Consolidation package: changes for legal entities, VAT and in other areas
The Chamber of Deputies has just published the approved version of Chamber Print No. 488 (hereinafter referred to as “the consolidation package”) as it passed its third reading on Friday, October 13, 2023, and thus proceeds on to the Senate.
We have already informed you about the upcoming changes in previous articles and we continue to monitor all the progress for you. We have also prepared a short summary of the most important upcoming changes in the individual tax areas.
Personal income tax and employee benefits
- We currently have an amended Labour Code, part of which is already effective from 1 October 2023 and the remaining part from 1 January 2024. We have already written the following article on DPFO and benefits for you.
Corporate income tax
- From 1 January 2024, the tax rate will increase from the current 19% to 21%.
- Tax deductible costs for the acquisition or financial leases of passenger carswill be limited to CZK 2 million. This restriction applies to passenger cars purchased in the new fiscal (tax) period after the amendment comes into force, i.e. probably after 1 January 2024. In the area of passenger cars, there is another change in terms of the rules for extraordinary depreciation. Until the end of 2028, only emission-free vehicles will be able to claim exceptional depreciation.
- Taxpayers will now be able to tax only realised exchange rate differences, i.e. those arising from the settlement of a liability or receivable in a foreign currency. Unrealised exchange rate differences will not be included in the tax base in this case. However, this procedure must be reported to the tax authorities.
- Only royalties and profit shares (both types of income without a limit) and interest (only above CZK 300,000 per month) will now be reported for income derived abroad that is exempt or not subject to taxation in the Czech Republic. Income subject to withholding tax will be reported in the same way as before.
- It will not be possible to consider as tax deductible the cost of a representative item in the form of a silent wine up to CZK 500. As has been the case up to now. Christmas is coming, so take advantage of what may be your last chance to gift clients with wine!
Value added tax
- The consolidation package envisages maintaining only two tax rates, 21% and 12%. A special exception will be made for books (including electronic books), which will be subject to a 0% tax rate.
- Items that will be reduced from the current 15% (ev. increased from the current 10%) to 12% include:
- catering services (excluding drinks),
- accommodation services,
- selected construction work,
- funeral services,
- admission to sports and cultural events, etc.
- The standard tax rate of 21% will be reduced to 12% for occasional public bus transport of passengers and one-off supplies of medical and diagnostic in vitro equipment.
- Conversely, hairdressing and barbering services are up from the current 10% to 21%. Furthermore from the reduced tax rate to standard tax rate are to be changed as well:
- draft beer and other beverage delivery,
- collection, transport and landfilling of municipal waste,
- household cleaning work,
- delivery of fresh-cut flowers etc.
- Excise duties have not escaped an increase in tax rates either. In particular, the excise duty on alcohol is expected to increase by around 10% in both 2024 and 2025. The tax rate will also increase in 2026 by 5%. The silent wine exemption will remain in place.
- Tobacco products will see a 10% increase from 2024 and then 5% each year thereafter until 2027. A new tax is introduced on nicotine sachets and e-cigarette refills.
Real estate tax
- In the area of property taxes, there is an increase of up to 1.8 times, with all revenues going to the general coffers and not to the state budget.
- From 2025, the so-called inflation coefficient should also apply, which would automatically increase the real estate tax by inflation every year.
- In addition to tax aspects, the new Accounting Act also plays an important role in the new consolidation package. The proposed effective date of the package of accounting changes (i.e. the new Accounting Act including related decrees and accompanying law) is 1 January 2024. Given the legislative deadlines and the need for entities to prepare for the implementation of the changes, we expect the effective date to be delayed to 1 January 2025.
- What is new in the Accounting Act? In addition to the planned introduction of a conceptual framework, the law aims to move closer to the IFRS. For example, this is a change whereby the accounting for leased assets will be recognised on the side of the entity that uses the asset rather than on the side of the lessor.
- Another proposal concerns the voluntary decision to use a functional currency. Entities should be able to account not only exclusively in CZK but also in other currencies, namely EUR, USD or GBP.
- The definition of net turnover, and therefore its calculation, is also changing.
- Finally, an obligation to valuate long-term receivables and debts at their current value is being planned, rather than at their nominal value, as is currently the case.
- New obligations are also imposed on selected entities in the area of sustainability reporting (ESG) and income tax reporting.
Author: Zuzana Kalincová, Kristýna Bardonová