Summary of Changes in the Consolidation Package related to Personal and Corporate Income Tax

Personal income tax

Increase in Tax

The personal income tax rates will remain at 15% and 23% of the tax base. Until the end of the year, the higher rate applies if the aggregate tax base exceeds 48 times the average wage (CZK 1,935,552 for the year 2023 and CZK 161,296 for the purpose of the monthly payroll advance tax). Starting from 2024, this threshold will be reduced to 36 times the average wage (CZK 1,582,812 for the year 2024 and CZK 131,901 for the purpose of the monthly payroll advance tax).

Changes in Non-Monetary Benefit Area

Non-monetary benefits that were previously fully exempt from tax will now be exempt for employees only up to half the average wage (CZK 21,983 for the year 2024). If the value of provided benefits does not exceed this amount, the employee will not pay income tax or insurance. All contributions will be paid from the amount above the limit. For the employer, the amount of costs up to the limit will be a non-deductible expense, while the costs on contribution provided above the limit will be a tax-deductible expense.

From January 2024, there will be a unification of conditions for providing meal vouchers and monetary meal allowances. The employer's contribution to meal vouchers will no longer be entirely exempt from tax for employees but only up to 70% of the upper limit for meal allowance on domestic business trips lasting between 5 and 12 hours determined for the employees from public sector.

Furthermore, the exemption from taxation for gifts to employees on life and work anniversaries will be abolished. Currently, the limit for exemption is CZK 2,000 per tax period.

The tax package also cancels tax benefits for so-called managerial flats. If an employee buys a flat from the employer at a price lower than the price determined by the appraisal regulation, the difference will represent his/her taxable non-monetary income. However, according to the transitional provision, this cancellation should not affect individuals who had residence in these flats before the law's effective date.

Deductible Items and Tax Allowances

From the 2024 tax period, it will no longer be possible to deduct membership fees paid to trade unions and payments for exams verifying the results of further education from the tax base.

The student tax allowance and the child placement tax allowance are also abolished. In the case of a tax allowance for a spouse, there are changes to its conditions. To the original condition of the spouse's income not exceeding CZK 68,000 per tax period, the taxpayer must simultaneously live in a common household with this spouse and with a supported child of the taxpayer who has not reached 3 years of age.

Limitation on Exemption on Income from the Sale of Securities and Shares has been Postponed

From 2025, a limit for the exempt sale of shares and securities is set at a maximum of CZK 40,000,000 per tax period. This limitation was supposed to be effective from 2024, but its effectiveness has been postponed until 2025.

Limitation for Exemption of Other Income

For selected income, which is currently entirely exempt from taxation, a limit of CZK 50,000 per year for an individual type of income is introduced. This includes, for example, income from a state contribution for building savings.

Below the above-mentioned limit of CZK 50,000 should fall also incomes that are currently subject to another exemption limit, such as:

• prizes from a public competition, including advertising or sports competitions (instead of the current limit of CZK 10,000), winnings from lotteries and tombola, and gambling (instead of the current limit of CZK 1 million),

• income from occasional activities and occasional rent of movables, from agricultural production and forest and water management not operated by a businessman, and from electricity production for which a license issued by the Energy Regulatory Authority is not required (instead of the current limit of CZK 30,000),

• gratuitous income acquired occasionally up to a total of CZK 50,000 from the same taxpayer (instead of the current limit of CZK 15,000).

Usage of Zero-Emission Vehicles for Private Purposes

For employees using zero-emission vehicles for both private and business purposes, 0.25% of the purchase price including VAT will be included in the salary as a non-monetary benefit.

Employee Sickness Insurance

The consolidation package reintroduces sickness insurance for employees at a rate of 0.6% of the assessment base. From January 2024, the overall social security contributions for the employee will increase to 7.1% (instead of 6.5%).

Changes in Contributions for Agreements on Work Performance

The limit for the application of withholding tax in agreements on work performance and the limit for participation in social security and health insurance will be set at 25% of the average wage starting from 1 July 2024 in the case of agreements with one employer (CZK 10,500 in 2024). In the case of multiple agreements with several employers, the limit for participation on the social security insurance will be 40% of the average wage (CZK 17,500 in 2024).

Increase in Contributions for Self-Employed Persons

The minimum assessment base for social security contributions for self-employed persons will increase from the current 25% of the average wage to 40% of the average wage. At the same time, the assessment base for calculating the contributions set as the percentage of the tax base will also increase from the current 50 % to 55 % of the tax base.

New Reporting Obligation for Self-Employed Persons

The new reporting obligation applies to individuals who have been self-employed in the given year or in the year immediately preceding and do not have a tax obligation in the given year. This fact must be reported to the tax authority within the deadline for filing a tax return for the respective year. This obligation does not apply to a taxpayer who has only received income that is not subject to tax, is tax-exempt, or is subject to withholding tax.

Corporate entities

Increase in Tax Rate

There is an increase in the corporate income tax rate from the current 19% to 21%.

Accounting in Functional Currency

Entities will have the option to keep accounts alternatively in EUR, USD, and GBP. We delve into this issue in more detail in another article in this edition of Mazars Tax View.

Option to Tax Only Realized Exchange Rate Differences

Taxpayers can now decide to tax unrealized exchange differences only in the period in which they are realized. The taxpayer must inform the tax administrator of entering this regime within 3 months from the first day of the relevant tax period or the period for which the tax return is filed. The taxpayer can exit this regime again after notifying the tax administrator, but must remain in this regime for at least three years.

Limit on Tax Deductibility of Passenger Cars

For M1 category motor vehicles used for business purposes, a limit is introduced for deducting tax expenses up to CZK 2 million from the vehicle's price. This means that depreciation will be tax-effective only up to CZK 2 million.

In the case of financial leasing for these vehicles, the limit will apply to the lessee in the form of limiting the tax deductibility of leasing instalments. In this case, the tax-deductible expense should be leasing instalments up to the total amount of CZK 2 million and in each tax period only up to a proportionate part of the CZK 2 million attributable to the specific tax period.

Extraordinary Depreciation for Electric Vehicles

The possibility of claiming exotraordinary tax depreciation for emission-free vehicles is extended to 5 years, i.e., an exception will apply to vehicles acquired from 1 January 2024 to 31 December 2028, using exclusively electric energy, hydrogen, or another propulsion method with no CO2 emissions.

Meal Vouchers and cash meal contributions

There is a harmonization of the exemption from tax and tax deductibility of meal vouchers and cash meal contributions.

On the employer's side, expenses for meal contributions will be tax-deductible without any limitations, or their deductibility will be determined by the existing provision § 24 para. 2 letter j) point 5 of Act No. 586/1992, on income tax (ZDP). These will be expenses incurred for the rights of employees arising from a collective agreement, internal employer regulations, or a labour or other contract concluded with the employee.

Tax Benefits for Family Members

Expenses incurred by the employer for selected employee benefits related to the social conditions or health care of the employee's family member will be considered tax-deductible, provided these are rights of employees arising from a collective agreement, internal employer regulations, or a labour or other contract.

Tax Deductibility of Non-Monetary Benefits

With the introduction of limits for the exemption of selected non-monetary benefits for employees (e.g., the use of recreational, medical, sports, and educational facilities), there is an option to claim them as tax-deductible expenses beyond the exempt income of the employee. The right to provide these benefits will arise from a collective agreement, internal employer regulations, or a labour or other contract.

Promotional Items

The tax deductibility of quiet wine as a promotional item up to CZK 500 is abolished.

Donations (Not Only) to Ukraine

Current rules will apply in the tax period of 2023 and in tax periods ending by 29 February 2024.

Notification of Income Paid Abroad

Reporting obligations for income paid to a non-resident from sources in the territory of the Czech Republic will no longer be exempt for income exempt from taxation in the Czech Republic based on an international treaty (e.g., income from services). The exception to the new rule will only be for income flowing to a non-resident from sources in the territory of the Czech Republic from profit share, interest income, and licence fees. The taxpayer must report income from profit share and licence fees to the tax administrator regardless of their amount. For interest income, the reporting obligation remains when the limit of CZK 300,000 per month is exceeded. This procedure can be applied to income generated during the year 2023.

Other Selected Measures

Real Estate Tax

There is an approximately 1.8-fold increase in tax rates, and municipalities have the authority to introduce a local coefficient ranging from 0.5 to 1.5 for agricultural land (arable land, vineyards, hop fields, gardens, and orchards).

Accounting Act

Large multinational entities will have a new obligation to publish a tax report for the first time for the accounting period commencing no earlier than 22 June 2024. At the same time, selected entities will be obliged to publish a sustainability report for periods commencing on 1 January 2024.

Tax Administration

Tax stamps are abolished.

Authors:
Gabriela Ivanco, Tax Manager, PIT Consultant
Pavla Vítková,  Tax Manager, CIT Consultant