Tax changes in 2023: The windfall tax, the end of EET and a higher VAT limit

The increase of the limit for the payment of value added tax and the flat-rate tax to two million crowns, the introduction of a tax on extraordinary profits and the end of the electronic records of sales (EET) are among the main changes in the field of taxes, which start to apply from 1 January.
  • The extraordinary tax on unexpected profits, also known as the windfall tax, is valid from 1 January 2023 and should last until the end of 2025. It will apply to electricity and gas producers and traders, fossil fuel miners, fuel wholesalers and refineries, provided they have annual sales of more than CZK 2 billion. Another group is banks whose annual interest yield exceeds CZK 6 billion. Thus, this applies to the six largest financial institutions. The windfall tax will act as a 60% tax surcharge applied to the excess profit of these companies, specified as the difference between the tax base in the years 2023-2025 and the average of the tax bases for the last 4 years (i.e., 2018-2021) increased by 20%. For more information on the windfall tax, please see our December newsletter.
  • The income tax rates for next year are unchanged and remain at 15% and 23%, but taxpayers with high taxable income will save next year. The reason for this is the shift of the second tax bracket. All taxable income, i.e., including capital income or rent income, is subject to the higher tax rate. Particularly for people with high incomes, the tax conditions in the Czech Republic are favourable compared to most developed countries, where more significant progressive taxation has been introduced. For 2022, the relevant income over 1 867 728 is subject to the higher 23% income tax rate, while for 2023 it will be over CZK 1 935 552. 
  • In the course of the main self-employed activity, at least the minimum monthly advances on health and social insurance must always be paid, even with very low annual profits. “For 2023, the minimum monthly advances are increasing. The monthly social insurance advance is increasing from CZK 2 841 to CZK 2 944 and the monthly health insurance advance from CZK 2 627 to CZK 2 722,” stated Gabriela Ivanco, a Tax Advisor in Mazars. “However, the limit for the non-payment of social insurance in the performance of secondary self-employment is also increasing by CZK 3 390. For the whole of 2023, social insurance from self-employed secondary activities will not be paid up to a gross annual profit of CZK 96 777,” added Gabriela Ivanco. 
  • A popular form of extra income is work on a work performance agreement. When gross profit from the work performance agreement is within the limit, then social and health insurance is not paid out of the gross remuneration. “For 2023, the limit for the non-payment of social and health insurance is increasing by CZK 500 to CZK 3 999,” stated Gabriela Ivanco, a Tax Advisor in Mazars.  The limit for the non-payment of premiums has not increased for agreements to perform work and it is still CZK 10 000. When working for more employers at the same time, the limit for the non-payment of insurance premiums is assessed separately for each employer, so it is possible to work simultaneously on multiple work agreements and not pay insurance premiums. 
  • In 2023, more self-employed people will be able to benefit from the flat tax rate benefit than in 2022, as self-employed persons with income up to CZK 2 million will also be able to enter the flat-rate regime. Three flat tax rates will also be introduced, depending on the total relevant income and the activities performed, namely CZK 6 208, CZK 16 000 and CZK 26 000. Most of the self-employed will be able to simultaneously fulfil their tax obligations on income tax, and social and health insurance with the lowest amount.
  • Another very positive news for small entrepreneurs is the increase in the limit for the mandatory registration as VAT payer from CZK 1 million  to CZK 2 million. The fines for the late submission or non-submission of a control statement are reduced by half under specific conditions. The deadline for the submission of a subsequent control statement following the request of the tax authority has been extended. For more information on changes in the area of VAT, see this article.
  • EET will be cancelled as of 1 January 2023. Entrepreneurs will no longer be able to use EET even voluntarily.
  • In 2023, the Tax Summer of Grace event will also take place. All natural persons will be able to apply for extraordinary tax relief if they pay the principal of the tax arrears. The event will run from July to the end of November.