Tax package and income taxes
- Pavla Kabelková
In December 2020, we informed you about the intended amendment of the Income Tax Act, which brings a number of significant changes. In the course of the turbulent legislative process at the end of the year 2020, this amendment was approved and the approved act was published in the Collection of Documents on 31 December 2020. This made it applicable from 1 January 2021, and according to transitional provisions, it will be possible to apply some changes from 1 January 2020 already. We therefore bring you an updated overview of changes resulting from the amended Income Tax Act.
Personal income tax
Limitation of exemption of natural persons’ income from sale of securities
In the amendment, a limit reaching CZK 20m within one taxable period has been proposed for exemption of income for natural persons from transfer of securities against remuneration and income per participating certificates in case of liquidation of a mutual fund. This proposal has not been approved, however, and only a three-year (in case of ordinary share certificates a five-year) time test continues to apply for exemption of income from transfer of securities against remuneration.
Exemption of revenues from bonds
Exemption of interests for tax non-residents from bonds issued by foreign taxpayers with registered office in the Czech Republic (the so-called eurobonds) is being cancelled. According to transitional provisions, though, the original exemption regime will apply to eurobonds issued in the period from 1 January 2021 to 31 December 2021.
Instead of the original exemption of eurobonds, income of tax residents as well as non-residents from revenues from bonds according to an act governing bonds and income following from a right to repayment of bonds issued by a member state of the European Union or a country from the European Economic Area is now exempt.
A flat-rate tax for taxpayers with income from self-employment, who meet statutory requirements, is newly being implemented, cancelling or replacing the current application of tax set by a flat-rate sum, which taxpayers did not show much interest in. Entrepreneurs are able to use this regime, where they can report their obligations to the state on one form and send one payment. They will not need to submit tax return or survey of income and expenses for social and health insurance and they will not need to make each payment separately.
The regime can be used by self-employed persons with income up to CZK 1,000,000, who do not perform employment and have no other income higher than CZK 15,000, who are not VAT payers (nor are they obliged to register for VAT) and are not partners in a general partnership or general partners in a limited partnership. In case of using the flat-rate tax, it will not be possible to use tax depreciation of assets, where depreciation is not interrupted but lapses. An entrepreneur using the flat-rate tax regime also cannot use any tax deductions and tax credits or divide his income and expenses per cooperating person (and at the same time, he also cannot accept income and expenses as a cooperating person). If a self-employed person decides to use the flat-rate tax, this decision must be announced to the tax administrator by the 10th day of the given taxable period. For the taxable period of the calendar year 2021, the deadline expired on 11 January 2021.
Cancellation of super-gross wage and solidarity tax increase
An amendment of the Income Tax Act has led to cancellation of the super-gross wage (i.e. gross wage increased by the employers social and health insurance contributions). Only income from employment will thus be the partial tax base of the income tax from employment. At the same time, the solidarity tax increase has also been cancelled. Two rates of personal income tax are newly introduced, though, reaching 15 % (for the part of tax base up to 48times the average wage) and 23 % (for the part of the tax base exceeding 48 time the average wage).
A separate tax base that is subject to the 15% tax rate has been reintroduced for selected income of natural persons, which these persons receive from foreign sources (for example some types of income from capital assets according to article 8 of the Income Tax Act).
Increase in tax credit
After a heated debate, the tax credit per taxpayer has eventually been increased to CZK 27,840 for the taxable period of 2021. For completion, we add that for the taxable period of 2022 the approved tax credit per taxpayer reaches CZK 30,840.
At the same time, the CZK 60,300 limit for payment of tax credit has been cancelled. The cancellation of the top limit on tax bonus also applies for the taxable period of 2021 already.
Common stipulations for personal and corporate income tax
Monetary contribution to meals for employees
The proposal for tax advantages for employers’ monetary contribution to meals for employees has been adopted without any changes. As we have announced earlier, this means that for employers, the value of the monetary contribution will be tax-eligible under article 24 paragraph 2 letter j) item 4 of the Income Tax Act, regardless of its amount. In case of providing luncheon vouchers, these will still represent tax-eligible cost up to 55% of the value of the luncheon voucher on the side of the employer, but only up to the maximum of 70 % of the upper limit of subsistence expenses on a business trip lasting 5 to 12 hours set for an employee remunerated with a salary.
On the side of the employee, the value of the monetary contribution will be exempt according to article 6 paragraph 9 letter b) of the Income Tax Act, but only up to 70 % of the upper limit of subsistence expenses on a business trip lasting 5 to 12 hours set for an employee remunerated with a salary. The exempt income on the part of the employee is not subject to obligatory social and health insurance levies. The current exemption from personal income tax applied to meals provided as non-monetary performance by the employer to employees for consumption in the workplace or within catering provided by means of other entities has remained preserved in article 6 paragraph 9 letter b) of the Income Tax Act.
Tax-eligible expenses on donation in relation to the coronavirus
Taxpayers can lower their tax base by expenses made on gratuitous non-monetary performance provided in the period of 1 March 2020 – 31 December 2020 in connection with the occurrence SARS-CoV-2 coronavirus for purposes specified in article 15 and article 20 of the Income Tax Act. These include for example the sewing and supply of face coverings, production and distribution of protective shields, food or drugstore product donations. The lowering of tax base may either be performed by leaving the related cost directly in tax-eligible costs, or by applying an entry (donation) deductible from the tax base.
Increase of the limit for tax depreciation of tangible assets and their technical improvement
The current value limit of CZK 40,000 for the inclusion in the category of tangible assets as well as for technical improvement is being increased to CZK 80,000. The increased limit will apply to tangible assets acquired from the day the act took effect and for technical improvement completed and placed in service from the day the act took effect, i.e. from 1 January 2021. Nevertheless the transitional provisions enable using the new legislation for tangible assets acquired from 1 January 2020 and for technical improvement completed and placed in service from 1 January 2021 as well.
Extraordinary depreciation of assets in the 1st and 2nd depreciation group
In connection with support of the economy affected by the coronavirus pandemic, it is possible to apply so-called extraordinary depreciation for assets included in the 1st and 2nd depreciation group acquired (placed in service) in the period from 1 January 2020 to 31 December 2021. It will be possible to depreciate assets in the 1st depreciation group (e.g. computers, printer) linearly without interruption up to the amount of 100 % of the initial price over 12 months (the standard period for asset depreciation in the 1st depreciation group reaches 3 years). It will be possible to depreciate assets in the 2nd depreciation group (for example cars) for 24 months without interruption, with 60 % of the initial price being applied in the first 12 months and 40 % of the initial price in the next 12 months (the standard period for asset depreciation in the 2nd depreciation group reaches 5 years). Again, the transitional provisions of the amendment enable applying extraordinary depreciation for the taxable period of 2020 already.
Cancellation of tax depreciation of intangible assets
For intangible assets acquired after 1 January 2021, tax depreciations will no longer be calculated according to article 32a of the Income Tax Act. This stipulation has been completely cancelled by the amendment. In the tax concept, the category of “intangible assets” will cease to exist. Henceforth, only “intangible assets according to legal regulations that govern accounting” will be mentioned and they will be fully governed by the rules embedded in accounting regulations. Expenses on acquiring intangible assets will be tax-eligible costs according to the amended article 24 paragraph 2 letter v) of the Income Tax Act according to accounting rules. Tax depreciation of intangible assets will therefore be set up on the level of accounting depreciation. In compliance with the transitional provisions, the new legislation can already be applied to intangible assets acquired from 1 January 2020.
Changes in the taxation of income from bonds
According to the amended Income Tax Act, for personal income tax payers (whether they be tax residents or non-residents) as well as for corporate income tax payers, who are tax non-residents, the income tax on ownership of bonds from sources on the territory of the Czech Republic will be withheld using a special tax rate.
The income from a bond determined as the difference between the nominal value and the price, for which the taxpayer acquired the bond, will newly be taxed in the general tax base. At the same time, if the recipient is a taxpayer, who is not a tax resident of an EU member state or another state that is part of the European Economic Area, tax reinsurance reaching 1% of the sum paid upon maturity of the bond will be applied.
For corporate income tax payers, who are tax residents of the Czech Republic, taxation of bond-related income does not change in any way, and continues to be based on the way they are captured in the accounting.
Notification on income paid abroad according to article 38da of the Income Tax Act
An increase of the limit amount for notification about income from abroad to CZK 300,000 has been approved, up to which exempt income or income not subject to taxation in the Czech Republic need not be announced to the tax administrator. It also newly applies that if exempt income or income not subject to taxation in the Czech Republic exceeds CZK 300,000, it will not be announced for the given month, but only once a year, by January of the following year. The notification obligation does not apply to income that the taxpayer is obliged to announce to the tax administrator according to the treaty on international cooperation in tax administration, on the other hand.
Stricter rules for taxation of controlled foreign corporations (CFC rules)
There is a new deeming provision that all income from activities and from handling of assets of a controlled foreign corporation, which has a registered office (or a permanent establishment) in a jurisdiction listed on the EU list of jurisdictions not cooperating in the tax area, is considered income from activities and handling of assets performed directly by the controlling company on the territory of the Czech Republic.