Consolidation package: Approved changes for employees and self-employed persons
The bill amending certain laws on the consolidation of public budgets passed its third reading in the Chamber of Deputies on Friday 13 October 2023 and is now heading to the Senate. Below, we have prepared an overview of the main changes that will affect employees and self-employed persons.
Personal income tax and employee benefits
- The income threshold for the application of the personal income tax rate of 23% will be reduced from 48 times the average wage to 36 times the average wage for 2024, i.e. the circle of employees and other individuals, whose income will be subject to higher taxation, will be expanded.
- There will be a limitation on the exemption of income from the sale of a security if the time test of 3 years (5 years for the transfer of shares in a corporation) between the acquisition and sale is met to the amount of CZK 40,000,000 per taxpayer. The effective date of this change is postponed to the year 2025 (i.e. it applies to income received from 2025 onwards) with the proviso that for securities and shares acquired before 2025, the taxpayer can apply a special acquisition price – we will be happy to help you with the valuation of this acquisition price.
- Standard non-monetary benefits (usually used under the cafeteria or benefit card system), e.g. goods and services of a medical and therapeutic nature, educational services, admission to sports facilities, admission to cultural events, holiday trips, etc. will now be exempt only up to the limit of half of the average wage for the relevant year (approximately CZK 20,000). The value of benefits exceeding this limit will be subject to employment tax and compulsory insurance contributions. Non-cash benefits provided up to the limit will, as before, be a non-tax-deductible expense for the employer, but costs above the limit will be tax-deductible for the employer.
- The tax regime for meal vouchers and company meals at the workplace will be unified with the regime for the flat-rate contribution to meals, i.e. for the purposes of exempt income on the part of the employee, it will be necessary to observe the limit of CZK 107 per shift.
- For correct taxation of benefits in connection with the consolidation package, it will be crucial to determine when the benefit arises, i.e. whether it arises from the granting of a legal entitlement (e.g. the allocation of points on a benefit card) or from actual use.
- Tax exemption for gifts from employers up to CZK 2,000 per year (e.g. work anniversaries) and for social assistance to overcome exceptionally difficult circumstances is abolished.
- Further proposed changes:
- linking the limit for the application of withholding tax in the case of agreements to complete a job (DPP) to the employee’s participation in sickness insurance – the fixed limit of CZK 10,000 is abolished. The limit will vary depending on whether the employee has an agreement to complete a job with one or more employers at the same time. In addition, a notification obligation is introduced for an employee working on the basis of an agreement to complete a job with several employers in one calendar month, in particular for the purpose of monitoring the limits of the relevant income for the contribution (40% of the average wage).
- the Dependent Spouse Discount can only be claimed, if caring for children under 3 years of age
- the discount for the placement of a child in a pre-school institution (the so-called nursery school fee) is abolished
- cancellation of the student discount
- abolition of the possibility to reduce the tax base by contributions paid to a trade union and by expenses for certificates extending training/qualification
- the state contribution to construction savings will now be treated as other income;
Social security insurance
- Employee premiums increase from the current 6.5% to 7.1% of wages, i.e. 0.6%, which represents sickness insurance.
- The self-employed person’s assessment base for pension insurance premiums will be at least 55% of the tax base from 2024 – a 5% increase in the assessment base compared to today.
- The consolidation package will also affect those self-employed persons, who pay only the minimum premium, as the minimum assessment base will be increased gradually until 2026 in line with the growth of the average wage.
- Self-employed persons who participate in sickness insurance will now pay a premium of 2.7% of the assessment base instead of 2.1%.
If you are interested in revising your employee benefit system, please contact us and we will be happy to assist you with the reconfiguration of your current benefit system or with the implementation of new tax-advantaged benefits.
Author: Roman Burnus, Vladimír Toráč