When a company pays a non-resident abroad for licence fees, interest or certain services, it usually has to withhold tax at source. Slovakia applies a standard 19 % rate under §43 of its Income Tax Act, while the Czech Republic applies 15 % under §36 — and both jump to 35 % for payments to non-treaty states. A double tax treaty can lower or remove the rate, provided the payer holds the recipient’s certificate of tax residence.
What is withholding tax and who pays it?
Withholding tax is a method of collecting tax where the payer, not the recipient, remits the tax. The local company deducts a percentage from the invoiced amount, pays the supplier the remainder and sends the withheld tax to the tax office. For the foreign recipient, this usually settles the tax liability in the source country without the need to file a return there.
The rule exists in both Slovakia and the Czech Republic because a state can hardly collect tax from a company based abroad; it shifts the duty to whoever controls the money at the moment of payment. If the payer fails to comply, the tax and penalties fall on the payer, not the foreign supplier. Note that this is income tax, not VAT — for the VAT side see our guide on how to invoice abroad from a VAT perspective.
Which payments are subject to withholding tax?
In both countries the test is whether the income has its source in the given country — §16 in Slovakia, §22 in the Czech Republic. The categories are largely the same:
- licence fees and royalties — for software, patents, trademarks, know-how and copyright,
- interest on loans paid by a local debtor,
- selected services provided in the territory (consulting, technical, management and intermediary activities),
- rent for movable property used locally.
A plain purchase of goods from abroad is not subject to withholding. Where interest or royalties flow between related companies, the arm’s length principle also applies — covered in our article on transfer pricing documentation in Slovakia and the Czech Republic.
How do the rates differ between Slovakia and the Czech Republic?
This is the key practical difference. Slovakia’s standard rate is 19 %, the Czech standard rate is 15 %. So the same licence fee paid to a treaty-state company is taxed more heavily if the source is Slovakia than if it is the Czech Republic.
Both countries apply a penalty rate of 35 % when the recipient is not a tax resident of an EU or EEA state and comes from a non-treaty jurisdiction. Example: on a licence fee of 10 000 eur, a Slovak payer withholds 1 900 eur at the standard rate, a Czech payer 1 500 eur, and either withholds 3 500 eur if the recipient sits in a non-treaty state.
How does a double tax treaty change the rate?
An international treaty overrides domestic law in both countries. Many treaties cut the rate on royalties or interest to 10 %, 5 % or even zero. The payer may apply the reduced treaty rate only if it holds the recipient’s certificate of tax residence at the time of payment (and, where relevant, a beneficial ownership declaration). Without it, the domestic rate applies.
The underlying question — whether your partner is a non-resident at all — follows residence rules that differ case by case, so it is worth settling before the payment is made rather than after.
When are intra-EU payments exempt?
Both Slovakia and the Czech Republic transpose EU Directive 2003/49/EC, which exempts interest and royalties between associated EU companies. The conditions are the same in both: a direct holding of at least 25 % of the capital, held continuously for at least 24 months, with the recipient being the beneficial owner and a tax resident of another member state.
Where the conditions are met, no tax is withheld. The exemption does not apply to independent suppliers or to payments outside the EU, where the standard or treaty rate returns.
What about the advance mechanism — securing the tax?
For income that is not subject to final withholding, each country has a second tool. Slovakia uses tax securing under §44 at 19 % (35 % for non-treaty states); the Czech Republic uses tax assurance under §38e at 10 % for non-residents outside the EU and EEA. In both cases it is an advance, not a final tax: the non-resident files a return and the secured amount is credited against the actual liability.
What are the filing deadlines?
The timing differs. A Slovak payer must remit the withheld tax by the 15th day of the following month and file a notification in the same period. A Czech payer has until the end of the following month and files a withholding tax report. In both countries, failure to withhold shifts the tax and late-payment interest onto the company itself.
Because the outcome combines domestic law with the relevant treaty, it pays to settle — before signing the contract — where the supplier is based, which rate applies and whether you can obtain the residence certificate.
Sending licence fees, interest or service payments abroad and unsure how much to withhold? We will review the contract, find the correct rate under the applicable double tax treaty and prepare the filing so you avoid penalties.
FAQ
Is withholding tax the same as VAT?
No. Withholding tax is a tax on the income of a non-resident, deducted by the payer when the payment is made. VAT is a separate consumption tax with its own rules, including reverse charge for many cross-border services. A single payment can trigger both, so they must be assessed independently.
What if I do not have the supplier’s certificate of tax residence?
Without it you cannot apply the reduced treaty rate and must withhold at the domestic rate — 19 % in Slovakia or 15 % in the Czech Republic, or 35 % for a non-treaty state. Request the certificate before payment. If you obtain it later, the difference can usually be corrected, but it is more administratively demanding.
Do I withhold tax on invoices for goods?
No. Withholding applies only to defined categories of a non-resident’s source income — mainly licence fees, interest and certain services under §16 in Slovakia and §22 in the Czech Republic. A plain purchase of goods from abroad is not subject to withholding tax.