The Ministry of Finance has submitted to the Chamber of Deputies an amendment to the VAT Act and the Income Tax Act and other related acts. In this Article, we will look at the amendments to the Income Tax Act.
Increase of the flat-rate tax limit
In connection to the increase of the limit for the VAT payers to CZK 2 million, the limits of income from independent activities for entering the flat-rate scheme are also rising from CZK 1 million to CZK 2 million. However, the level of the flat-rate tax, which includes, in addition to the income tax, contributions of social security and health insurance premiums, should not be the same for all taxpayers as before. The proposal newly introduces three tax brackets based on the level and nature of the taxpayer's income.
The first bracket will be open to a taxpayer whose income from independent activities for the previous tax period has not exceeded one million crowns, regardless of the independent activities from which his/her income derives. In addition, a taxpayer with income from independent activities up to CZK 1.5 million will be able to apply for this bracket if at least 75% of this income is generated by income to which expenditures in the amount of 80% or 60% of the income can be used, and a taxpayer with income from independent activities up to CZK 2 million, if at least 75% of this income is generated by income for which expenditures in the amount of 80% of the income can be applied.
The second bracket will be open to a taxpayer whose income from independent activities did not exceed CZK 1.5 million in the previous tax period, regardless of the independent activities it comes from (i.e., what flat-rate expenses would be applicable to them). The increased limit of CZK 2 million for applying to this bracket applies to taxpayers for whom at least 75% of their income is comprised of income for which expenditures of 80% or 60% of the income can be applied.
The third bracket will then be open to all taxpayers who fulfil the conditions for entry into the flat-rate scheme, i.e., those whose income from independent activities did not exceed CZK 2 million.
The proposed version can be found in the comment proceeding amendments, since public institutions have certain reservations about the technical feasibility and the practical application of the proposed text.
Extension of extraordinary depreciation
The Ministry of Finance proposes to extend the extraordinary accelerated depreciation scheme to assets included in the first and second depreciation groups, acquired in 2022-2023, for which the taxpayer will be the first depreciator. It will therefore also be possible to depreciate these newly-acquired properties included in the first depreciation group without interruption over 12 months instead of the standard three years, and to depreciate those included in the second depreciation group without interruption over 24 months instead of the standard five years. In the case of assets classified in the second depreciation group, the taxpayer will be able to apply depreciation up to 60 % of the entry price for the first 12 months.
Increase in the income decisive for the obligation to submit a personal income tax return
The proposed amendment also provides for an increase in the amount of income at which the taxpayer will be obliged to submit a personal income tax return. While until now a taxpayer whose income that is subject to tax exceeds CZK 15,000 in a given year is generally obliged to submit a tax return, this obligation would newly apply only to taxpayers whose annual income subject to taxation would exceed CZK 25,000.
At the same time, there will be no obligation to submit a tax return for a taxpayer whose income exceeded the aforementioned limit of CZK 25,000, but who only received income from one employer (or from more employers but consecutively), signed a taxpayer's declaration for all of these employers and, in addition to this income from employment, did not have other taxable income exceeding CZK 10,000 (currently this limit is CZK 6,000).
Other proposed amendments
In addition to the aforementioned changes, the amendment introduces further changes, which will probably affect a rather limited circle of taxpayers. This includes, for example, the exemption of income in the form of the acquisition of a share of property from a municipality or from a taxpayer of which the municipality is a member or founder (under certain conditions), or the possibility, again under certain conditions, of depreciating assets that have been considered until now to be a cultural monument.
If you have any questions about the aforementioned information, please do not hesitate to contact our experts who are ready to assess your situation.
Anna Klímová, Editor Mazars Tax View
Gabriela Ivanco, Tax Manager