Corporate income tax

What it means

Corporate income tax is not charged on accounting profit directly. The starting point is the accounting result, adjusted by add-backs and deductible items into the tax base - and the tax is computed from that.

The rate depends on taxable income for the period, and the law also sets a minimum tax (a tax licence) for companies with a low or nil base. The figures change over time, so the wording in force for the given period always applies.

Corporate income tax is paid not only by an s. r. o. or a joint-stock company but also by a cooperative, a civic association or a foundation. In non-profit organisations, however, only some income is taxed, mainly from business activity, while income from the main non-business activity may be exempt, so the same income is taxed differently in different legal entities.

How it works in practice

The usual add-backs are non-deductible expenses, overdue unpaid liabilities, accounting depreciation in excess of tax depreciation, and provisions the law does not recognise. On the other side, a tax loss from earlier years can be deducted.

The tax is computed in the tax return, filed within three months of the year end unless the deadline is extended. During the year advances are paid, sized on the previous period’s liability.

Before the year ends we go through a provisional tax base calculation with the client, while it is still possible to influence what lands in this year’s costs. That means, for example, finishing putting assets into use, or paying expenses that are deductible only once paid and would otherwise end up among the add-back items.

What to watch out for

Accounting profit and the tax bill are two different numbers, and only the second one can be used to plan cash. A company reporting a loss can still have a positive tax base - enough non-deductible spending will do it.

Advances are based on last year’s tax, not on current performance. A company whose profit has fallen noticeably pays more than the tax will be and gets the overpayment back only after filing, while sharp growth brings a large balance due all at once. An adjustment of advances can be requested from the tax office, supported by a cash flow forecast.