On January 1, 2019 a new important amendment to the Act on Income Tax came into force, and it impacts the calculation of the super-gross salary. According to the unamended legislation, the tax base is the employee’s income from employment plus the amount corresponding to the social security and health insurance contributions due by the employer. In cases where the obligatory insurance premiums are not regulated by the Czech law, the tax base is calculated as income from employment and the so-called “hypothetical insurance”, that is the amount equal to insurance contributions according to the Czech legislation, generally it is 34%.

According to the amended legislation, which was signed by the president on December 11, 2018, the tax base calculations should take into account which insurance system the employee is affiliated to. If it is proven that the employee is subject to foreign obligatory insurance which is ruled by laws of another EU member state or a member of the EEA or Switzerland, the tax base shall be income from employment plus an amount corresponding to the premiums which the employer pays as this obligatory foreign insurance. As regards the calculations of the super-gross salary of employees subject to the Czech insurance system and those of third countries, there are no changes to be made. To assess the tax base for employees subject to the Czech legislation, the real amount of obligatory insurance contributions paid will be added to their income from employment; as regards third country employees the amount added will be the “hypothetical insurance” set by the Czech law.

According to the explanatory memorandum to the original amendment, this change is a reaction to the problem of sailors - Czech tax residents working in the Netherlands who previously had to repay the Czech tax from their income that was not originally settled here.

The adopted amendment will have a serious impact on practice, especially concerning payroll system set-ups. Without the information or confirmation of the real insurance amounts paid by the employer in the EU/EEA it will not be possible with certain employees from January on to correctly asses the tax on income from employment.