding.

The tax authority is aware that this tool can easily be misused to artificially reduce the tax base in profitable companies. Therefore, invoicing between related parties is subject to the strictest audits. Officials examine not only whether the invoiced price complies with market rules (the arm’s-length principle), but above all whether the service was actually provided.

The parent company must be able to demonstrably document what exactly it did for the subsidiary. A generic invoice stating “we invoice you for business management services” is now wholly insufficient to defend a tax-deductible expense. There must be a detailed breakdown of hours worked, specific reports delivered, and email communication.

A fundamental risk is the so-called duplication of activities. If a subsidiary has its own CFO who receives a full salary, and the parent company simultaneously invoices it for “financial management services”, the tax office will immediately challenge this expense. The subsidiary cannot pay twice for the same service.

Documentation for transfer pricing and holding agreements is a complex legal and economic discipline. Our experts at ARROWS advokátní kanceláře (office@arws.cz) analyse holding structures and set up intra-group invoicing mechanisms so that they are defensible in any tax audit in the Czech Republic.

Home office costs and home office equipment

Working from home has become the standard in many industries. This is linked to companies’ efforts to purchase equipment that employees and managing directors use in their private apartments. Computers, monitors, ergonomic chairs or printers located outside the company’s official registered office are a major unknown for the tax authorities.

A company has the right to provide its employees with work equipment for the performance of dependent work, including in a home office arrangement. These items are fully tax-deductible expenses. However, a fundamental problem arises if the authority suspects that the equipment is for the private use of the whole family or that it is clearly luxury property that does not correspond to the job position.

Buying the latest gaming computers with the argument that an accountant needs them for working from home, or purchasing luxury veneered furniture for a managing director’s private apartment, will not stand. The tax office is entitled to review the economic rationality of the purchase.

If you allow employees to take company assets home, you must keep precise records. Each laptop or monitor must have a handover protocol proving who physically has the item. At the same time, it is recommended to have a work-from-home agreement signed with the employee, which precisely specifies the conditions and scope of the company assets provided.

Related questions on holding invoicing and home office

1. Can a managing director be reimbursed a lump sum for home office costs?
Lump-sum compensation for wear and tear of one’s own equipment or energy consumption when working from home is governed by specific rules. For employees, the legislation on home office lump sums has recently been clarified. For managing directors without an employment contract, however, reimbursing lump sums is more complicated, and we recommend proceeding rather in the form of reimbursement of actually proven expenses.

2. Our parent company invoices us for the use of company software. Is that OK?
Re-invoicing actual software or licence costs within a group is a completely standard approach. However, you must have documentation that clearly shows the key according to which costs are allocated among the individual companies. Typically, the number of users, data volume, or the given company’s turnover is used.

3. Can we buy a coffee machine for an employee’s apartment for home office?
The purchase of a coffee machine or kitchen equipment for an employee’s private apartment cannot be considered a tax-deductible expense for workplace equipment. The tax office will classify it as a non-deductible company expense and, in all likelihood, also as a taxable non-cash benefit on the employee’s side.

Expenses for corporate events and teambuilding

Caring for corporate culture and organising teambuilding events are now an integral part of human resources management. However, the Czech Financial Administration does not like the word “teambuilding”. For tax purposes, costs associated with employee offsites must be divided very strictly into two different categories.

The first category is the professional training itself, or a meeting or strategic workshop. If you can prove that employees spent time in a rented hall in training on new products or internal processes, the costs of the rental as well as the trainers themselves are fully tax-deductible.

The second category is leisure and recreational programme. Evening gatherings at a bar, spending on alcohol, wellness tickets, rental of bowling lanes or ski passes are purely non-deductible costs. The law does not allow these expenses to be applied to reduce the tax base because they do not directly serve to generate the company’s income.

Best practice is to organise these events so that the costs are strictly separated already on the supplier’s invoice. The hotel should invoice the rental of the conference hall and the professional part separately, and list consumption at the evening buffet on a separate invoice or line item. This will make correct allocation easier for the accounting department.

Depreciation of luxury assets and works of art

Purchasing expensive equipment for management offices brings another range of tax question marks. Typical examples include original works of art, antiques or investment carpets. The Czech Income Taxes Act usually excludes works of art from tax depreciation because these items do not lose value over time; on the contrary, they tend to gain value.

A major restriction also applies to luxury passenger cars. A legislative change, effective also for 2026, introduced a strict limit for tax depreciation of M1 category cars. The maximum amount that can be included in tax-deductible costs through depreciation for a single vehicle is exactly CZK 2,000,000.

If a company purchases a luxury executive SUV for CZK 4,000,000, half of its value is lost without any tax effect. The CZK 2,000,000 limit also applies to vehicle purchases via finance leasing. This change was introduced as a measure against purchases of extremely expensive sports cars under a company ID number (IČO) in the Czech Republic.

For more expensive electronics or special designer accessories, it is again crucial to prove the link to the business. The purchase of a top-of-the-line long-range telescope or professional diving equipment for a company engaged in developing enterprise software will be completely indefensible in an audit and excluded from the tax base.

External advisory, marketing and intermediary services

The category of external services is a proverbial red flag for tax inspectors. Invoices with a vague description such as “We invoice you for consulting under the agreement” or “Marketing services for the month of April” are the first documents a tax audit will focus on. In the past, these items were often used for illegal profit shifting.

For every invoice for services, you must be able to present specific tangible evidence of performance. The supplier must provide an exact description of the work performed. The invoice should be accompanied by prepared analyses, written reports, draft agreements or detailed records of hours worked (timesheets).

An even more sensitive area is business intermediation. If you pay an external company a high commission for securing a new client, the authority will examine the entire chain of events in great detail. You must document communication with the intermediary, prove that they actually brought in the client, and that the agreed commission corresponds to customary practice in the given industry.

We recommend that clients introduce a rule that no invoice for advisory and marketing services may be paid by the company unless it is accompanied by a demonstrable work product. If you are not sure about the correct setup of contractual documentation with suppliers, our attorneys in Prague at ARROWS (office@arws.cz) will prepare template agreements to protect your interests.

Related questions on external services and assets

1. The supplier advised us only verbally over the phone. How can we prove it?
Verbal advice is highly problematic. If you pay for consultations by phone or at meetings, you should always make brief written notes. A record of when the consultation took place and what topics were discussed serves as basic evidence for the tax administrator.

2. Does the CZK 2 million limit for cars also affect the VAT deduction?
Yes, the restriction introduced by Czech legislation has a direct impact on value added tax as well. If you purchase a passenger car costing more than CZK 2 million excluding tax, the right to deduct VAT is capped at this amount. The company cannot claim back from the state the remaining tax paid on the “luxury” surcharge.

3. We paid for a market analysis, but in the end we did not do any business. Is it a deductible expense?
Yes, wasted expenditure is tax-deductible if, at the time it was incurred, it was rationally aimed at generating income. By its very nature, doing business involves the risk of failure. What matters is having the completed analysis in hand and demonstrating that, based on it, you made a legitimate business decision not to implement the project.

Evidence and record-keeping: How to prepare for a tax audit by the Financial Administration

Providing evidence to the Financial Administration is a specific and often very demanding process. The most important rule every managing director must understand is that formal documents take a back seat. A flawless invoice, a stamped contract, and a bank statement confirming the payment was sent are only the basic prerequisites.

What the officials are truly interested in is real evidence. The company must operate at all times as if an audit were to come tomorrow morning. Archiving evidence only once you receive a notice to commence a tax audit (often three years after the transaction was carried out) is a battle lost in advance.

For significant and high-risk expenses, store in your internal archive electronic communications, approved budgets, supplier presentations, photos from project implementation, or attendance lists from trainings. Back up emails and keep construction and handover logs.

Remember that the tax administrator has extensive powers. It can carry out cross-checks directly at your suppliers, summon your employees for questioning as witnesses, and request cooperation from banks and other institutions. Any purposeful falsification of documents to reduce the tax base is detected very quickly today and may be reclassified as the criminal offence of tax evasion.

Our tax experts at ARROWS are ready to go through a tax audit by your side. We can communicate with officials in their language, protect our clients’ rights throughout the entire proceedings, and, in the event of unlawful conduct by the public authorities, file appeals and lawsuits.

Final summary

The 2026 tax return is not just a dry sum of numbers from accounting software. It is a comprehensive reflection of all company transactions and management decisions over the past year. The Financial Administration closely scrutinises in particular those expenses where there is a risk they served more for the personal enrichment of owners and employees than for the real development of the business.

Representation expenses, foreign business trips without tangible outputs, purchases of luxury assets, or non-transparent invoicing for external consulting or holding fees – these are precisely the high-risk items that can cost a company hundreds of thousands of Czech crowns in additional assessments and penalties. The burden of proof always lies with the taxpayer.

A successful defence of expenses lies in prevention, clearly defined internal policies, and watertight archiving of evidence materials—not just formal invoices. If a managing director can logically, factually, and demonstrably substantiate the economic rationale of an expense, the tax audit will proceed without issues.

If you are not sure whether your internal expense approval processes meet the current strict standards of the tax authorities, do not risk losing company money. Contact the legal and tax experts at ARROWS, a Prague-based law firm. We will be happy to review your contracts and accounting procedures. Contact us in confidence today at office@arws.cz and gain certainty in tax matters.

FAQ – Most common questions on high-risk items in the tax return

1. Until when can the tax office come for a tax audit?
The basic time limit for assessing tax is three years from the day the deadline for filing the regular tax return expired. However, if the company, for example, reports a tax loss or initiates other actions with the tax office, this period may be extended—in extreme cases up to a maximum of ten years.

2. Do I have to have a written contract for every expense?
A written contract is not absolutely necessary for small, one-off purchases; a proper invoice and purchase order are usually sufficient. However, for long-term services, six-figure items, consulting, or any transactions with related parties (e.g., between the company and a managing director), a written contract is an essential basis for any potential defence.

3. Is the purchase of company clothing tax-deductible?
Providing workwear and protective equipment is a tax-deductible expense. The condition, however, is that the clothing cannot be commonly worn as everyday clothing. It must bear a visible, non-removable company logo, or it must be a specific type of clothing intended for the performance of the given profession (overalls, uniforms). A standard suit for a manager is not tax-deductible.

4. We bought an expensive coffee machine for the office. Can we include it as an expense?
The purchase of a coffee machine and similar kitchenette equipment can generally be considered a tax-deductible expense for workplace equipment. However, purchases of coffee beans and refills for consumption by employees and clients already constitute a non-deductible expense that must not reduce the company’s tax base.

5. What happens if the tax office does not recognise a large invoice for consulting services?
If the authority disallows the invoice, it will increase your tax base by the invoiced amount. It will then assess additional corporate income tax at 21%, add a penalty of 20% of the additionally assessed tax, and also charge default interest on the outstanding amount for the entire period retroactively. In the case of fictitious invoices, criminal prosecution is also a risk.

Notice: The information contained in this article is of a general informational nature only and serves for basic guidance on the issue under the legal framework as of 2026. Although we take maximum care to ensure accuracy, legal regulations and their interpretation evolve over time. We are ARROWS advokátní kancelář, an entity registered with the Czech Bar Association (our supervisory authority), and for maximum client security we are insured for professional liability with a limit of CZK 400,000,000. To verify the current wording of regulations and their application to your specific situation, it is necessary to contact ARROWS advokátní kancelář directly (office@arws.cz). We accept no liability for any damages arising from the independent use of the information in this article without prior individual legal consultation.

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