Further to our previous circular, in which we addressed the legal aspects of organising consumer (marketing) competitions, we have prepared basic information regarding the related tax matters. The following is based on the assumption that only natural persons participate in marketing competitions.

Income (winnings) from a marketing competition is subject to income tax, whether the income is monetary or non-monetary. Such income is exempt from tax if the value of an individual prize does not exceed CZK 10,000. It is immaterial whether the prize is monetary or non-monetary.

If the value of the prize exceeds CZK 10,000, it constitutes taxable income subject to withholding tax at the rate of 15%. The tax base is the amount paid if the prize is monetary, or the price determined in accordance with the Act on Valuation of Property in the case of a non-monetary prize (thus being the price inclusive of VAT). The tax must be withheld and remitted to the locally competent tax office by the payer of the income, that is, the person who pays the winner the prize at their own expense. Since in the case of non-monetary income (prizes) it is not possible to actually withhold the tax, the payment of this tax by the payer on behalf of the taxpayer (thus, in addition to paying the non-monetary prize to the winner, the payer pays from their own resources the tax that should have been withheld from the given prize) is recognised as a tax-deductible expense.

The payer is obliged to withhold the tax at the moment of payment of the prize to the winner and must remit it to their locally competent tax office by the end of the following calendar month. If they fail to fulfil their obligation to withhold the tax, this tax shall be collected from them as their tax debt. Neither the withholding nor the remittance of the tax is associated with an obligation to file a tax return or report, unless the prize is paid to a non-resident. However, by the end of February of the following calendar year, the payer is obliged to include this withholding tax in the settlement of withholding tax and file the relevant report with the locally competent tax office.

Entrepreneurs frequently enquire about the possibility of transferring the obligation to remit withholding tax to the organising advertising agency. The transfer of a public law obligation is, however, not possible. It is possible, though, to proceed in such a manner that the advertising agency is the payer of this income, in which case the obligation to withhold and fulfil the related tax obligations would arise for it. What is decisive, therefore, is who will pay the income (prize) at the expense of their own costs. If, therefore, the agency is obliged under the contract to pay the prize and it will be transferring its ownership right to the prize in kind to the winner, it will be regarded as the payer of the income and the obligation to withhold and remit the relevant tax will also arise for it. It is, however, necessary that it pays the income in its own name, at its own expense, not that it does so on behalf of the client commissioning the marketing competition. If, therefore, the client (organiser) of the competition provides the prizes and the advertising agency merely hands them over, the client is paying them through the advertising agency and the client will be regarded as the payer of the tax.

It may be summarised that, from the perspective of taxation of prizes under income tax, the procedure is similar to that for taxation of income from dependent activity by withholding tax and the settlement is carried out jointly in one form.

From the perspective of value added tax, it is necessary to remit the relevant VAT in connection with the payment of non-monetary prizes if the right to deduct was claimed for the prizes upon their acquisition. If the right to deduct was not claimed, there is no need to assess additional tax, as this constitutes a gratuitous supply.

This text was translated from Czech to English using an AI translator.