Blog

On 17 April 2024, a bill on investment companies, which, among others, contains proposed amendments to the Income Tax Act, went through the third reading in the Chamber of Deputies. The purpose of this amendment is to clarify disputable matters arising from the adoption of the so called consolidation package.

This article introduces the most significant changes that are mostly expected to become effective on 1 January 2025. Certain topics are likely to be discussed by us to a greater detail in the future due to the amendment’s scope.

Individual Income Tax

Changes will be made in individual income tax. After the consolidation package had been passed, a dispute emerged regarding the method of valuating non-monetary income in using a preschool facility. Under the amendment, the difference between any employer’s reimbursement for the use of a facility and the standard price of preschool facilities established by a public entity (so-called “state kindergartens”) or the highest possible monthly fee for preschool education (CZK 1,512 in 2024) in the particular place and at the particular time will newly constitute the employee’s income. The employer will choose the method on a case-by-case basis and it can be adopted separately for every child. This regulation will be applied retrospectively from 1 January 2024. Please be advised that this income is included in the aggregate annual threshold for non-monetary income.

It will newly be also possible to exempt non-monetary supply in the form of catering for direct consumption on a workplace or for direct consumption in a catering facility operated by another entity for a wider community. The exemption will also apply to former employees who worked for the particular employer immediately before retiring on age or on third-degree disability. The exemption threshold will be the one applicable to an employee, but without the obligation to meet the shift duration obligation. This regulation will be applied retrospectively from 1 January 2024.

In addition to this, the amendment clarifies tax exempt cultural and sports events held by an employer for their employees and their family members. As a result, these events can include a Christmas party, Children’s Day for employees, etc. For employees, this is a fully tax exempt non-monetary income in case the condition of adequacy and commonness is met. For the employer, costs of such events continue to be tax non-deductible. 

What will also be regulated is the duty to notify with regard to exemption of income from the sale of real property if the time test fails to be complied with, but where this finance is used to meet one’s own housing needs. The exemption will no longer be linked to the Notification’s filing. However, the Notification is still mandatory and failure to file it will continue to be penalised. This regulation will be applied retrospectively also for the 2023 taxation period.

In relation to employee stock and option plans, the moment of income’s recognition for insurance purposes will be regulated; this moment will be identical with the moment for tax purposes: the employee will stop performing a dependent activity for the particular employer, will become a Czech tax non-resident, will transfer stock or options, will exercise options, a ten-year period from the share’s or option’s acquisition will expire, etc. This provision should be applied from the first date of a calendar month following this law’s promulgation.

Corporate Income Tax

Certain partial changes will also be made in the area of corporate income tax, for example in relation to the regime of eliminating unrealised exchange rate gains and losses. Reasons for the regime’s cessation to exist under law are expanded, and the regime will be terminated at the moment of transiting to the functional currency in compliance with the Accounting Act.

The amendment also regulates exchange rates for translations of the value of assets, debts, reserves and other items in the case that the taxpayer uses the functional currency.  

Payment of Income Tax and Insurance Premium in Agreements to Complete a Job

The last but not the least important area to be newly regulated is the area of the insurance premium in concurrence of agreements to complete a job. As the regulation under the consolidation package was to become effective on 1 July 2024, it will not be applied and will be replaced by this regulation. The only thing to be applied from the original regulation is the registration duty, which will apply to all agreements to complete a job.

The “notified agreement” mode will be introduced: an employer who will be the first one to notify an agreement to complete a job in a particular month (the “notified agreement”) will be the “employer in the notified agreement mode.” An employee in this mode will be obliged to participate in the healthcare and sickness insurance in the particular month only when reaching the threshold of 25% of an average wage from all agreements with that employer (CZK 10,500 for 2024). If income from all employee’s agreements with an employer who applied the notified agreement mode does not exceed this threshold, the employee will not participate in the insurance. In this case, the taxpayer can apply withholding tax, if it did not sign a tax declaration and the income did not reach the above-specified threshold.

In other employers, income will be subject to payments of insurance premium, if the agreed reward is higher than CZK 4,000 a month (or if the reported income in the amount of CZK 4,000 a month is reached, as the case may be).

This regulation will become effective on 1 January 2025.

As indicated by this article, additional significant changes will be made not only in the tax area. This article is not an exhaustive summary of information about the changes. Please feel free to contact us with any questions. We keep monitoring the legislative process for you, but the amendment is very likely to be adopted in the wording approved by the Chamber of Deputies.

Lenka Kolmanová
kolmanova@clarksonhyde.cz