News in the Income Tax Act

Below we bring you a brief overview of the most important changes in Act No. 586/1992 Coll., on Income Taxes, which will come into effect from 1.1.2022.

Increase of the taxpayer tax credit

The basic taxpayer tax credit for the year 2022 has been increased from CZK 27 840 to CZK 30 840.

Increase of the tax credit for child placement (pre-school allowance)

The next tax relief that has been increased for the year 2022 is the tax credit for the placement of a child. While the amount of tax credit corresponds to the amount of expenses demonstrably incurred by the taxpayer for the placement of a dependent child in a pre-school facility, the maximum amount of tax credit is limited by the amount of the minimum wage, which has been increased by CZK 1,000 since 1 January 2022 to CZK 16,200.

Cancellation of the monthly tax bonus ceiling

The de facto cancellation of the ceiling of the monthly tax bonus, i.e., the difference between the calculated income tax and the child tax credit in the event of an assessment of a negative tax liability.

Until 2020, the tax bonus had an annual ceiling of CZK 60,300, thus the taxpayer could apply a maximum of CZK 5,025 per month. Part of the tax changes for 2021 was the cancellation of the aforementioned annual ceiling. However, the limit of the actual monthly bonus itself in the original amount of CZK 5,025 has only been cancelled from 2022.

From the new year, a new flat tax rate applies to trade licences

The amount of the monthly advance payment on the flat tax for next year is CZK 5,994. You can learn more about the flat tax in our article Flat-rate tax at the end of the first year.

New tax credit for ceased enforcement proceedings

From 1.1.2022, a new credit for income tax payers has also been introduced (the credit can be used by legal entities and natural persons) on the grounds of ceased enforcement proceedings. The new tax credit is based on a change in the Enforcement Code and will only apply to low-value claims not exceeding CZK 1,500 (without interest and fees), for which nothing has been collected in the last 3 years (i.e. 2019,2020,2021). If nothing is recovered during this period or even after the enforcement agent’s call to deposit an advance payment for the costs of enforcement, the enforcement proceedings will be ceased.

In the case of ceased enforcement proceeding, the creditor is entitled to compensation in the amount of 30% of the original debt (i.e., without accessories). However, the compensation is not received by the creditor in the form of cash, but it will be possible to deduct it from his/her income tax as a tax credit. In the event that the creditor does not declare any tax liability for the given tax period, the discount shall be forfeited without compensation.

Due to the low limit of the original claim of CZK 1,500, it can be expected that this discount will be used by business entities with a large amount of small claims (e.g., providers of telecommunication services).

Changes resulting from the ATAD

The changes resulting from the Anti-Tax Avoidance Directive (ATAD) effective from 1.9.2020 are supplemented from 1.1.2022 with further changes to limit the eligibility of excessive borrowing expenses for members of public companies or general partners of limited partnerships.

International tax relations

This entered into force in 2021 and starting from 1 January 2022, the Czech Republic will start to implement a double taxation treaty in the area of income taxes with Bangladesh. It is a standard comprehensive bilateral tax treaty that regulates taxation and the exclusion of international double taxation of all possible types of income.