The government’s recovery package

The government has presented a package of measures that should lead to a reduction in the public budget deficit.

In addition to measures in the tax area, the proposed changes are intended to mainly affect retirement pensions, unemployment benefits and the salaries of state employees.

Meanwhile, most of the proposed changes are expected to apply already from 2024.

Below is an overview of the most important proposed changes in the tax area:

Corporate income tax

• Increase of the rate from the current 19% to 21%.
• Extension of extraordinary depreciation for electric vehicles purchased between 2024 and 2028.
• Limitation of tax exemptions:
  • The limit for the tax deductibility of costs for acquisition of company cars of category M1 to 2 million CZK from the price of the car. This limit will also limit the increase of the entry price at technical appreciation.
  • Abolition of tax deductibility of still wine as an advertising item up to CZK 500.

Personal income tax 

• A progressive tax rate of 23% will already apply to monthly income of employees exceeding 3 times the average wage instead of the current 4 times.
• Setting a general limit of CZK 50,000 per year for the exemption of other income of the same kind.
• Abolition of tax exemptions:
  • Discount for a student
  • Discount on child placement (the so-called kindergarten fee)
  • Deduction of expenses for trade union membership fees and examinations verifying the results of further education.
  • Exemption from the provision of meals in a non-monetary form (meal vouchers, canteens) above the set limit.
  • Exemption of non-cash benefits provided to employees.

• Limitation of tax exemptions:
  • Exemption of income from the sale of securities or shares in a company upon meeting the time test of possession of 3 or 5 years to the amount of CZK 40,000,000 per year per taxpayer.
  • Reduction of the wife/husband discount, which will now only be available to a spouse caring for a child under the age of 3.
  • Restrictions on the exemption of income from raffles and gambling.

Social security

• Increase in the levy burden for self-employed persons by setting the assessment base at 55% of the tax base compared to the current level of 50% of the tax base.
• Increase in the minimum assessment base for calculating insurance premiums for self-employed persons from 25% of the average wage to 40%.
• Reintroduction of health insurance for employees at 0.6% of the assessment base.
• Changes in the conditions for participation in insurance for employees working under a work performance agreement (DPP).

VAT

• Alignment of the first and second reduced VAT rates (15% and 10%) into one reduced rate of 12%. Most goods and services currently subject to one of the reduced rates will be subject to the 12% rate under the proposal. However, some items will be reclassified.

• In particular, the following are to be subject to the reduced rate of 12%:
  • Food
  • Newspapers and magazines
  • Medications
  • Selected construction works
  • Irregular public bus transport of passengers

• In particular, the following will be reclassified to the basic rate of 21%:
  • Alcoholic and non-alcoholic beverages withthe exception of tap water
  • Hairdressing Services
  • Repair of footwear, clothing and bicycles
  • Household cleaning services
  • Delivery of cut flowers
• It is proposed to introduce a 0% VAT rate on books.

Real estate tax 

• Rates increase up to double.
• Incorporation of an indexation mechanism to allow the tax to be increased in line with the current inflation.

If you are affected by the aforementioned changes, please do not hesitate to contact us.

Your WTS Alfery team