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Lower tax should attract investment funds

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The Finance Ministry is planning to push through tax reductions in order to attract foreign investors to the Czech market. Deputy Minister Peter Chrenko told E15 that Miloslav Kalousek’s office supports the lowering of corporate tax for “subjects of collective investment” – or rather for investment companies – from 5% to 1%.

This reduction should be part of the new income tax law aimed at simplifying tax collection. Ideally, the law should come to force in 2010. Chrenko added that the ministry will discuss the law with the subjects involved, such as the Czech National Bank, for example.

“It certainly is a positive proposal,” said Tomáš Prouza, co-owner of the Partners company. He added that there is zero tax for investment companies in Luxembourg and Ireland, for example. “What is important is for the Czech investment companies not to be pushed out,” he said. Jan Čapek, Ernst & Young partner and tax expert, shared a similar view: “The conditions for Czech and foreign funds should be amended.”

In Peter Chrenko’s opinion the basic aim “is to attract companies that generate high added value and employ top people to the Czech Republic”. Then, it would probably be the bigger foreign investors, currently tending to avoid the Czech market, who would show interest in Czech funds. Lowering the rate should encourage the investment companies to found so-called qualified investor funds in the Czech Republic. These funds serve bigger players investing minimum of millions of crowns.

The lower rate should also be indirectly paid out to smaller investors who evaluate their money through retail funds.

Though the ministry also considered abolishing the tax altogether, that is not the plan at the moment. According to Chrenko, it is necessary for the company to be considered an income tax payer on Czech territory, and that would not be possible at the zero rate.

Tomáš Prouza thinks that Czech authorities want, above all, to keep control over investment companies. He also thinks that despite lowering of the tax rate, the state will profit in the end – since it will support the development of businesses and thanks to that will collect more taxes.

Based on discussion with informed public, the Finance Ministry put together other proposals that should become part of the new income tax law. For example, the introduction of employee expense fixed rate instead of the various deductible items and also the cancellation of the housing property transfer tax, exclusion of earnings taxed abroad (instead of the current method of their inclusion) and unlimited application of the tax loss (it has only been possible to apply the loss to the five previous tax seasons). The last named proposals should also serve as effective crisis measures, Chrenko said.

Jan Čapek from Ernst & Young also agrees that the new income tax law could also serve to reduce the effect of the economic crisis, even though, this is not true for all the proposed measures. Čapek thinks that generally, simplification of tax calculation and payment will lower the transaction costs for everyone.

Peter Chrenko, on the other hand, admits that it will be very difficult to endorse the new income tax law this year, so that it comes to force next year. “It took the British 10 years from the 1996 to rewrite the law,” the deputy finance minister said. And in the Czech case, it is a new law altogether.

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