CZECH BANKING SECTOR. Photo: PhotoCombo

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1 CZECH BANKING SECTOR The banking sector in the Czech Republic is widely internationalised and more than 95% of its assets are owned by parent banks in developed countries, especially within the EU. At the end of 2008, a total of 37 banks (including branches of foreign banks and building societies, and excluding the central bank) operated in the banking sector of the Czech Republic. Out of the 37 banking entities, 5 are building societies. According to Czech National Bank data, the number of foreign financial and credit institutions providing cross-border services in the CR reached 252 as of January New names that appeared in the Czech banking market in 2008 included: Banka mezinárodní spolupráce, a.s. (АО «Банк международного сотрудничества»); the first Russian bank granted a banking licence in the CR from spring 2008; Straumur-Burdaras Investment Bank hf organisational component; the Icelandic investment bank has been present in the Czech banking market since autumn 2008; Landesbank Baden-Württemberg (LBBW Bank CZ) is a new owner of BAWAG Bank CZ, a situation that has called forth the change of the bank s name; On the other hand, the names of some banks disappeared during the year. This was the case of financial institutions such as: HYPO stavební spořitelna, a building society which was taken over by a new owner, Raiffeisen stavební spořitelna; ebanka, where the legal steps of merger with Raiffeisenbank were finalised; BAWAG Bank CZ, where the parent company abroad was acquired by LBBW Bank CZ, which caused the change of name; ABN AMRO Bank N.V., that found itself in the process of transformation into the Royal Bank of Scot- Photo: PhotoCombo

2 land Czech Republic, which is the result of changes abroad and the process has not been completed yet. ACTIVITIES OF THE BANKING SECTOR The balance sheet total (i.e. total assets/liabilities) of commercial banks increased by CZK 449 billion (approx. EUR 16.7 billion) year-onyear, which represents an increase of 12.1%. The balance sheet total of the Czech banking sector has thus reached the amount of CZK billion (approx. EUR billion). Credits and loans were again the most decisive items (loans to large companies were most important in terms of volume, followed by credits to small and medium-sized firms, and also mortgage and consumer loans, although the latter with somewhat lower dynamics than in the preceding years). The overall amount of commitments, guarantees, and other off-balance sheet items developed similarly to the previous period. The volume of loans granted to households by monetary and financial institutions (where banks predominate) reached CZK billion (approx. EUR billion) at the end of % of this amount were loans for the purchase of residential real estate, and 19.4% were accounted for by consumer credits to households. Compared to other EU countries which, like the Czech Republic, are not in the euro zone, indebtedness is low and no problem has thus arisen in connection with the ongoing financial crisis with payments, that is low liquidity in foreign currencies on the part of debtors. Credits of monetary financial institutions (MFI) provided outside the government and finance sectors reached the volume of CZK billion (approx. EUR 69.9 billion) at the end of The year-onyear increase exceeded a quarter of a trillion CZK (CZK billion, or EUR 9.7 billion), which means a drop by CZK 80.5 billion (EUR 3 billion) year on year. PRUDENTIAL BEHAVIOUR OF BANKS Indicators of prudent business of banks have not changed in any significant degree and generally remain on an acceptable level that is far more favourable compared to the situation for example at the end of the 1990s. The share of non-performing loans in total credits has been more or less stable ranging from 2% to 3% for several years. Nevertheless, the situation requires banks to take preventive measures to further strengthen their stability. Going hand in hand with this is the required creation of provisions for bad debts. A more conservative view is now increasingly reflected in the assessment of risks being taken or even the possibility of a worsened reliability in the repayment of the granted credits. In 2008, the indicator of capital adequacy of banks developed similarly as in several previous years and oscillated approximately between 11.5% and 12.0%, i.e. sufficiently above the required 8%. LAWS AND REGULATORY MEASURES CONCERNING BANKING SECTORS Banking represents the backbone of the economy, so that many acts and other legal regulations apply to it in one way or another. To mention some of them, they include for example legislative changes related to problems of insolvency, tax laws, rules applying to the operation of the payments system or legislation dealing with the areas of investment and securities. SUMMARY AND PROSPECTS OF FUTURE DEVELOPMENT In a world-wide perspective, 2008 can be regarded as a year when the finance and banking sector was hit by a crisis that in many countries shook not only the very pillars of the financial system, but especially confidence. The Czech Republic has so far met rather with reverberations of this financial crisis, and thus it was not too difficult to address the related technical problems concerning inter-bank liquidity and the need to increase credibility between the institutions concerned. In the last weeks and months of 2008, it was possible to observe the impact of the marked economic slowdown which represented another wave after the financial turbulences. The marked slowdown in the real economy especially the company sector can quickly and strongly affect also banks, so that the proper approach is not irresponsibility but prudence that will mean careful consideration of the risks being taken and exploitation of business opportunities. Let us hope that the banking sector will be able to navigate through this complicated period into a new time of economic growth that need not necessarily be as far as it may seem from the contemporary perspective. However, this depends on many factors, including those beyond the immediate reach of the world of banks and finance. JAN MRÁZ Czech Banking Association [email protected] The CNB exchange rate of EUR 1 = CZK as of 31 December 2008 was used for the conversion of the amounts to EUR. More detailed data on banks and the banking sector can be found at the www pages below, which include the web addresses of banks operating in the Czech Republic: Czech Banking Association: Czech National Bank:

3 OVERVIEW OF BANKS AND BRANCHES OF FOREIGN BANKS OPERATING IN THE CR (IN ALPHABETICAL ORDER) Banks and branches of foreign banks WWW-address Membership of the Czech Banking Association (CBA) ABN AMRO Bank N.V. (in process of transformation into the Royal Bank of Scotland Czech Republic) (or yes Banco Popolare Česká republika, a.s. yes Bank of Tokyo-Mitsubishi UFJ (Holland) N.V. Prague Branch, organisational component Banka mezinárodní spolupráce, a.s. yes no BRE Bank S.A., organisational component of company yes CALYON S.A., organisational component yes Citibank Europe plc, organisational component yes Commerzbank AG, Prague Branch yes Česká exportní banka,a.s. yes Česká spořitelna,a.s. yes Českomoravská stavební spořitelna,a.s. yes Českomoravská záruční a rozvojová banka,a.s. yes Československá obchodní banka,a.s. yes Deutsche Bank AG, Prague Branch yes Fortis Bank SA/NV, Czech Republic Branch yes GE Money Bank,a.s. yes HSBC Bank plc-prague Branch yes Hypoteční banka,a.s. yes ING Bank N.V., Prague Branch yes J & T Banka,a.s. yes Komerční banka,a.s. yes LBBW Bank CZ a.a. yes Modrá pyramida stavební spořitelna,a.s. yes Oberbank CZ, Czech Republic Branch yes PPF banka,a.s. yes PRIVAT BANK AG der Raiffeisenlandesbank Oberösterreich, Czech Republic Branch no Raiffeisenbank,a.s. yes Raiffeisen stavební spořitelna,a.s. yes Raiffeisenbank im Stiftland eg, Cheb Branch, establishment no Stavební spořitelna České spořitelny,a.s. yes Straumur-Burdaras Investment Bank hf organisational component no UniCredit Bank Czech Republic,a.s. yes Volksbank CZ,a.s. yes Všeobecná úverová banka,a.s., Prague Branch yes Waldviertler Sparkasse von 1842, Jindřichův Hradec branch yes Wüstenrot hypoteční banka,a.s. yes Wüstenrot stavební spořitelna,a.s. yes Source:

4 Photo: PhotoCombo DIRECT TAXES The personal income tax is governed by Act No. 586/1992 Coll., on income tax. The payers are all natural persons residing in the Czech Republic, and persons usually dwelling in the country. The taxation period is one calendar year. The tax base includes all incomes, which the law divides into income from employment, income from business, income from capital assets, income from rentals and leases, and other incomes. As of 2008, the tax base of income from employment is the gross wage plus social and health insurance contributions paid by the employer (so-called super-gross wage). Expenses incurred to generate, assure, and maintain income can be deducted from some incomes, either the actual amount or TAX SYSTEM OF THE CZECH REPUBLIC The tax system of the Czech Republic is very similar to the systems of the other EU and OECD countries. The tax quota, which is defined as the ratio of taxes in the Gross Domestic Product, was 20.3% in The major part of the tax revenue comes from indirect taxes (the ratio of indirect and direct tax revenues was 54.3% to 45.7% in 2007). a flat-rate percentage of the income stipulated by the law. Also as of 2008, social and health insurance premiums are not deductible from the tax base. Losses can be carried over for five years and deducted from incomes in the following periods. Incomes from the sale of certain kinds of property are exempt from the tax after the mandatory period has elapsed between acquisition and sale (for example, 6 months in the case of securities and 5 years in the case of apartments). The tax has been set at a single rate of 15% as of Tax returns are filed by 31 March of the following year, and by 30 June when they are made out by a tax consultant. Advances are paid in the next taxation period according to the amount of the tax. An employee does not submit a tax return, as this is a duty of the employer. The law provides for many tax reductions related to the personal and family situation of the taxpayer. The law also lists non-taxable items which can be deducted from the tax base, such as donations to purposes of charity, paid interest on mortgages, and contributions to pension savings or life insurance.

5 The corporate income tax is also governed by Act No. 586/1992 Coll., on income tax. The payers are all legal entities in dependence on the place where they are based or from which they are managed. The taxation period is the calendar year or another 12-month period in keeping with the period of accountancy. The tax base is the difference between the incomes and expenditures in the particular taxation period. The incomes and expenditures are determined from books according to Czech national accounting standards. Non-taxable expenditures which can be deducted from incomes are expenditures incurred to generate, assure, and maintain income. Property is depreciated individually. Tangible assets are divided into six depreciation groups with depreciation periods ranging from 3 to 50 years. Losses can be carried over for 5 years and deducted from incomes in the following periods. Tax returns are filed within 3 months from the end of the taxation period, possibly within 6 months when they are made out by a tax consultant or when the financial statement must be verified by an auditor, which is the case of most legal entities. Advances are paid in the next taxation period according to the amount of the tax. The tax rate has been set at 20% for 2009, and 19% as of The law also provides for a number of tax reliefs. These include primarily tax holidays for a period of up to five years, and support to science and research by the possibility to deduct from the tax base 100% of expenditures on science and research projects. The real estate tax, which is levied on land and buildings, is fairly low. The road tax is levied only on trucks and cars which are used or designed for business. Vehicles which serve exclusively for private use are exempt from the tax. The tax rates are fixed annual amounts. The law also provides for inherit ance and gift taxes and a number of administrative and local fees. INDIRECT TAXES The value added tax (VAT) is governed by Act No. 235/2004 Coll., on value added tax. Registration for VAT is mandatory for persons whose annual turnover exceeds the amount of CZK 1 million (EUR ). Persons whose turnover is lower can register voluntarily. As of 2008, the law allows a group of associated persons to register as a single VAT payer. Persons performing exempt activities (such as financial services) do not have to register. The taxation period is a calendar quarter for persons with a turnover of up to CZK 10 million (EUR ), and one month for persons with a higher turnover. Tax returns are filed on the 25th day after the end of the taxation period. Every person registered for VAT is duty-bound to make out an invoice or sale document for every taxable transaction performed. VAT applies to the imports of goods from countries outside the EU. Transactions between EU countries are governed by harmonised rules, which include the duty to file summary reports. VAT has two rates. The basic rate of 19% applies to most goods and services. As of 2008, the reduced rate is 9% and applies to foodstuffs, medicaments, houses and apartments up to a specified size, books, newspapers and journals, accommodation USEFUL LINKS: Ministry of Finance of the Czech Republic Czech Tax Administration tax_inventory/index_en.htm Database of the European Commission Taxes in Europe OECD Tax Database OECD Taxing Wages services etc. Some transactions are exempt from VAT. These include the transfer of plots other than building plots, and the rental of plots and buildings. The registered person can deduct the input VAT from the calculated VAT. The VAT deduction does not apply to cars. But this deduction could be allowed in 2009 by an amendment, which is being prepared. Excise duties are also harmonised with the relevant directives. The excise duties are levied on mineral oils, alcohol, beer, wine, and tobacco products. There are fixed rates for the taxes (with the exception of cigarettes, where they are calculated as a combination of a fixed rate and a percentage of the final retail price). The taxation period is one calendar month. The tax is payable when the goods are put into free tax circulation, i.e. when they leave a registered tax warehouse. The deadline for the payment is the 40th day from the end of the relevant taxation period. The excise tax on cigarettes is paid by means of tobacco stamps. The tax is due within 60 days from the purchase of tobacco stamps. Energy taxes were introduced in They are fully harmonised with the relevant European directive. Energy taxes are imposed on electricity, solid fuels (coal and coke), and natural gas. The real estate transfer tax rate is fixed at 3%. The tax base is either the price of the real estate based on an official assessment or the real selling price, whichever of the two is higher. The tax is paid by the transferor (seller). The tax return is submitted within three months after the transfer of the real estate is completed. Other indirect taxes include, for example, air or water pollution charges and charges on waste. MARTIN JAREŠ Ministry of Finance [email protected] The average 2008 exchange rate of the Czech National Bank was used to convert amounts into EUR: EUR 1 = CZK 24.94

6 REGISTRATION Every entity that acquires a permit or licence to do business in the Czech Republic, commences independent gainful activity, or has taxable income, is dutybound to register at the competent Tax Office within thirty days from that date. With certain exceptions, the competent Tax Office is determined by the place where the entity is based. The application for registration, properly completed, must be submitted to the competent Tax Office with all the required documents essential for the business activities (such as business licence, extract from the Commercial Register, etc.). However, registration for taxes does not mean only registration for corporate income tax. The company must consider other taxes to which it could be liable in its business activities and which thus require registration for example value added tax (obligatorily when the turnover exceeds CZK 1 million (EUR ) in 12 consecutive months, or voluntarily if it does not exceed this amount, real estate tax when real estate is owned, road tax when a motor vehicle is used for business, income tax as a payer of taxes on income from dependent gainful activity and function emoluments when the company has employees, income tax as a payer of withholding tax when the company pays interest, dividends or royalties, income tax as a tax securing payer, excise tax, or tax on natural gas, tax on solid fuels, and electricity tax. If a company fails to fulfil the registration duty, and this fact is discovered by the Tax Office, the latter has the official duty to register the company. In such a case the company faces a sanction (fine). REGISTRATION OF EMPLOYEES A company with employees is dutybound to register or de-register them at the competent Social Security Administration, and at their health insurance companies, both within eight days. The company must also register itself as employer with the competent Social Security Administration and health insurance companies within eight days. REPORTING DUTY The company must bear in mind that its duties do not end with the registration at the relevant authorities. The company must report any changes in the facts stated when registering for taxes within 15 days REGISTRATION AND TAX DUTIES OF COMPANIES A newly established company must respect its tax-related duties in accordance with Czech tax laws. (in case of social security and health insurance usually within 8 days) from the day when they occurred. These changes include the establishment or the closing down of a permanent establishment for tax purposes, change of business name, change of seat, changes in statutory bodies, etc. CHANGE IN LOCAL JURISDICTION Very important is the change in local jurisdiction (change in the place where the company is based) by which the company is transferred to the competence of another Tax Office. The company reports this change to the currently competent Tax Office, which enters in its registration certificate a limited period of validity and subsequently performs only urgent acts. Before the validity expires, the company is duty-bound to present the registration certificate to the Tax Office at the new seat, which will issue a new registration certificate. REGULAR TAX AND ACCOUNTANCY DUTIES There is no need to emphasise that during its operations, every company must observe the relevant accounting and tax laws and monitor their changes. Essentially, every company must keep books, prepare financial statements in certain cases verified by an auditor, and submit corporate income tax returns and possibly other tax returns within time limits. With all the required certificates acquired, the returns can be filed electronically. The competent Tax Office can check the correctness of the stated tax base and the calculated tax or the stated tax loss, raise questions, conduct examination on site even during the taxation period, and make out protocols and official reports on its findings concerning taxes and the fulfilment of legal duties in accountancy. TERMINATION OF OPERATIONS A company planning its dissolution is duty-bound to ask the competent Tax Office for written consent for deletion from the Commercial Register, and subsequently present this consent to the Commercial Register together with an application for deletion. If the competent Tax Office finds that the company has ceased to operate or receive taxable income, it will take steps to accelerate the determination of the tax base and collect all outstanding taxes which are not statute-barred. ALEŠ ZÍDEK, [email protected] KATEŘINA SCHROLLOVÁ, [email protected] WHITE and CASE LLP Note: EUR 1 = CZK (average monthly exchange rate set by the Czech National Bank, March 2009) USEFUL LINKS: Ministry of Finance Czech Tax Administration Ministry of Labour and Social Affairs Ministry of Health Czech Social Security Administration General Health Care Insurance Company Centre for International Reimbursements

7 SOCIAL INSURANCE SYSTEM In accordance with Act No. 582/1991 Coll., as later amended, the social security system is administered by the state social security authorities. The social security authorities are: The Ministry of Labour and Social Affairs ( the Czech Social Security Administration ( the Ministry of the Interior ( the Ministry of Justice ( and the Ministry of Defence ( The Czech Social Security Administration manages the social security of the civilian population, while the administrators for the armed forces are the Ministry of the Interior, the Ministry of Defence, and the Ministry of Justice. ACT ON SOCIAL SECURITY CONTRIBUTIONS Social security contributions and contributions to the state employment policy are governed by Act No. 589/1992 Coll., as later amended. Social security contributions are collected in accordance with the said legislation. These include contributions towards pension insurance (old-age, invalidity, and survivors pensions), contributions towards sickness insurance, and contributions towards the state employment policy. PAYERS OF SOCIAL SECURITY CONTRIBUTIONS According to the law, social security contributions are obligatory in the case of the following specific groups: a) Employers for the purpose of this law, these are understood to mean legal entities or individuals, b) Employees - for the purposes of this law, these are understood to mean employees in employment as well as persons involved in a relationship the content of which is similar to employment, although a formal employment relationship has not been established as the conditions defined by labour-law provisions for establishing an employment relationship have not been met. This group also includes judges, members of the Chamber of Deputies, senators of the Senate of the Parliament of the Czech Republic, members of the Government, the president, judges of the Supreme Court, members of the armed forces, and other persons defined by law. c) Persons participating voluntarily in pension insurance (defined in section 6 of Act No. 155/1995 Coll., for example those registered with employment offices as job seekers, if they are not entitled to support, students of high schools and universities with the exception of the first six years of study...). In the case of persons voluntarily participating in pension insurance, the assessment base for the calculation of the pension insurance contribution is an amount chosen by the individual him/herself. For 2009, the minimum amount is derived from the average wage and equals CZK (EUR ) per month. d) Self-employed persons are obliged to pay pension insurance contributions and contributions towards the state employment policy if they are participants in the Czech pension insurance scheme in accordance with the provisions on pension insurance. Sickness insurance is voluntary for self-employed persons, who must apply for it independently if they wish to do so. In accordance with Act No. 155/1995 Coll., as amended by Act No. 425/2003 Coll., self-employed persons, including collaborating persons (hereinafter SEPs), have been divided into two categories since 1 January 2004: persons engaged in full-time self-employment (hereinafter full-time SEPs), and those who are self-employed part-time (hereinafter part-time SEPs). In 2009, part-time SEPs are those persons who report and furnish proof: a) of having carried out employment b) of their entitlement to an old-age pension or entitlement to a full or partial disability pension (proof is required only in cases where the dispensing authority is other than the Czech Social Security Administration), c) they were children without means, d) they carried out military or community service (in the case of regular soldiers) e) they were granted parental allowance or maternity benefit or they cared for a person under the age of 10 dependant on the care of another person defined under level I (mild reliance) or for a person reliant on care defined under level II (medium reliance) or defined as level III (strong reliance) or level IV (full reliance), given that the individual reliant on the care of another person is a close relative or shares the household with a self-employed person, if this person is not a close relative. As from 1 January 2009, if a person is to be considered engaged in part-time self-employment he/she must announce this fact to the District or Prague Social Security Administration, and should do so at the latest together with the revenue Photo: PhotoCombo

8 Further information on social insurance is available at the website of the Ministry of Employment and Social Affairs: and the Czech Social Security Administration: and expense statement for 2009 which follows the tax return for 2009, i.e. in the year For the purposes of advance payments, such self-employment will then be considered part-time self employment retroactively. Persons engaged in full-time self-employment (not those in part-time selfemployment) are obliged to pay advance payments for each month during which self-employment was carried out fulltime for any part of that month. SOCIAL SECURITY CONTRIBUTION RATES The contribution rates are defined as a percentage of the assessment base for the relevant period. The percentage rates have been defined as follows: The assessment base for the calculation of social security contributions and contributions towards the state employment policy in the case of employees is the sum of their gross income (before tax) paid out by an organisation in relation to the performance of their work, establishing their insurance cover. The law stipulates exceptions in the case of certain types of income. The assessment base for pension insurance contributions and contributions to the state employment policy to be paid by self-employed persons is determined by the persons themselves, but must be no less than 50 % of their income from independent gainful activity following the deduction of expenses needed to generate, assure, and maintain this income. In 2009, the assessment base used to calculate the contribution of selfemployed persons towards pension insurance and the state employment policy must be no less than: CZK /EUR 236 per month for persons engaged in full-time selfemployment (i.e. 50% of half of the general assessment base which precedes by two years the year for which it is determined, multiplied by the pension insurance coefficient (GAB)). The minimum monthly advance payment for contributions towards pension insurance and the state employment policy is CZK /EUR 70 (CZK /EUR 840 is the minimum payment of insurance contributions per year, if participation in the insurance scheme lasted the entire year). CZK /EUR 95 per month in the case of part-time SEPs (i.e. 10% of the general assessment base). The minimum monthly advance payment for contributions towards pension insurance and the state employment policy for part-time SEPs is CZK 688/EUR 28 (CZK 8 369/EUR 335 is the minimum insurance contribution if participation in the insurance scheme lasted throughout the entire year). Part-time SEPs with a yearly income (income - expenditure) lower than CZK /EUR (2.4 times the GAB) are not participants in the pension insurance scheme in The annual assessment base may equal a maximum 48 times the average wage in the national economy (CZK /EUR in 2009). In order to ensure an equal footing of persons engaged in self-employment and employees, the maximum assessment base of self-employed persons is no longer reduced by 1/12 of the maximum assessment base for calendar months during which they were not engaged in self-employment. In the case of employees, the decisive period for payment of social insurance from which the assessment base is derived is the calendar month for which the contribution is paid. For self-employed persons, the decisive period for determining the assessment base for contributions to pension insurance and to the state employment policy, is the calendar year for which the contributions are paid. PAYMENT OF CONTRIBUTIONS Employers are obliged to calculate the insurance contributions which they are obliged to pay. Furthermore, they are obliged to effect payments of insurance contributions payable by their employees. Employers deduct from these insurance contributions half of the wage compensation paid in the given month to their employees. Since 2009, employers pay wage compensation for the first 14 days of their employees sickness, to which employees are entitled from the fourth working day onwards. Wage compensation is paid for working days only. Sickness pay is no longer paid out by employers. Since January 2007, pension requests are handled by the District Social Security Administration (Prague Social Security Administration) for all insurees. MINISTERSTVO PRÁCE A SOCIÁLNÍCH VĚCI The conversion of amounts to EUR was calculated using the average exchange rate for 2008: EUR 1= CZK PERCENTAGE RATES Contribution payers Total contribution Contribution towards Contribution towards state pension insurance sickness insurance employment policy Employers Employees Self-employed persons 29.2 (30.6 sickness) 28.0 (1.4) voluntary 1.2 Voluntary payers of pension insurance 28.0

9 LEGISLATION GOVERNING HEALTH INSURANCE Health insurance is primarily governed by Act No. 48/1997 Coll., on public health insurance, and by Act No. 592/1992 Coll., on contributions to general health insurance. These acts are complimentary to one another and have been altered and amended several times. Act No. 48/1997 addresses public health insurance and the scope and conditions applicable to the provision of health care carried out on the basis of this law. Health insurance applies to all persons with permanent residence in the Czech Republic. It also applies to those without permanent residence in the Czech Republic, if they are employed by an employer with a seat in the Czech Republic. For the purposes of health insurance legislation, the employer is defined as a legal entity or individual who employs employees, is the payer of income from employment and function benefits in accordance with the Act on income tax and has a seat or permanent residence in the Czech Republic. WHO ARE THE PAYERS OF HEALTH INSURANCE? Health insurance is payable by insured employees, members of the armed forces and other services, company associates and executives, judges, members of Parliament, members of government, and so on. This category of insurance payers includes self-employed persons who practice a trade in the sense of Act No. 455/1991 Coll. on entrepreneurship (Trades Licensing Act), persons employed in agriculture, persons doing business in accordance with special provisions (Act on Advocacy, on Notaries and their Activities, Act on Auditors and the Chamber of Auditors of the Czech Republic), persons performing artistic or other creative activity on the basis of the Copyright Act, and other persons defined by law. The state is the payer of insurance from the state budget on behalf of a specific group of persons (such as old-age beneficiaries who receive a pension from the Czech pension insurance system, women on maternity leave, those drawing social security benefits, job-seekers, and so on). Persons without taxable income are also obliged to pay insurance contributions. EMPLOYERS AS PAYERS OF INSURANCE The obligation to pay insurance applies both to employees and employers who must pay a part of the insurance on behalf of their employees. Insurance is paid to the health insurance company with which the insuree is insured. The employer pays insurance in a lump sum for all his/her employees. Employees are obliged to pay insurance from the day they take up their duties. In the case of self-employed persons, this obligation arises from the day they first engage in the independent gainful activity. The obligation also arises on the day insurees register with the relevant health insurance company following their return to the Czech Republic from abroad. Insurees are not obliged to pay insurance contributions during long stays abroad (minimum 6 months) as long as they take out health insurance abroad. The health insurance company must be notified of this beforehand in writing. INSURANCE CONTRIBUTION RATES AND THE ASSESSMENT BASE According to Act No. 592/1992 Coll. on General Health Insurance Contributions, the amount payable in health insurance contribution amounts to 13.5% (9% paid by employers, 4.5% employees) of the assessment base (AB) for the decisive period. The AB is the sum of employee s gross income (before tax) paid out by an organisation in relation to the performance of their work, establishing their insurance cover. The law stipulates exceptions in the case of certain types of income. The minimum AB of employees is equal to the minimum wage laid down by law (CZK approx. EUR 320). The assessment base of employees whose insurance was paid by the state throughout the entire decisive period is equal to the taxable income which was paid out to them. In this case, provisions on the minimum assessment base do not apply. If the aggregate of all the employee s assessment bases for the calendar year exceeds the maximum assessment base, neither the employee nor the employer who exceeded the maximum assessment base is obliged to pay insurance contributions in this calendar year from the excess amount. The maximum assessment base of employees is determined as 48 times the average monthly salary. The maximum assessment base for 2009 is CZK (approx. EUR ). The assessment base for the calculation of health insurance in the case of self-employed persons in 2009 is equal to 50% of income from business and from other forms of self-employment following the deduction of expenditure used to procure, safeguard, and maintain such income. The list of relevant income and expenditure is defined by Act No. 586/1992 Coll. on Income Tax. Self-employed persons are obliged to pay insurance from the assessment base the maximum amount of which is equal to 48 times the average monthly salary per year. If the assessment base is in fact lower than the minimum assessment base the self-employed person is then obliged to pay insurance from the minimum assessment base. The minimum annual assessment base is equal to 12 times 50% of the average wage in the national economy, given that the self-employed person did business throughout the entire year and given that the state did not pay insurance on his/her behalf. The decisive period for the determination of the assessment base of employees is the calendar month for which insurance is paid. In the case of self-employed persons, the decisive period is the calendar year for which insurance is paid. MINISTERSTVO PRÁCE A SOCIÁLNÍCH VĚCÍ The conversion of amounts to EUR was calculated using the average CNB exchange rate for 2008: EUR 1= CZK Further information on health insurance contributions is available at the website of the Ministry of Health: and the General Health Care Insurance Company (VZP):