Taxpayers - natural persons are obliged, in accordance with the provisions of the Income Tax Act (hereinafter referred to as the “ITA”), to notify the tax administrator of the receipt of income exempt from this tax if the individual income exceeds CZK 5,000,000. Only income that the tax administrators can obtain from registers or records available to them (e.g., exempt income from the sale of a family house) does not need to be reported.
The notification shall be submitted no later than by the deadline for the submission of the tax return for the tax period in which the taxpayer received the income. Since relatively high fines are attached to this obligation, in August 2022 the General Financial Directorate updated the guideline (GFD D-56 replacing GFD D-28) laying down the procedure of the tax administrator and the conditions under which these fines can be partially or totally waived. Guideline D-56 now makes it possible to waive up to 100% of a fine if the notification is submitted within 150 days from the expiry of the statutory period. Let us therefore take a look at the possibilities under which taxpayers have the possibility to apply for the waiver of a fine.
Fine for the non-notification of exempted income
If the taxpayer fails (or is in default) to fulfil his/her reporting obligation, this failure is fined according to the ITA as follows:
- 0.1% of the amount of the non-notified income if the taxpayer submits the notification subsequently on his/her own without a written notice by the tax administrator;
- 10% of the amount of the non-notified income if the taxpayer submits the notification within an additional period following a written notice by the tax administrator; or
- 15% of the amount of the non-notified income if the taxpayer does not even submit the notification within the additional period.
Waiver of a fine for the non-notification of exempted income
The fine may be waived in whole or in part if the notification was not submitted for a justifiable reason. The waiver may be made on the basis of an individual request by the taxpayer, while the payment of the fine is not an obstacle to any waiver.
On the contrary, a breach of the “condition of reliability” is an obstacle to the waiver. In other words, the waiver of the fine is not possible if the taxpayer has seriously breached tax or accounting regulations in the last 3 years and, in addition to the natural person (taxpayer), all legal entities where the natural person is or has been a statutory body or a member of the statutory body in the last 3 years are also examined. The guideline also specifies what is understood by a serious breach.
If the tax administrator concludes that the above condition is met, it shall assess the extent to which the fine can be waived.
The first criterion is the aforementioned justification for not submitting or delaying the notification, which should be an exceptional case that is, from a human perspective, excusable and which, in terms of material, represents a rather formal offence (for example, the poor state of health of the taxpayer, preventing compliance).
The second criterion is to take into account the number of times the taxpayer has previously breached his/her tax obligations. By combining these two criteria, the tax administrator will assess the amount of the waiver of the fine.
If you have any questions related to the information provided above, please do not hesitate to contact our specialists.
Author: Hana Račanská, Tax Senior