Changes to Income Tax from 2027

Both the Chamber of Deputies and the Senate have approved a bill which, amongst other measures, introduces changes to income tax. Of particular significance to employees and employers are the changes relating to employee benefits, tax discounts and an increase in the thresholds for individuals’ duty to file tax returns.

Effectiveness

These changes are to come into force on 1 January 2027.

Given that the bill has already been approved by both chambers of Parliament, it is expected that the legislative process will be completed before the scheduled date of entry into force and that the new provisions will be implemented by employers from the start of 2027.

Non-monetary Employee Benefits

It will now be expressly confirmed that the tax exemption for non-monetary benefits provided by an employer applies only to performance provided in addition to wages, salaries, bonuses, compensation for loss of earnings or other performance directly linked to work.

This approach was previously reflected in methodological guidance issued by the General Financial Directorate, which emphasises that benefits must be distinguished from payments made in connection with work. This interpretation did not affect the tax regime governing the provision of employee benefits.

Limits for the Exemption of Benefits

Recently, most employers have been focusing intensively on setting up internal processes and adopting the correct tax approach to leisure and health benefits, for which a cap was introduced on tax exemptions.

This cap on the tax exemption, set at half the average wage, is to be abolished for leisure benefits.

Leisure benefits should therefore, provided that all other statutory conditions are met, be exempt from income tax without any specified financial limit, as was the case before the current limit was introduced. As in the past, holidays and package tours are to be exempt, with a separate annual limit of CZK 20,000 to be retained for them. The bill also extends the scope of exempt performance to include employer contributions to selected social services.

The current principle of a financial limit remains in place for healthcare benefits. However, the bill also sets out the scope of selected types of performance on the part of employers in the area of employee healthcare that are to be excluded from the tax regime for income tax purposes and will therefore not be counted towards the limit for the exemption of health benefits. The precise scope of this performance is defined in the bill by means of an addition to the relevant annex; its practical application will probably require further methodological clarification. Examples of types of performance to be excluded from this limit include certain above-standard preventive check-ups, selected screening tests and vaccinations not covered by public health insurance. Conversely, the new legislation is not intended to apply to services that are not related to health prevention or protection, such as, for example, beauty treatments or certain cosmetic procedures.

From the employers’ perspective, it may be significant that the bill provides greater scope for offering selected health and preventative services to employees without affecting the limit on other health benefits.

Tax Discounts

The bill provides for the reinstatement of the student discount and the discount for placing a child in a pre-school facility (‘nursery fees’).

Both tax relief measures are due to be reintroduced into the system from 2027. The original proposal to reintroduce the measure as early as 2026 was not adopted.

In terms of the parameters, the discounts do not differ significantly from the scheme in force prior to their abolition. The amendment essentially restores the act to its original form, to the same principle and the same basic parameters that applied until the end of 2023. The student discount amounts to CZK 4,020 per year, while the maximum discount on nursery fees is linked to the minimum wage for the relevant tax year.

Thresholds for Duty to File a Tax Return

The amendment to the act further raises certain thresholds that determine the duty to file a tax return.

The general income threshold triggering the duty to file a tax return is set to rise from CZK 50,000 to CZK 100,000. At the same time, the threshold for other income – above which employees are required to file a tax return – is to be raised from CZK 20,000 to CZK 40,000.

The change may therefore simplify tax liabilities, particularly for individuals with lower secondary income.

Still Wine

From 2024, expenditure on still wine will no longer meet the conditions for tax deductibility set out for advertising and promotional items.

The amendment to the act allows for a return to the legal framework in place prior to 2024.

Provided the statutory conditions are met, still wine could once again be regarded as a tax-deductible advertising or promotional item.

At the same time, the general conditions should continue to be met, in particular the limit for the value of a promotional item and its labelling with the trading name, trade mark or name of the goods or services being promoted.

Recommendations:

We recommend that employers use the time remaining before the changes come into force to review and, where necessary, update their internal guidelines and rules on the provision of employee benefits, working closely with the payroll department and taking into account the configuration of the payroll system.

Particular attention should be paid to correctly distinguishing between the various types of benefits, keeping records of performance provided, the method of monitoring tax limits and thresholds, and the new regime for leisure and health benefits. At the same time, we recommend that responsibilities and processes between HR, the payroll department and, where applicable, the tax department be established in good time, so that the changes are reflected not only in internal rules, but also in the records of employee benefits and their correct tax treatment from 2027 onwards.

Please do not hesitate to contact our team; we will be happy to help you implement the changes.

Best regards,

Team WTS Alfery, Alfery Hrdina Advokáti