Tax Surprises 2017

2016 was characterized by the introduction of control statements and the first phase of the electronic registration of sales. Elections to the Chamber of Deputies will be held in 2017. Despite – or perhaps because of – this fact, we must prepare for a further tightening of tax regulations. Although worldwide, most countries have been shifting the focus of tax revenues from direct to indirect taxes, Czech politicians have again decided to go against the grain. Thus, direct taxes will probably form the main focus of fiscal interest in 2017.

During June 2017, a new act will be promulgated in the Collection of Laws. This act amends, among other things, the Income Tax Act. The particular provisions of this Act will come into effect gradually over the following months. Since this law is intended to introduce significant changes to the rights and obligations of taxpayers, we give below a brief overview of some of them.

Lump-sum expenses of the self-employed

As of 2018, the upper limit for lump-sum expenses for the self-employed will again be reduced. The income threshold upon which the expenses will be calculated will be reduced by half, from the current CZK 2 million to CZK 1 million. As compensation for this restriction, self-employed people are allowed to claim child tax credits and spouse tax deductions. If desired, both of the new rules can be claimed simultaneously for the tax period 2017.

Flat-rate tax for the self-employed

The amendment increases the options for self-employed people to pay a fixed-sum tax. Before, only entrepreneurs with no employees who received income only from their business activities were able to apply for a flat-rate tax to be set. Henceforth, in addition entrepreneurs who have employees and who receive income not only from their business activities but also income from employment will be allowed to pay a flat-rate tax.

This option will be based on an agreement between the entrepreneur and the tax administration on the amount of tax, fixed in accordance with previous and anticipated income. The minimum tax after credits will be CZK 600; the self-employed person will no longer have to file tax returns.

Withholding tax on employment income up to the limit

Currently, income from employment received on the basis of a piece-work agreement with a monthly remuneration not exceeding CZK 10,000 may be subject to a withholding tax of 15 %. Henceforth, withholding tax of 15 % may also be applied to income from employment received on the basis of any contractual relationship between the employer and the employee if the total monthly income does not exceed CZK 2,500.

Tightening of conditions for exemption of income from the sale of real estate

According to tax regulations, income from the sale of real estate is exempt from income tax if the property has been the sellers’ place of residence for more than two years. If this time limit is not met, the sellers are allowed to prove that they have used the income from the sale of real estate to meet their housing needs, in order that such income is exempt from personal income tax. The amendment has specified that the income from the sale of real estate must be used to meet the seller’s housing needs and not those of the seller’s family members or third parties.