Marriage is one of those personal milestone life-events that introduce far-reaching (welcome) social changes to the lives of participants and their families. Unfortunately, governments the world over heavily regulate this personal institution with serious legal and tax consequences for the participants. The complexity of these consequences for a Czech and non-Czech citizen surely render the nerve-rattling questions of arranging the event inconsequential by comparison. In this article we will cover just a few of the issues relating to the legal and tax consequences of a marriage between a Czech and non-Czech in the Czech Republic. First, some definitions.
Marriage and registered partnerships
The Czech Republic treats marriage of a man and woman as a marriage (manželství) and the marriage of two persons of the same gender as a registered partnership (registrované partnerství). The two are not equal. For example, although partners to a registered partnership are treated similarly to married partners in respect of inheritance, hospital, spousal privileges, and alimony, the law discriminates against registered partnerships in respect of adoption, widow’s pension and joint property rights. Registered partners do find additional support in regulation recognizing unregistered cohabitation status to “persons living in a common household” that gives couples inheritance and succession rights in housing. I refer to spouses and partners in respect to married persons throughout this article.
The term common household (společná domacnost) is a joint household to be a place of permanent cohabitation between two or more adults that share household expenses and obligations. It is an important term with respect to the applicability of the spousal and child tax credits. (Civil Code, § 115 and § 474, para. 1)
The Czech Republic recognizes joint ownership of property by spouses acquired after their marriage, regardless of nationality of the foreign spouse. Spouses may elect to retain separate property before the marriage, or modify their ownership after marriage in front of a notary. The legal ownership of property can be critical to the determination of eligibility for government benefits, taxation of income, taxation of inheritances and gifts.
• Spouses who are foreign citizens with the same citizenship: ownership of property is regulated by the laws of their citizenship;
• Spouses have different citizenship: ownership of property is regulated by Czech law.
A particular note about rental real estate: real estate owned by one spouse prior to marriage might remain the separate property of that spouse. But the rental income received from that property after marriage will be jointly owned by the spouses after marriage unless they have legally structured it to remain separate.
Each taxpayer earning income from sources other than employment by a Czech-registered employer must file an annual individual income tax return. Spouses are not able to file jointly, as this filing status was abolished with the introduction of the 15% flat-tax in 2008. The government nonetheless regulates taxes of its citizen on the basis of their marriage status in a number of ways:
1. A taxpayer who supports a spouse in a joint household whose gross income from all sources, including some government entitlements (see below) and community property is less than 68,000 CZK/year, is eligible to claim a spousal tax credit of 24,840 CZK/year, or double if spouse is disabled.
2. A taxpayer who supports children living in the household is eligible to claim a child tax credit equal to 967 CZK/mo, or 11,604 CZK/year per child for the taxpayer’s or spouse’s children living in the home. The other spouse or an ex-spouse may not also claim the credit for the same child.
Income from community property is generally reported by only one of the spouses on their return. The tax preparer might attach a deed (in the case of real estate) or provide additional information in the return apportioning the income.
Inheritance and gift taxes
All marriages one day will end, and if it was a happy marriage then one of the spouses or their children will need to wrestle with the issue of inheritance. It is best that inheritance issues be considered early-on, as the Czech Republic has a very tightly-regulated inheritance law that can even override the wishes of the decedent.
1. Under the community property rules discussed earlier, a surviving spouse retains a 50% interest in the joint property; the rest is addressed by the law on inheritance.
2. The remainder of the property is distributed to the children and surviving spouse in equal portions. Unless a last will and testament exists, and should there be no surviving spouse or children, the law calls for the distribution to parents, care-givers, siblings, grandparents and grand children of grandparents.
With respect to inheritance and gift transfer tax, the law establishes three categories of beneficiaries. The first two, including relatives and certain other care-givers and dependents of the deceased, are exempt from tax on their gains. The third, including other individuals or organizations (i.e., charities), is subject to tax ranging from 7% to 40% (on gifts) and 3.5% to 20% (on inheritance). Registered partners are likely to be considered as category 2 or 3 beneficiaries. If tax is to be paid, it is reported on a separate transfer tax return (not income tax return.)
Government wealth re-distribution payments
The Czech government Ministry of Labor and Social affairs manages a socio-economic wealth re-distribution policy directed at families. These welfare entitlements include child allowance, social allowance, housing allowance, parental allowance, foster care benefits, birth grant, funeral grant. Further information in English can be found at their web pages, here.
Some entitlements are included in gross income for the determination of eligibility for the spousal tax credit described above:
1. Included: unemployment, disability, maternity leave, invalid and pension payments;
2. Not-included: child welfare, social, housing, school supplies, parent, elderly care, birth, burial, care of other person.
Many countries permit or require joint tax declarations of married persons living in those countries, but will not seek to tax you and your spouse if you live abroad. However, the United States and its individual states tax its citizens regardless of where they live – even if they are both living in the Czech Republic. It is highly-advisable to check with a professional tax preparer or accountant with knowledge of U.S. and Czech taxation before filing those first post-nuptial tax returns.