We have selected the eighteen most important business-related changes in the accounting and tax regulations for 2016 which we would like to summarize in the following article.

What actually changes:

1. Introduction of entity categorization. It is planned that micro and small enterprises will be relieved of some obligations such as:

• micro enterprises do not apply the fair value measurement e.g. to securities to be traded,
• micro and small enterprises complete simplified financial statements and they are not obliged to publish their profit and loss statement (unless they are subject to statutory audit) and to complete a statement of changes in equity, they do not prepare and publish an annual report (unless they are subject to statutory audit) and they have other reliefs with respect to the disclosure of information in the notes to the financial statements.

• Note: An entity falls into the category in which it does not exceed 2 of the 3 criteria.

Therefore, the practical impact of the newly introduced categorization is not yet significant. Introduction of the new categorization does not result in a change of the statutory audit limits.

2. Provisions – a new accounting definition of provisions, or more precisely an improvement of its accuracy. A provision does not reflect all risks and future costs in the accounts but only those that will probably or certainly be incurred but their amount or date of incurring remains uncertain. < -em>“Provisions are intended to cover liabilities or costs of clearly defined nature in respect of which it is, as of the balance sheet date, either probable that they will be incurred, or certain to be incurred but their amount or the moment of incurring remains uncertain. As of the balance sheet date, a provision must represent the best estimate of costs that will be probably incurred, or in case of liabilities the amount required to settle those liabilities.”

A provision for solar panel panel electronic waste management is newly included among tax provisions.

3. Single-entry bookkeeping – the obligation to keep single-entry bookkeeping reintroduced. The obligation applies particularly to societies, trade unions, churches and other non-profit organizations.

4. Income tax – revenue from the operation of electricity-generating facilities up to 10 kW are taxed pursuant to Section 10 – as other income. This revenue is not subject to social and health insurance.

5. Measurement of inventories – an improvement of accuracy (change) in the measurement of own production inventories. Inventories are newly measured according to the production cycle duration (assembly line, mass and small-series production).  It is up to the entity to decide whether to include production or even a part of administrative overheads in the measurement of inventories, with respect to the compliance with the principle of materiality and the principle of fair and true presentation of assets and liabilities.

Own costs with respect to inventories produced through one's own activity are direct costs of production or other activity, or even attributable indirect costs related to the production or other activity; direct costs include the costs of material and other consumed outputs and other costs incurred directly in connection with the production or other activity.

Own costs include direct costs and they may also include a proportion of variable and fixed indirect costs attributable to the output and related to the period of the activity.

Costs to sell are not included in those costs.

An entity shall select the measurement method while respecting the principle of materiality and the principle of fair and true presentation of assets and liabilities.

6. Child tax benefit – the benefit for the second child increased to CZK 17,004  and for the third and any further child increased to CZK 20,604 (we expect adoption in the course of 2016).

7. Gambling Act

• consumer lotteries remain subject to the withholding tax regime,
• gambling is taxed pursuant to Section 10 of the Income Tax Act as other income. Some income is exempt from the tax, e.g. revenue from tombola up to CZK 10 thousand.

8. Act on termination of pillar II of the pension savings and liquidation of pension funds.

9. VAT – Extension of the “reverse charge” by other types of taxable transactions.

• delivery of an immovable (as long as the 5-year exemption deadline has expired) – from 1 January 2016,
• delivery of electricity and gas – < -em>approved by the government on 13 January 2016, in effect from 1 February 2016
• delivery of goods with the domestic place of delivery by an entity not established in this country and not registered for VAT purposes in the Czech Republic (probably from 1 May 2016)
• total amount of the tax basis for all supplied goods subject to the reverse charge regime will not exceed the limit of CZK 100 thousand – where the payers agree on this regime. The agreement must be in writing – in effect from 1 February 2016.

10. VAT on immovables

• new definition of a building plot,
• new procedure of counting the 5-year period establishing the exemption in case of delivery of an immovable.

11. Changes in the area of tax administration

• reinforcement of KOBRA, greater cooperation with the police,
• reinforcement of revenue authorities in Prague,
• transferring the agenda of non-established persons,
• central collection – amounts collected ex officio will not be dealt with by the locally relevant revenue authority.

12. Tax on income of legal persons – annex to the tax return of legal persons with respect to transfer prices (introduced last year).

13. Electronic records of sales (expected to be adopted in the course of 2016).

14. VAT – Control report

Laboriousness is increased for accounting and tax specialists and consultants. The aim of the General Financial Directorate is to eliminate all non-contact legal persons and all of the so-called white horses in the course of 2 years and also to make stealing from the state via the so-called funfair or carousel frauds more difficult.

15. Bank – central register of accounts. It will be managed by the Czech National Bank.

16. Tax on income of natural persons – substantiating an increased value of assets of natural persons beyond CZK 7 million (adoption expected in the course of 2016)

17. Foreign income taxation – Global FATCA – that is the automatic exchange of information on foreign accounts and on the foreign so-called passive income.

18. foreign accounts and on the foreign so-called passive income.

19. Tax on acquisition of immovables. Consolidation of the taxpayer in the person of the acquirer of an immovable (newly, the taxpayer is always the acquirer). A change of the concept of exemption of new buildings and units. It will apply only to the first acquisition of finished or used buildings and units (buildings and units completed pursuant to the building regulations or subject to the regime of early use in accordance with the building regulations) against payment at the earlier of the above-specified facts. It will not be possible to apply it to unfinished buildings and units. Proposed effect from 1 April 2016 (the draft amendment is waiting for the second reading).

If I were to assess which of the changes is the most important one, I would say that a revolution is under way with respect to the collection of taxes at the national as well as international level. The year 2016 can be called a year of the fight against tax evasion. European countries fight tax evasion by requiring an insight into the books and bank accounts and using internet and computer technology for this purpose. Both nationally with respect to VAT and income tax, and internationally. This trend cannot be expected to change in the future, quite the opposite.

Ing. Ivan Fučík ivan.fucik@fucik.cz