Taxation of foreign investments 2026: How to correctly declare income from abroad and avoid the risk of double taxation

If you have income from foreign investments, dividends, or interest from abroad, a number of obligations await you that Czech tax law strictly requires. In this article, you will learn how to correctly declare this income in the Czech Republic, how double taxation treaties work, and what risks you face if you proceed incorrectly. You will also find out how ARROWS, a Prague-based law firm, can assist you with foreign taxation matters.

Quick summary

• If you are a Czech tax resident, you must report your worldwide income, including income from abroad, under Czech tax rules.
• Understanding double taxation treaties and correctly applying the foreign tax credit or exemption method will ensure your overall tax burden is fair.
• Late filing of a Czech tax return may result in a penalty of 0.05% of the assessed tax for each day of delay.
• The attorneys at ARROWS advokátní kancelář handle this agenda on a daily basis and can save you time and money.

What are the basic rules for taxing foreign income in the Czech Republic?

The Czech tax system distinguishes between tax residents and non-residents, and this distinction has a fundamental impact on which income you must report. If you are an individual with a home in the Czech Republic or you usually stay here, your worldwide income is taxable in the Czech Republic. This means that income from US shares, London real estate, or Singapore bank accounts must be included in your Czech tax return.

However, the reality is more complex. Different types of income are subject to different rules – some are included in a partial tax base and are subject to progressive taxation, while others form a separate tax base taxed at 15%. In addition, many foreign states may assert their own taxing rights over your income, creating a risk of double taxation.

This is precisely why double taxation treaties exist: they determine which state has the right to tax the income and how you can credit tax paid abroad against your Czech tax liability. Not knowing these mechanisms—or applying them incorrectly—can cost you thousands to tens of thousands of Czech crowns.

The team at ARROWS advokátní kancelář deals with these matters routinely and knows in practice what to focus on. Our portfolio includes hundreds of clients who invest abroad. Our experience allows us to quickly identify risks and ensure that your foreign investments do not turn into a tax issue under Czech legislation.

Related questions on the basic rules for taxing foreign income

1. What is meant by tax residency in the Czech Republic?

You are a Czech tax resident if you have a home here (a permanent apartment/house with the intention to stay there permanently) or if you usually stay here (at least 183 days in a calendar year). The period also includes the days of arrival and departure. If you have ties to multiple states, the so-called centre of vital interests under the relevant international treaty is decisive.

2. Do I have to report all foreign income even if I have already paid tax on it abroad?

Yes. All foreign income must be included in your Czech tax return (unless it is exempt from tax in the Czech Republic). You can then credit the foreign tax (reduce your Czech tax) only to the extent permitted by the relevant double taxation treaty (the ordinary foreign tax credit method).

3. What happens if I forget a small item of foreign income?

The obligation to report taxable income applies generally. Failure to report income may lead to additional tax assessment, late-payment interest, and a penalty of 20% of the additionally assessed tax.

How do double taxation treaties work?

The Czech Republic has concluded double taxation treaties with almost 90 countries, and the list includes all major economic partners, including the USA, Germany, France, the UK, Switzerland, and Singapore. Each treaty contains specific rules on which state has the right to tax the income and at what maximum rate. Without knowing these rules, you will lose your bearings when calculating your Czech tax liability correctly.

In general, treaties work so that income is typically taxed in the country where it arises (the source country), but often only at a limited rate. A resident of the Czech Republic must then report this income in the Czech Republic, but can credit the foreign tax paid.

For example, if you receive a dividend from a US company, the USA will tax it by withholding tax (typically 15% if you have submitted Form W-8BEN). In the Czech Republic, you will tax this income at 15%, but you will credit the US tax paid, so in practice you do not pay anything extra in the Czech Republic (you only report the income). However, if the foreign tax is lower than the Czech tax, you must pay the difference in the Czech Republic.

It is also important to meet the conditions for applying treaty benefits, including the beneficial owner test. If there is suspicion that you received the income through an entity with no real economic activity solely to avoid a higher tax, the Czech tax authority may deny treaty benefits.

The attorneys at ARROWS advokátní kancelář have long-standing experience with international investments. Thanks to their network of partner firms within the ARROWS International project, they know how treaties are interpreted. They can prepare supporting documentation for the Czech tax authority and advise you on how to structure your investments safely and legally under Czech law.

What are the tax rates for individual types of foreign income?

Each type of foreign income is subject to a specific regime in the Czech Republic. Incorrect classification of income is a common mistake that can lead to additional tax assessment. The rules below apply for 2026.

Dividends from abroad

Dividends from abroad are subject to Czech income tax at 15%. This income is included in the so-called separate tax base within the Czech tax return. It therefore does not fall under progressive taxation like employment or business income.

If the dividend comes from a state with which the Czech Republic has a double taxation treaty, you can credit the foreign tax paid. If the dividend comes from a jurisdiction on the list of non-cooperative states and there is no treaty with the Czech Republic, the foreign tax generally cannot be credited.

Please note that if the foreign payer withholds a higher tax than the treaty allows (e.g., 30% instead of the treaty 15%), in the Czech Republic you can credit only the treaty 15%. You must claim the difference back abroad, not from the Czech tax authority.

Interest from abroad

Interest from foreign bonds, loans, or bank accounts is also income from capital assets (Section 8 of the Czech Income Taxes Act) and is included in the separate tax base taxed at 15%. Here too, you may credit tax withheld abroad under the relevant treaty.

Capital gains from abroad

Income from the sale of securities (shares, ETFs) and interests in business corporations is taxed in the Czech Republic as “other income”. However, important exemptions apply, which were recently amended (the consolidation package effective from 2024/2025):

• Time test: Income from the sale of securities is exempt if the period between purchase and sale exceeds 3 years (for interests in an s.r.o. (Czech limited liability company), 5 years).
• CZK 40 million cap: From 2025, even if the time test is met, only income up to CZK 40,000,000 per taxpayer per tax period is exempt.
• Minor income: If the total income from the sale of securities does not exceed CZK 100,000 per year, it is exempt.

This change (the introduction of the CZK 40 million cap) is crucial for large investors. If you are planning a sale above this amount, it is essential to consult experts at ARROWS so that you correctly determine the acquisition cost and the tax base under Czech tax rules.

Income from renting foreign property

If you rent out real estate abroad, this is income under Section 9 of the Czech Income Taxes Act. This income forms part of the general tax base and is subject to the progressive tax rate (15% or 23%). For real estate located abroad, the exemption method with progression is often applied under the relevant double tax treaty.

How to calculate and pay tax – practical steps

If you are a Czech tax resident, you proceed as follows. First, you convert all foreign income into Czech crowns. To do so, you use either the unified exchange rate announced by the General Financial Directorate after the end of the year, or the Czech National Bank (ČNB) foreign exchange market rates valid on the date the income is credited.

The second step is compiling the documentation. For each item of foreign income, you must have a document proving the amount of gross income and the amount of tax withheld abroad.

The third step is completing the tax return. You report foreign income in the relevant annexes (Annex No. 3 for foreign income and the foreign tax credit method). Here you calculate the foreign tax credit.

The fourth step is filing and payment. The tax return for 2026 must be filed by 1 April 2027 (paper filing), by 3 May 2027 (electronic filing), or by 1 July 2027 (if you are represented by a tax advisor or an attorney).

You must keep the documents for at least 3 years from the deadline for filing the return. The Czech legal team at ARROWS, a Prague-based law firm, can assist you with the entire process—from collecting documents, through preparing the return, to communicating with the Czech tax authority.

Related questions on calculating and paying tax

1. When can I claim a credit for foreign tax?

You can claim a credit for foreign tax in the tax return for the year in which the income was included in the tax base. You cannot claim a credit for tax that was not actually payable abroad (e.g., if you were entitled to a refund).

2. Which exchange rate should I use?

Most non-business individuals use the so-called unified exchange rate, which is an average of exchange rates for the entire calendar year. This is administratively the simplest option.

3. What documents does the tax authority require during an audit?

The authority will want to see confirmation of tax paid abroad (from the foreign authority or confirmation from the tax withholder—bank/broker), contracts, account statements, and possibly a certificate of tax residence if you are applying treaty-specific rules.

What are the risks and penalties for non-compliance

If you ignore obligations relating to foreign income, you risk fines and late-payment interest. Thanks to international exchange of information (CRS/DAC2), the Czech tax authority has visibility into your foreign accounts.

Obligations when reporting foreign income and exchange of information

The Czech Republic participates in the automatic exchange of information system (CRS) and has an agreement with the USA (FATCA). This means that foreign banks and brokers automatically report account information of Czech residents to the Czech tax administration.

As an individual, you do not file a special “FATCA/CRS report”, but you must ensure that the information in your Czech tax return corresponds to reality. If the Czech tax authority receives information about income on your account in Austria or the USA and you have not included this income in your return, it will automatically initiate a tax inquiry procedure.

Another obligation is the Notification of Exempt Income. If you receive exempt income (e.g., from the sale of shares after meeting the time test) exceeding CZK 5,000,000, you must notify the tax administrator within the deadline for filing the return. Failure to comply with this obligation is sanctioned by draconian fines under Czech tax legislation.

Transfer pricing and high-risk structures

If you carry out transactions with related foreign persons (e.g., you invoice your own foreign company or lend it money), you must comply with transfer pricing rules. Prices must be set at arm’s length. If they are not, the tax administrator will assess the difference and impose a penalty.

Our attorneys in Prague at ARROWS, a Prague-based law firm, will help you set pricing so that it is defensible and will prepare the necessary documentation, which is crucial during a Czech tax audit.

Specific obligations for EU entities and the global minimum tax

For large international groups (turnover above EUR 750 million), EU and Czech rules on the global minimum tax apply, ensuring an effective tax rate of at least 15%. By 2026, this system will already be fully operational. Although it primarily concerns corporations, it can also affect structures held by individuals if they are part of such a large group.

Practical tips and common mistakes

From our experience at ARROWS, a Prague-based law firm, we see that investors often make mistakes in the following areas:

• Incorrect determination of tax residency: Having a “paper” residence in the Czech Republic is not enough. If you have your family and an apartment here, you are usually a Czech tax resident, even if you work abroad.
• Confusing income and investments: Tax applies to realised profit (a sale), not merely holding shares (if they do not pay dividends). However, be careful with ETFs that reinvest dividends – the tax treatment under Czech law can be complex.
• Missing tax confirmation: Without confirmation from the foreign tax authority or a credible document from your broker, the Czech tax office will not recognise a foreign tax credit.
• Ignoring the CZK 40 million limit: Many investors still believe that selling shares after 3 years is fully exempt. From 2025, the exemption applies only up to a limit of CZK 40 million per year.
• Failure to file a notification of exempt income: The sale of a company for CZK 20 million may be tax-exempt under Czech legislation, but if you do not file the required notification with the Czech tax office, you will face a significant fine.

Conclusion

Taxation of foreign investments in 2026 requires precision and knowledge of current legislation. The combination of the Czech Income Taxes Act, international treaties and new rules creates an environment where mistakes are costly.

The attorneys at ARROWS advokátní kancelář are ready to assist you. We provide comprehensive legal and tax advice in the Czech Republic, prepare tax returns and represent clients during tax audits before the Czech tax authorities. Contact us at office@arws.cz and secure peace of mind for your investments.

FAQ – Most common legal questions on the taxation of foreign investments

1. Do I have to report foreign income even if it was taxed abroad?

Yes, as a Czech tax resident you must report your worldwide income in your tax return. You can credit foreign tax against Czech tax if permitted by the applicable double taxation treaty, thereby avoiding paying tax twice.

2. What is the deadline for filing the 2026 tax return?

The standard deadline is 1 April 2027. If filed electronically, the deadline is extended to 3 May 2027. If you use a tax adviser or an attorney (e.g., ARROWS), you have time until 1 July 2027.

3. What if the Czech tax office discovers my foreign account?

Due to the automatic exchange of information, the Czech tax office likely already knows about it. If you have not reported the income, you risk additional tax assessment, late-payment interest and a 20% penalty. For larger amounts, it may also constitute the criminal offence of tax evasion under Czech law.

4. How are foreign dividends taxed?

They are subject to a 15% rate (separate tax base). Foreign withholding tax can usually be credited.

5. What is a beneficial owner (ultimate beneficial owner)?

It is the person who actually benefits from the income and is not merely an intermediary. To apply treaty benefits under double taxation treaties (lower withholding tax abroad), you must be the beneficial owner of the income.

6. What is FATCA?

FATCA is a US law under which banks report accounts held by US persons (citizens, residents). If you are a “US person”, your Czech bank will report your balances to the USA.

Notice: The information contained in this article is of a general informational nature only and is intended for basic guidance (state of legislation as of 2026). Legal regulations may change. To address your specific situation, contact ARROWS advokátní kancelář (office@arws.cz). We accept no liability for any damage arising from the independent use of this information without professional consultation.

Read also:

• Trust Funds and Taxes: When Is a Payment to a Beneficiary Tax-Exempt, and When Is It Taxed as Other Income?:
• Holding Structures and Beneficial Ownership in the Czech Republic: Compliance Checklist:
• Reorganising Your EU Group Structure Why the Czech Republic Might Be the Right Jurisdiction:
• Setting Up a Czech Subsidiary: Key Legal and Tax Considerations:
• Compliance audits: How to conduct an internal audit before the authorities arrive: