Upravy konsolidacniho balicku zverejneny

Adjustments to the consolidation package published

We keep you informed about the significant tax changes in the so-called consolidation package.

Last week, the government coalition announced an agreement on the proposed modifications to the consolidation package and now the text of the (very extensive) amendments proposed by the coalition parties has been published. This proposal is expected to be debated at next week's meeting of the Chamber of Deputies (more details HERE).

Below is a brief summary of selected proposed changes compared to the originally presented text of the consolidation package.

Corporate income tax/accounting

Functional currency - A new option to keep accounting records in a currency other than the Czech currency is introduced through the new institution of the accounting currency, which may be the Czech currency, the euro, the US dollar or the British pound, provided that the euro, the US dollar or the British pound is also the so-called functional currency of the entity. This should be the currency of the primary economic environment in which the entity operates. The accounting currency may be changed only at the first day of the accounting period. It may be changed back to the Czech currency only if the other currency ceases to be the functional currency of the entity.  The accounting currency of the accounting entity - the corporate taxpayer - will generally be the same as the currency of the tax calculation (with certain exceptions).

Option to exclude unrealised exchange rate differences - A new option is given to exclude unrealised exchange rate differences from the tax base in the period of their creation (recognition) and to generally include them in the tax base only in the period when the exchange rate difference is realised (notification to the tax administrator of entry into this regime is required).

Non-cash benefits - Expenditure on non-cash benefits to employees in the form referred to in section 25(1)(h) will not be tax deductible for the employer if they are also exempt for the employee under section 6(9)(d) (for the new exemption limitation see below).

Notification of income to non-residents - Compared to the original version of the proposal, the scope of income from sources within the Czech Republic to a non-resident taxpayer that the taxpayer is obliged to notify to the tax administrator has been expanded to include other types of so-called capital income. At the same time, the simplified materiality limit for the exemption from the reporting obligation is restored for selected income.

Income tax report - The Accounting Act introduces a new obligation (for selected entities) to prepare and make available an income tax report. This is an implementation of the obligations arising from the European Directive on so-called public CbC reporting - see HERE for further details. According to the transitional provisions, the income tax report is to be prepared for accounting periods beginning no earlier than 22 June 2024.

Sustainability report - The new Accounting Act introduces the obligation to prepare and make available a sustainability report. Due to the phased-in introduction in several stages, it is now proposed to impose this obligation (already for accounting periods commencing from 1 January 2024) only on an entity that cumulatively meets the following conditions - it is (i) a corporation, (ii) a public interest entity, (iii) would be a large entity even if it were not a public interest entity, and (iv) exceeded the criterion of an average number of 500 employees per accounting period as at the balance sheet date.

Personal income tax/employment tax

Employee Benefits - For defined tax benefits, an aggregate exemption limit (and therefore even for insurance premiums) of half of the average wage for the previous calendar year will be introduced. The original intention to remove the tax exemption for benefits altogether has been cancelled.

Postponement of the capping of the exemption of income from the transfer of securities - The consolidation package introduces a capping of the exemption of income from the transfer of shares in business corporations and securities from personal income tax to CZK 40,000,000 per tax year. The amendment proposes to postpone the effectiveness of this measure by one year (including the related possibility to "revalue" the acquisition value of shares and securities as of the end of 2024).

Repeal of the tax exemption for so-called executive apartments - According to a transitional provision, the repeal should not affect persons who resided in the apartments before the law comes into force.Self-employment income - Persons with self-employment income will have an extended notofication obligation if the conditions are met and zero tax liability.

VAT/excise taxes

Newspapers, magazines and periodicals will be taxed at 12% VAT regardless of the frequency of publication.

Change in medical and diagnostic devices - The condition "normally intended for the exclusive personal use of the sick or disabled for the treatment of illness, disability or the alleviation of their consequences" will be deleted. All medical devices and in vitro diagnostic medical devices that are intended for single use are proposed for the reduced rate. In addition, the verbal description of some items is being changed, for example, contact lenses, which have historically been the subject of controversy, will be explicitly listed.

Change in the gradual increase of excise duties on alcohol - The tax on alcohol is to be increased periodically in three steps, thus shortening the period to 3 years (2024-2026) from the proposed 4 years (2024-2027). The tax increase is to take place in a scheme of 10 + 10 + 5% (instead of the original proposal of 10 + 5 + 5 + 5%).

More moderate introduction of excise duty on alternative nicotine products - A 4-year gradual increase in taxation on alternative nicotine products is introduced, namely on e-cigarettes in the scheme of 2.5 + 5.0 + 7.5 + 10 CZK/1 ml of refill (instead of the originally planned increase to 10 CZK/1 ml); for nicotine sachets, in addition to the 4-year timetable, the target amount of the tax is reduced in a scheme of 0.4 + 0.8 + 1.2 +1.7 CZK/g (instead of the one-off increase to 3.45 CZK/g).

If you have any questions, please contact the authors of this article or the EY tax team with whom you regularly work.

Authors:

Lucie Říhová

Michaela Felcmanová

Hana Cicvárková

Jevgenija Bajzíková