Relevant to TX-CZE
The ‘consolidation package’ was introduced to the Czech tax system on 1 January 2024 and brought significant changes in various areas of the Czech tax system and, therefore, to the TX-CZE syllabus, and is for the first time valid for the exam taking place in December 2024. Since the changes are extensive and knowledge of them is crucial for successfully passing the exam, the aim of this article is to provide candidates with an overview of the most important changes.
Exchange rates
A new tax regime of exchange rates was introduced. It is now possible to exclude unrealised exchange rate differences from the tax base in the period of their creation, and to include them only in the period when they are realised. This regime will be available to a taxpayer who:
Company cars
There is a new restriction on the tax-deductible costs related to company cars in the form of the acquisition price limitation to CZK 2 million for M1 category vehicles, ie motor vehicles designed and manufactured primarily for the transport of persons and their luggage with a maximum of eight seats in addition to the driver's seat and no space for standing passengers. The limitation applies also on an increased acquisition price (ie after technical improvement) and on a changed acquisition price (ie an increase or decrease in the acquisition price of an already depreciated vehicle for reasons other than technical improvement). The limitation will affect also the tax consequences of the company car disposal when the tax residual price will be determined as if the vehicle had been depreciated from the acquisition price without limitation. At the same time, it will not be possible to use the rule that income related to non-taxable cost is not subject to tax when selling such a company car.
On the other hand, the possibility to apply extraordinary tax depreciation was extended. However, this newly applies only to emission-free vehicles, ie vehicles that use only electricity or hydrogen as fuel or another means of propulsion that produces no CO2 emissions, purchased between 1 January 2024 and 31 January 2028. All other conditions and rules remain the same.
Other changes
The corporate income tax rate was increased by 2% (from 19%) to 21%.
It will no longer be possible to deduct gifts in the form of still wine as a promotional item up to CZK 500.
In general, the reporting obligation on income paid from Czech sources to abroad applies to income subject to withholding tax. This newly applies also in cases when such income is tax exempt or not taxed due to the application of relevant double tax treaty and refers to the following types of income:
Gratuitous income
For gratuitous income (monetary or non-monetary donations), the limit for exemption increases from CZK 15,000 to CZK 50,000. Also, a common annual exemption limit of CZK 50,000 is introduced for selected types of other income (eg, income from casual activities, state contribution for building savings, exchange rate gains from money exchange, prizes from public competitions, etc.).
Income tax rates and assessment bases
The threshold for the progressive income tax rate was lowered and thus, the 23% tax rate applies to the tax base exceeding 36 times the average salary (instead of the previous 48 times). However, this change is not reflected in the social security system where the annual maximum assessment base remains at 48 times the average salary.
On the other hand, the annual assessment base threshold for self-employed persons for social security contributions is increasing to 55% of the tax base with the option of voluntary increase. The minimum assessment base for self-employed persons shall gradually increase to 40% by 2026 and is 30% for 2024. Changes will also affect self-employed persons performing so-called subsidiary activities. However, in this case, it will not be such a significant change, as the minimum assessment base will increase from the current 10% to 11% of the average salary. However, new entrepreneurs will not be affected by these changes in the year in which they start self-employment and in the two following years and will continue to be subject to the minimum monthly assessment base of 25% of the average salary in this particular period.
Tax base deductions
In the area of tax base deductions, new institutes, namely the long-term investment product (dlouhodobý investiční produkt) and insurance of long-term care (pojištění dlouhodobé péče), have been introduced, providing an alternative to existing pension schemes and allowing investment in various financial instruments. The contributions up to CZK 48,000 will be deductible from the tax base.
On the other hand, it is no longer possible to deduct from the tax base membership fees paid to a trade union by its member, nor reimbursements for examinations verifying the results of further education.
Further, the student tax credit and the preschool fee tax credit was abolished. The tax credit on spouse was preserved; however, in addition to meeting the income condition of own income up to CZK 68,000, a new condition must be fulfilled, namely caring for a child up to the age of 3 within the jointly managed household.
Employment benefits
The tax treatment of employee benefits was also subject to changes. One of the key changes is the new annual aggregate limit for the exemption of non-monetary benefits (eg those in the form of goods and services of a health and similar nature, recreation, vacation allowance, as well as the possibility to use the company library, entrance to sports facilities, to cultural and sports events) provided by the employer up to half the average wage, ie CZK 21,983 for 2024. For the employer, the costs corresponding to the exempt benefits is not tax-deductible. On the contrary, the costs for benefits where the limit for the exemption is exceeded, are considered as tax deductible.
Tax treatment of meal vouchers and lump-sum meal allowance is newly unified. For both types of meal allowances, an exemption on the side of the employee will apply up to 70% of the upper limit of the meal allowance for a work trip in the range of 5-12 hours. Amount exceeding the limit represents non-monetary income on the part of the employee, which will be subject to taxation as well as contributions to social security and health insurance. In both cases, these represent tax-deductible costs for the employer.
The taxable income where an employee is allowed to use the company vehicle free of charge for both business and private purposes is decreased, namely to 0.25% of the purchase price of the vehicle for emission-free vehicles.
A significant change occurred in the VAT rates, where the standard rate of 21% was maintained while the first reduced rate was lowered to 12% and the second reduced rate was abolished.
The limits for mandatory reporting in the Intrastat area were adjusted from CZK12 to 15 million. For simplified reporting, the limit was increased from CZK20 to 30 million.
Since 1 January 2024, the limitation of the VAT refund claim on a category M1 of company car up to CZK420,000, corresponding to the purchase price of CZK2 million, was introduced.
Written by a member of the TX-CZE examining team