Konsolidační balíček zveřejněn

Consolidation package published

Two weeks ago, the government presented a set of intended measures to help consolidate public finances. Now, the paragraph-by-paragraph text of the proposed amendments has been published.

Below we briefly present a selection of the proposed changes in tax and related areas (more details HERE).

Corporate income tax[1]

• Tax rate - Increase the corporate income tax rate to 21% (from the current 19%).
• Meal allowances - For employers, expenses for meal allowances should be tax deductible under the current Section 24(2)(j)(5) of the Income Tax Act (ITA), i.e. expenses incurred to fulfil employees' rights relating to their working and social conditions (including meals) arising from a collective agreement, an employer's internal regulation or a contract concluded with the employee should generally be deductible.
• Non-monetary benefits from employers to employees - Following the abolition of the exemption for non-monetary benefits provided by employers to employees (see the personal income tax section below), the provision according to which the employer's expenditure on such non-monetary benefits was a non-tax deductible expense is deleted. The deductibility of these expenses should now be assessed under the current Section 24(2)(j)(5) of the ITA. Similarly, the limitation on facilities for meeting employees' needs is deleted.
• Extraordinary depreciation for electric vehicles - The possibility to claim extraordinary tax depreciation is extended - only for motorised road vehicles using only electricity as fuel acquired between 1 January 2024 and 31 December 2028. The taxpayer can depreciate this vehicle over 24 months, up to 60% of the entry price for the first 12 months and the remainder for the following 12 months.
• Limit of deductibility for vehicles - For M1 vehicles (put into a condition suitable for normal use as of 1 January 2024), a limit of the input price (or a limit of the amount of the rental fee when acquired by means of financial lease) of CZK 2,000,000 is introduced. The exception applies to ambulances and hearses, vehicles used for the operation of road motor transport on the basis of a concession and vehicles provided by taxpayers as the subject of a finance lease.
• Silent wine - Elimination of tax deductibility of silent wine as a representation expense up to CZK 500.
• Notification of income to non-residents - The taxpayer's notification obligation will now not apply to income to a non-resident taxpayer that would be subject to withholding tax but is exempt from tax or not subject to taxation in the Czech Republic under an international double taxation treaty - but with the exception of dividends and royalties (at the same time, the simplifying materiality limit for exemption from the notification obligation is abolished).
• Ukraine/donations - Income tax measures for the purpose of supporting charitable activities - in particular aimed at assisting Ukraine and its population (pursuant to Act No. 128/2022 Coll.) are generally extended for 2023 under the existing conditions.

Personal income tax

• Reduction of the threshold for application of the higher tax rate - The threshold for application of the tax rate of 23% is reduced. A taxpayer's tax base exceeding 36 times the average wage will now be subject to the higher tax rate (compared to 48 times today). Similarly, the monthly threshold for applying the higher tax rate will be reduced from four times the average wage to three times the average wage.
• Limitation of exemption on sale of securities/shares - A maximum amount of CZK 40 million per taxpayer per taxable year is introduced for the exemption of the transfer of securities or business shares for consideration if the time test (3 or 5 years) is met. For non-exempt sales of securities and shares in excess of CZK 40 million acquired before the end of 2023, the taxpayer will be able to optionally claim as an expense the market value of the security/share as at 31 December 2023.
• Non-cash benefits - The exemption for non-cash benefits provided in the areas of culture, education, purchase of medical services, recreation and tours is fully abolished. In addition, the exemption for non-monetary gifts up to CZK 2,000 provided under the terms of the FKSP is abolished.
• Meal allowances - The conditions of exemption for the provision of meal allowances to employees are unified. The current exemption applicable to the so-called meal voucher lump sum will also apply to meals provided in a non-monetary form (meal vouchers, company meals). At the same time, however, it will be possible to take into account the duration of a shift longer than 11 hours for the meal allowance.
• Spouse's credit - The conditions for applying the spouse's credit will become stricter; in addition to the condition of the spouse's income not exceeding CZK 68,000 for the tax period, there will be a condition that the spouse must live in a jointly managed household with the taxpayer's child who has not reached the age of 3.
• Other credits - The student credit and the credit for the placement of a child are abolished.

Insurance

• Sickness insurance - The amendment introduces sickness insurance for employees. The social security contribution for employees will therefore now be 7.1%, of which 6.5% is pension insurance and 0.6% is sickness insurance.
• Work performance agreements (WPAs) - The rules for exemption from paying insurance premiums for WPAs (currently all WPAs up to CZK 10,000) are tightened. The limit varies depending on whether the employee has a WPA with one or more employers at the same time. In addition, a notification obligation is introduced for an employee working on the basis of a PPA with several employers in one calendar month, in particular for the purpose of monitoring the limits of the relevant income for the contribution. Failure to comply with this obligation may result in the employee himself being obliged to pay insurance premiums for both himself and his employer (a relatively unique instrument in the Czech environment).
• Assessment base of self-employed persons  - The minimum assessment base for self-employed persons for pension insurance premiums is increased from the current 50% of the partial tax base on income from self-employment before 2024 to 55% from 2024.
• Minimum advance payments for self-employed persons - The minimum monthly assessment base for self-employed persons is gradually increased, with 25% of the average wage for 2023, increasing by 5% each year thereafter to a final 40% of the average wage from 2026.

VAT[2]

• Rates - There will be two VAT rates - the basic (21%) and the reduced (12%). In connection with this, the annexes to the VAT Act will be amended.
• Beverages - There is a significant change in the taxation of beverages. It will only be possible to serve tap water at a reduced rate as part of a catering service. The supply of other beverages will be included in the standard rate of VAT. For the supply of foodstuffs it will be possible to include tap water and certain liquid dairy products in the reduced rate of VAT. Other alcoholic and non-alcoholic beverages will be at the standard rate of VAT.
• Transport - Non-scheduled public land transport of passengers (e.g. regular transport of employees of a company, transport of pupils to the theatre, but not taxis) is moved from the standard to the reduced VAT rate.
• Books - Books that meet the definition of the law will be exempt from VAT with the right to deduct tax, both in physical media (paper, CD, DVD) and in electronic form, including audiobooks. Taxpayers will be able to request a binding ruling from the tax administration when claiming VAT exemption on books.
• Other - Services such as municipal waste collection, transport, disposal and treatment, services of authors and performers and other services included in the reduced rate in connection with the introduction of the EET and the Covid-19 pandemic (e.g. cleaning and hairdressing services, shoe and clothing repairs) will be moved to the standard VAT rate. Imports of works of art, collectibles and antiques, supplies of firewood and supplies of cut flowers and decorative foliage will also be moved to the standard rate of VAT.

Excise duty

• Excise duty on alcohol and on cigarettes, smoking tobacco, cigars and cigarillos is increased by 10% for 2024 and 5% each year from 2025 to 2027.
• The excise duty on heated tobacco will increase by 15% each year for the next 4 years.
• A new excise duty is introduced on other tobacco products (chewing and snuff) and on tobacco-related products (e.g. nicotine sachets, e-cigarette refills, nicotine-containing products).
• The excise duty rate on shisha tobacco will decrease slightly.
• The amount of security for excise duty on alcohol for tax warehouse operators is increased.
• The exemption for aviation fuel for any domestic transport (including air ambulance services) is abolished.
• The procedure for refunding excise duty on green diesel is simplified.
• The exemption for mineral oils used for metallurgical or mineralogical processes is abolished. However, it will be possible to claim other exemption for some mineral oils or to claim a refund of part of the excise duty when used for heat production.

Energy taxes

• The exemption from tax on electricity, gas and solid fuels when used for metallurgical or mineralogical processes is abolished.

Gambling tax

• Compared to the current rules, only two rates of gambling tax are now provided for. For all types of lotteries and technical games, the current individual sub-tax rate of 35 % is maintained. For other games of chance, the tax rate is increased from 23 % to 30 %.

Real estate tax

• There is an increase in the form of a new state part of the real estate tax (generally equivalent to the tax rate without the application of a local coefficient). An automatic indexation to take account of inflation is also introduced.

We will continue to monitor the development of this initiative for you. If you have any questions, please contact the authors of this article or the EY advisory team you are working with.

Authors:

David Kužela

Stanislav Kryl

Jevgenija Bajziková

Adam Linek

Hana Cicvárková

[1] Generally for tax periods beginning on or after 1 January 2024.

[2] The changes will generally be effective from 1 January 2024.