SUPERCEDED

I.   Introduction

The Czech Republic Income Taxes Act, Value Added Tax Act, Excise Duty Act, and the Act on Accounting and the Chart of Accounts all came into effect from 1991 through 1994. There were, to say the least, some major changes from the previous systems.

Given the magnitude of the changes, and the short time period in which they were devised, great credit must be given to the government. Having said that, we believe that the mandated accounting system
leaves much to be desired. In attempting to create an integrated tax and financial and management accounting system, they have forgotten one of the most important lessons to be learned from centrally
planned economies - no one is clever enough to devise an integrated system which works!

It is perhaps not surprising that there is a little confusion and lack of clarity! Additionally, be warned, there are important other laws which impinge on business operations, including the tax and accounting systems.

Do expect further changes and amendments. Anticipate that changes could be retroactive. Learn to live with a bureaucratic system. The latest amendments in 1997 are mainly for 1998. Do expect, within the next 1 to 3 years, that the commercial code, civil code, labor code, civil procedures, and accounting system will be completely revised. Because of the current integrated tax accounting system, this will require major changes in the tax laws.

Tax planning is important. For example, for an individual earning a salary of $100,000 per annum, the combined income tax and social security burden to the individual and business is about $70,000.

There are tax planning opportunities which result in a dramatic reduction of the payroll social costs for foreign and domestic top management.

Tax planning enables businesses to reduce their corporate tax burden and minimize non-reclaimable Value Added Tax charges.