Taxation of income on grounds of some financial support within the state of emergency

23. March 2021
  • Roman Burnus
  • Marek Toráč

As a result of the pandemic situation, we are unfortunately all limited daily by government measures, which are sometimes frustrating for us. It is necessary to realise, however, that these restrictive measures impact especially the entrepreneurs, who have had to limit their activities or in the worst case have been temporarily banned from providing services or selling goods. The state came up with a number of compensations, supports and other subsidy titles, intended to help people in this uneasy situation.

After the provided support, questions naturally began to arise, as to whether or not this income needs to be taxed, or if the income is included in own income of the spouse, whose income must not exceed CZK 68,000 per calendar year, if they want to use tax credit for spouse.

In order to prevent incorrect application of the income tax act, the General Financial Directorate has issued an overview of taxation of some financial support.

One-time contribution for pensioners

On 23 November 2020, the act on an extraordinary one-time contribution for pensioners in the year 2020 took effect. The one-time contribution, the so-called bonus for face coverings (“rouškovné”) reached CZK 5,000 and could be obtained by anyone, who became entitled to old-age, disability, widow/er or orphan’s pension/ annuity as of 31 November 2020 at the latest. It has been announced now that this contribution is, according to article 4 paragraph 1 letter i) of the ITA exempted from personal income tax and is not to be stated in the tax return declaration. “Rouškovné” is the only financial support not included in own income of the spouse.

Compensation bonus for entrepreneurs

This is the “spring” and the “autumn” compensation bonus for entrepreneurs, who were affected by emergency measures and met the conditions for obtaining this bonus. Entitlement to this bonus is defined by act no. 159/2020 Coll. and according to article 4 paragraph 1 letter zj) of the ITA, this is exempted income, which is not stated in the tax declaration.  It needs to be said, though, that the bonus is included in the own income of a spouse.

“Caregiver allowance” for the self-employed

Within the subsidy programme of the Ministry of Industry and Trade, subsidies for the so-called “Caregiver allowance” for the self-employed were provided. This is financial income for example for a natural person, who has to look after a minor under the age of 10 years, who cannot attend a closed school facility or on whom quarantine has been imposed. In this case, it is exempted income and is not stated in the tax declaration. It is necessary to pay attention to the fact that caregiver allowance for the self-employed is also included in own income of the spouse. 

Subsidies provided to natural persons COVID - BUS, RENT, GASTRO, ACCOMMODATION, SPORTS, CULTURE etc.

The General Financial Directorate mainly points out that the provided “Subsidies relating to the COVID-19” are of the nature of non-investment financial support (these are basically operating subsidies), therefore it is not possible to exempt this income from tax under article 4 paragraph 1 letter u) of the ITA and they are subject to taxation. If this is income related to the enterprising of a natural person, the income belongs among income from business under article 7 of the ITA.

A subsidy could only be exempted from tax, if it were an investment subsidy (i.e. for obtaining tangible assets, for technical improvement) or for removing the consequences of a natural disaster. Operating subsidies are included in own income of the spouse.

Subsidy from the Antivirus programme provided to a self-employed person with employees

This is a contribution for entrepreneurs, who can request compensation for wages paid to employees. This programme aims at protecting jobs, whereby helping with the active employment policy. income from this programme is exempted from the income tax under article 4 paragraph 1 letter h) of the ITA and is not stated in the tax declaration. Use of the Antivirus programme is included in own income of the spouse.

It needs to be added that it is not possible to apply tax-efficient expenses in compliance with the stipulation of article 25 paragraph 1 letter i) of the ITA in connection with the exempted income.

Author: Roman Burnus, Marek Toráč