A Long-Term Investment Product (Dlouhodobý investiční produkt = DIP) is a collective term for investment or savings products that help secure funds for old age and now can reduce also your tax liability.
DIP is a financial strategy that allows you to regularly allocate a portion of your income to various investment instruments to build financial reserves or achieve specific goals, such as purchasing property, saving for retirement, or funding your children’s education. Within a DIP, it is possible to invest in stocks, bonds, mutual funds, savings accounts, or term deposits. The key to a successful DIP lies in portfolio diversification, regular contributions, and a long-term perspective, which helps mitigate the impact of short-term market fluctuations.
What conditions do you need to fulfil to apply for a tax deduction from a DIP?
To apply tax base deduction, two conditions must be met:
- the funds must not be withdrawn earlier than 10 years (120 months) after the DIP was opened, and
- you must be at least 60 years old.
There is no limit on the number of DIPs you can have. It is up to you to decide how many DIPs to open and how much to contribute. However, it’s important to remember that the tax base deduction for all tax-supported old-age and life insurance products is limited to 48,000 CZK per year. Additionally, it is not allowed to freely access the funds in a DIP (with the 10-year duration rule and the 60-year age requirement). A transfer of all funds from a cancelled tax-supported DIP to another DIP does not count as a withdrawal. In other cases, any withdrawal is considered to be a violation of the conditions and you must return (re-tax) the previously used tax discounts.
Tax favourable treatment of the contributions
An individual can deduct contributions to all tax-supported old-age savings products and tax-supported long-term life insurance from their tax base, up to 48,000 CZK annually. Therefore, if you contribute more than 48,000 CZK to a DIP in one year, you will receive tax base deduction only for the first 48,000 CZK. Contributions made by the employer to any tax-supported old-age savings product or tax-supported long-term life insurance are also exempt from income tax, up to 50,000 CZK annually.
Counting the Savings Period for Tax Support Eligibility in DIPs
Starting from January 1, 2025, the conditions affecting eligibility for tax deductions will change in case of switching DIP providers. If you transfer all saved funds from one tax-supported DIP to another, the savings period of the original product will count toward the total savings or investment period, which must be met to avoid repaying any previously applied tax deductions when withdrawing funds.
The DIP provider must be registered with the Czech National Bank, or they risk a fine.
After the year end, the bank or investment company should send you a confirmation for tax purposes, clearly stating the amount you personally contributed, which can be used for the tax base deduction. Only your own contributions are considered for this purpose, neither your employer’s contributions nor the investment returns count.
If you have any questions, do not hesitate to contact our team.