Further to our previous circular, in which we addressed the legal aspects of organising consumer (marketing) competitions, we have prepared basic information on related tax matters as well. Below, we proceed on the assumption that only natural persons participate in marketing competitions.

Income (winnings) from a marketing competition is subject to income tax, whether it is monetary or non-monetary income. Such income is exempt from tax if the amount of the 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 the amount of CZK 10,000, it constitutes taxable income subject to withholding tax at a rate of 15%. The tax base is the amount paid if the prize is monetary, or the price determined pursuant to the Act on Valuation of Property (zákon o oceňování majetku) 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 authority by the payer of the income, that is, the person who pays the prize to the winner at their own expense. Since in the case of non-monetary income (winnings) the tax cannot actually be withheld, 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 its 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 its locally competent tax authority by the end of the following calendar month. If the payer fails to fulfil its obligation to withhold the tax, this tax will be collected from it as its tax debt. Neither the withholding nor the remittance of the tax is associated with an obligation to submit 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 reconciliation of withholding tax and submit the relevant report to the locally competent tax authority.

Entrepreneurs frequently enquire about the possibility of transferring the obligation to remit withholding tax to the organising advertising agency. However, the transfer of a public law obligation is not possible. It is, however, possible to proceed in such a manner that the advertising agency becomes the payer of this income, in which case it would incur the obligation to withhold the tax and fulfil the related tax obligations. The decisive factor is therefore who will pay the income (prize) at the expense of their own costs. Thus, if, pursuant to a contract, the agency is obliged 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 it will also incur the obligation to withhold and remit the relevant tax. However, it is necessary that the income be paid in its own name, at its own expense, and not that it act on behalf of the client of the marketing competition. Therefore, if the prizes are provided by the client (organiser) of the competition and the advertising agency merely hands them over, the client pays 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 winnings under income tax, the procedure is analogous to that for taxation of income from dependent activity by withholding tax, and the reconciliation 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 a 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 gratuitous supply.

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