Consolidation package approved

The long-discussed package of measures to support the recovery of public finances has gone through the legislative process and the intended changes will thus be effective from the beginning of 2024.

Functional currency

Accounting entities will now be allowed to use the currency of their primary economic environment in their accounting and to keep their accounts in a so-called functional currency, which may be the Euro, the US dollar or the British pound. This means that if most of the entity’s transactions are recorded in a foreign currency, the foreign currency may be used as an accounting currency if certain conditions are met.

Corporate income tax

• Increase of the rate from the current 19% to 21%.
• Extension of extraordinary depreciation of zero-emission cars purchased between 2024 and 2028.
• Option to choose the taxation regime for unrealised exchange rate differences, where taxation will take place on an annual basis as before or only at the time of realisation.
• Limitation of the scope of reported income flowing abroad.
• Limitation of tax exemptions:
  • A limit in the amount of CZK 2 million from the price of the car will be introduced for tax application of costs in case of acquisition of M1 category company cars. This limit will also limit the increase of the entry price during technical appreciation.
  • Cancellation of tax deductibility of still wine as a promotional item up to CZK 500.
• Large multinational groups will now be obliged to publish an income tax report for tax periods beginning on 22 June 2024. Selected groups must also file a sustainability report for tax periods beginning on 1 January 2024.

Personal income tax

• The progressive tax rate of 23% will already apply to income exceeding 36 times the average wage, instead of the current limit of 48 times the average wage.
• Changes in the additional taxation of company cars for private purposes: for internal combustion cars it remains 1% of the price, but for low-emission cars (hybrids) it is only 0.5% and for zero-emission cars (electric cars) only 0.25%.
• Setting a general limit of CZK 50,000 per year for the exemption of certain other income of the same kind.
• Abolition of tax exemptions:
  • Discount for a student.
  • Discount on the placement of the child (the so-called kindergarten fee).
  • Deduction of expenses for trade union membership fees and examinations verifying results of further education.
  • Exemption of the provision of meals in a non-monetary form (meal vouchers, canteens) above a set limit.

• Limitation of tax exemptions:
  • Employee benefits provided in a non-monetary form from the cultural and social needs fund, or from the social fund, from profit after taxation or from tax non-deductible expenses (i.e. e.g. culture, recreation, health services, educational and sports facilities) will be exempted on the part of the employee up to half of the average wage for the tax period, i.e.  currently approximately CZK 21 thousand.
    For employers, these benefits provided up to a set limit will be a non-tax-deductible expense; above the set limit, it may be a tax-deductible expense.
  • Exemption of income from the sale of securities or shares in a company if the holding time test of 3 or 5 years is met only up to the amount of CZK 40,000,000 per year per taxpayer. This change will not be effective until 2025.
  • The spouse discount will only be available for a wife/husband caring for a child under 3 years of age.
  • 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 50% of the tax base.
• Introduction of a gradual increase in the minimum assessment base for calculating insurance premiums for self-employed persons by 5% each year. From the current 25% of average wages to 30% for 2024, 35% for 2025 and a final 40% for 2026.
• Reintroduction of sickness insurance for employees in the amount of 0.6% of the assessment base. Employees’ social security contributions will thus increase from 6.5% to 7.1% of the assessment base.
• Changes in the conditions for participation in insurance for employees working under an agreement to complete a job (so called “DPP”).

VAT

• Unification 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. However, some items will be reclassified.
• In particular, the following are to be subject to the reduced rate of 12%:
  • Food
  • Water, sewerage and heat supply
  • Newspapers and magazines
  • Single-use medical devices
  • Irregular public passenger transport by land and water
  • Selected construction works

• In particular, the following will be reclassified to the basic rate of 21%:
  • Alcoholic and non-alcoholic beverages, with the exception of drinking tap water and selected dairy drinks
  • Hairdressing services
  • Repair of shoes, clothing and bicycles
  • Cleaning work in households
  • Delivery of cut flowers
• For vehicles of the M1 category, the right to deduct VAT will be limited to CZK 420,000 (technical improvements are also included in the limit).
• In the case of books (printed, electronic and audio books), a 0% VAT rate will be introduced.

Real estate tax

• Rates increase up to double.
• Changes in coefficients determined by municipalities.
• Incorporation of an indexation mechanism that will allow for a tax increase in line with the increase in inflation compared to 2023
• Abolition of restrictions on the creation of paved areas used for business purposes, which until now could only be created on certain types of land.

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

Your WTS Alfery team