Dear Readers,
The Chamber of Deputies approved the consolidation package in the third reading on 13 October 2023. This law will update more than sixty laws. The biggest number of changes will be made in the tax area, namely in relation to income taxes, VAT, tax on immovable assets, excise taxes and gaming tax,
Due to the extent of the new law, this article is intended to inform you about the most significant changes rather than to provide an exhaustive overview. This article brings a summary of changes in connection with individual and corporate income tax.
Individual Income Tax
- Tax rate: The amendment decreases the threshold for application of the higher tax rate at 23% to 36 times the average salary (the existing threshold is 48 times);
- Employee benefits:
- Personal use of a management vehicle: Third rate is introduced in calculating non-monetary income of employees in case of the provision of a zero-emission vehicle of an employer at 0.25% of the entry price;
- Catering allowances: Conditions for tax exemption are being unified; tax exemption in case of a non-monetary supply (meal coupons, company catering) will newly be identical with the meal coupon lump-sum (i.e. tax exempt up to 70% of the upper threshold of the meal allowance that can be provided to employees who receive a pay during a business trip of five to twelve hours); and
- Non-monetary benefits (e.g. medical goods, services, allowances for cultural and sports events, use of educational facilities or resorts pursuant to Section 6 (9) (d) of the Income Tax Act) – a tax exemption threshold will be introduced in the amount of one half of the average salary for the taxation period (approx. CZK 20,000);
- Tax relieves: The relief for a child’s placement (the kindergarten allowance) is repealed; the relief for a student is repealed; conditions for application of a relief for a spouse are tightened up (the current maximum level of income in the amount of CZK 68,000 remains unchanged, but the spouse has to live in the jointly operated household with the taxpayer’s child who is less than three years old);
- Sale of securities/investments: A threshold for tax exemption in the amount of CZK 40,000,000 for a taxation period will be introduced; this change is expected to come into force only from 1 January 2025;
- Additional changes:
- The threshold for application of withholding tax on agreements to complete a job (the “ACJ”) will be linked up to an employee’s contributions to healthcare insurance (i.e. repeal of the fixed amount of CZK 10,000);
- Repeal of tax exemption in the building savings’ state contribution (it will newly be considered as other income);
- A threshold for tax exemption in income from gaming;
- Repeal of tax exemption on income provided by an employer as a social assistance to employees;
- Repeal of the non-taxable portion of the tax base (an option to have one’s tax base reduced) in the form of paid membership fees and payments for exams to verify additional education; and
- Introduction of a “general” threshold in the amount of CZK 50,000 for tax exemption in other income of the same type;
- Additional information on the insurance premium:
- Self-employed individuals:
- An increase in the threshold of the annual assessment base for the insurance premium for pension insurance to 55% of the tax base (from the current 50%);
- Gradual increases in the minimum monthly assessment base always by 5% for every year (from the current 25% of the average salary; in 2024, the level will be increased to 30%, and the final increase to 40% will be reached by 2026); and
- An increase in the sickness insurance to 2.7% of the assessment base (from the existing 2.1%);
- Employees:
- Stricter conditions for agreements to complete a job (the “ACJ”) – the threshold for the insurance premium’s payment will be linked up to the average salary, and the threshold will vary depending on whether the employee has an ACJ with one or more employers; and
- Sickness insurance will newly be introduced for employees (the social security insurance premium will be 7.1%, of which 6.5% will be pension insurance and the remaining portion will fall on sickness insurance).
Corporate Income Tax / Accounting Act
- Tax rate: The tax rate will be increased to 21% (from the current 19%);
- Employee benefits:
- Non-monetary benefits: The employer’s expenses on non-monetary supplies (for example in the form of an allowance for trips, sports events or printed books, the option to use resorts, healthcare or educational facilities) pursuant to the currently effective Section 25 (1) (h) of the Income Tax Act will be tax non-deductible for employers, if those benefits are tax exempt on the employee’s side;
- Catering: Tax deductibility of catering allowances should be considered pursuant to the existing Section 24 (2) (j) (5) of the Income Tax Act (under the new law, Section 24 (2) (j) (4) will apply); as a result, tax deductibility will be linked up to employees’ rights under the collective agreement, the employer’s internal guidelines or an agreement entered into between the employer and the employee; and
- Benefits for family members: It will newly be possible to consider benefits for an employee’s family members tax deductible, specifically pursuant to the amended Section 24 (2) (j) (4) of the Income Tax Act (i.e. tax deductibility in relation to costs of labour and social conditions under the collective agreement, internal guidelines, etc.);
- Additional changes:
- Still wine: Tax deductibility of still wine as a gift below CZK 500 is being repealed;
- Threshold for tax deductibility of vehicles: It will only be possible to apply a proportionate amount of depreciation charges for vehicles in the M1 category (a threshold of CZK 2,000,000) as tax expense (in the form of a depreciation charge);
- Extraordinary depreciation charges: The possibility to apply extraordinary depreciation charges is extended, but only for zero-emission vehicles acquired in the period from 1 January 2024 through 31 December 2028;
- Notification of income flowing abroad: The obligation to report income of a tax non-resident that would have been subject to withholding tax but is tax exempt or is not subject to taxation in the Czech Republic based on a double taxation treaty is reduced (for selected passive income); and
- Exclusion of unrealised exchange rate gains and losses: An option to exclude exchange rate gains and losses that were not realised in the particular taxation period from the tax base will newly be introduced (they will only be included in the tax base once the exchange rate gain or loss is realised); the taxpayer will have to be in the exchange rate gains and losses’ exclusion regime (the obligation to notify the tax administrator);
- Additional information on the amendment to the Accounting Act:
- Introduction of an option to keep accounting records in a currency other than Czech crowns (USD, EUR, GBP) in case that the currency is the entity’s functional currency (the currency of the primary economic environment where the entity operates);
- Selected entities will be obliged to prepare and disclose a report on income taxes (this should apply to the accounting period starting no earlier than on 22 June 2024) and a sustainability report (this should apply to selected entities from the amendment’s effect).
The above-described changes cannot be considered final due to the legislative process in progress, and we will therefore continue monitoring this process. If you need more information on this topic, please feel free to contact us. We are ready to help you.
Lenka Kolmanová Michaela Kozminská
kolmanova@edmutilitas.cz kozminska@edmutilitas.cz
