Czech Republic: Eurobonds – procedure to obtain relief at source and quick refund – Update
Note: This Announcement, originally published on 24 August 2022, has been updated to provide clients with additional details. Changes have been highlighted.
Further to Announcement A21123, Clearstream Banking1 informs clients that effective
immediately
bonds issued abroad by Czech issuers (Czech Eurobonds) and taxable at the default tax rate applicable to Eurobonds, are admitted to Clearstream Banking with a possible reduced rate or exemption for certain foreign investors or Czech residents.
Background
The Income Taxes Act amended at the end of 2020, abolished the tax exemption to non-residents investing in Eurobonds. A new amendment of the Banking Act no. 353/2021 Coll. approved in September 2021 maintained, in a modified form, exemptions or reduced tax rates on Eurobonds issued after 31 December 2021 if paid to certain non-Czech residents or Czech individuals, as follows:
Since 1 January 2022, an exemption has been available to foreign legal entities and individuals that are not directly or indirectly economically or legally connected with the issuer (that is, if they have a direct or indirect control over 25% or more of the issuer’s capital and/or voting rights).
The foreign investors that have a direct or indirect connection with the issuer only have the possibility to apply for double taxation treaty rates or for 15% if they are resident of EU/EEA/TIEA countries.
Czech resident individual investors can be granted a reduced tax rate of 15% while corporate investors will need to include the interest income in their annual tax returns.
The above relief of tax could not be implemented until both International Central Securities Depositories (the ICSDs) and the International Capital Market Securities Association (ICMSA) had agreed on a common procedure to be followed for each Czech Eurobonds with the intermediary of the common depositories.
Impact on clients
Clients who wish to apply for tax relief on taxable Czech Eurobonds issued as of 1 January 2022 on behalf of a final beneficial owner can do so through either the relief at source procedure or the quick refund procedure.
A standard refund is not available through Clearstream Banking.
Eligible beneficial owners
- Czech resident
- individuals are eligible for a reduced rate of 15%
- Legal entities are eligible to receive the income payments gross (0%). They are responsible for declaring the interest income in their annual tax returns
- Qualifying tax non-residents are Czech tax non-residents who (i) are not a Person Related Through Capital to the issuer and (ii) has not created a legal relationship with the issuer mainly for tax reasons (that is, with the aim to reduce a tax base or to increase a tax loss). They are eligible for a full exemption.
- Other non-residents not holding the Eurobond with a permanent establishment in Czech Republic
- EU/EEA residents are eligible for a reduced rate/exemption under a Tax Treaty
- Residents of a non-EU/EEA country which is a Tax Treaty Country or a TIEA Country are eligible for a reduced rate/exemption under a Tax Treaty
- Other non-residents holding the Eurobond with a permanent establishment in the Czech Republic
- EU/EEA resident
- individuals are eligible for a reduced rate of 15%
- legal entities are eligible for 0%
- Residents of a non-EU/EEA country which is a Tax Treaty Country or a TIEA Country
- Individuals are eligible for a reduced rate of 15%
- Legal entities are eligible for 0%
- Tax residents of a country which is neither a Tax Treaty Country nor a TIEA Country
- Individuals are eligible for a reduced rate of 15%
- Legal entities are eligible for 0%
- EU/EEA resident
Undisclosed entities and residents of a country which is neither a Tax Treaty Country nor a TIEA Country with no permanent establishment are fully taxable.
Relief at source
To obtain relief at source, clients must provide the following certification by the prescribed deadline:
- A One-Time Certificate for Czech Eurobonds (the OTC): One-time certification that provides information regarding the client of Clearstream Banking, stating that they hold Czech Eurobonds on behalf of one or more beneficial owners that are entitled to apply for relief at source or quick refund. This OTC covers all the eligibilities for tax relief, that is, treaty benefits or domestic law benefits and gives the possibility to apply for a standing instruction if the client holds the securities for itself or for a single beneficial owner (box 1).
- It must be completed and signed by the clients of Clearstream Banking. The OTC must be provided in original and is valid until revoked; and
- A Declaration of Beneficial Ownership (the DBO): this document indicates amongst other information, the identity and country of tax residence of the beneficial owner of the income in respect of the Eurobonds that enable the issuer to reliably establish that the recipient is a Beneficial Owner with respect to any such payment and that all conditions for the granting of a tax relief, if any, are met, that is:
- the name and country of residence on the declaration of the beneficial owner match the information in the tax residency certificate and in the list of beneficial owners;
- the declaration of the beneficial owner is duly signed by the beneficial owner or by a third party under cover of a power of attorney, dated and all relevant sections are complete (and that the relevant power of attorney, if applicable, is duly signed and enclosed); and
- the certificate of residence is current.
The DBO is valid one calendar year from the date of signature. Originals or copies are accepted.
- A certificate of residence (COR): to be provided by foreign beneficial owners only, issued by the competent tax authority in the jurisdiction where the beneficial owner is tax resident and attesting its tax residency in such jurisdiction. It must be in English or Czech. The COR is valid one calendar year from the date of signature. Originals or copies are accepted; and
- A per-payment instruction, if applicable, via SWIFT (formatted MT565) or Xact Web Portal indicating:
- Clearstream Banking client account number;
- ISIN code;
- Corp ID;
- Total instructed securities quantity;
- Requested tax rate.
- and for each BO following details in BENODET sequence:
- Name of the entity (field :95V::OWND//);
- Two letter ISO country code of entity’s country of fiscal residence (field :94C::DOMI//);
- BO securities quantity (field :36B::OWND//)
Quick refund
A quick refund may be obtained by the eligible beneficial owners who provide the same documentation as for relief at source and a per-payment instruction.
Deadlines
Relief at source | Deadline for receipt by Clearstream Banking |
Certificates and per-payment instructions | At the latest, twelve business days before the payment date by 18:00 CET. |
Quick refund | Deadline for receipt by Clearstream Banking |
Certificates and per-payment instructions | At the latest by 10:00 CET on the 10th day of the month following the month of the payment date. |
Further information
For further information, please contact the Clearstream Banking Tax Help Desk, Clearstream Banking Client Services or your Relationship Officer.
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1. Clearstream Banking refers collectively to Clearstream Banking S.A., registered office at 42, avenue John F. Kennedy, L-1855 Luxembourg, and registered with the Luxembourg Trade and Companies Register under number B-9248, and Clearstream Banking AG (for Clearstream Banking AG clients using Creation Accounts), registered office at 61, Mergenthalerallee, 65760 Eschborn, Germany and registered in Register B of the Amtsgericht Frankfurt am Main, Germany under number HRB 7500.