Tax and the Energy Transition in the Czech Republic

Abstract

This branch report examines how Czech tax law treats the energy transition, covering both direct and indirect taxation. The Czech Republic has no separate income tax regime for energy producers. Renewable and fossil fuel companies alike are subject to the standard 21% corporate income tax, and there are no ring-fenced petroleum taxes or resource rent taxes. Earlier renewable energy incentives, including a corporate tax exemption for solar, wind and biomass installations, were removed in 2011. At the same time, a special levy on solar electricity was introduced for installations built in 2009 and 2010. This levy was later confirmed by the Constitutional Court and eventually reduced to an ongoing charge of 10%. Fossil fuel producers can deduct reserves created for site remediation, and nuclear operators can deduct their contributions to the nuclear waste fund. A temporary windfall profits tax of 60% also applied to energy companies for the years 2023 to 2025. On the indirect tax side, the Czech Republic relies mainly on the EU Emissions Trading System rather than a national carbon tax. This is combined with harmonised excise duties on mineral oils, natural gas, solid fuels and electricity, which remain close to the EU minimum rates and give only a weak price signal, especially for household heating. The report also looks at international issues such as withholding tax, permanent establishment rules and the treaty treatment of capital gains from selling renewable energy companies. It ends with an outlook on expected reforms driven by EU developments, including the new ETS2 system and changes to road taxation for electric vehicles.