The tax package for next year, which was approved by the Chamber of Deputies, is revolutionary. The final step in the legislative process is the referral of the package to the President, who has stated that he will not sign the package but will not veto it. The package should start to apply even without the President´s signature. The Ministry of Finance assumes that the legislative process will not be completed until January 2021, so the bill contains transitional provisions that will allow the new regulation to be applied from 1 January 2021, some measures even with effect for 2020.
Abolition of the super-gross wage
The so-called super-gross wage was used as the tax base for the taxation of employees. From 2021, only the employee's gross salary will be used for the calculation of the personal income tax, without considering the health and social insurance paid by the employer, so the tax base will be lower than before, at the level of the gross salary. This change will only be reflected in the amount of income tax, not in the amount of social and health insurance contributions.
Higher tax discount per taxpayer
The annual tax discount per taxpayer is increased from CZK 24,840 to CZK 27,840 in 2021 and to CZK 30,840 in 2022.
Change in the solidarity tax surcharge
A progressive tax rate of 15 and 23% was newly approved, thus the solidarity tax surcharge (of 7%) was abolished. The tax rate of 23% will newly be applied to the part of the tax base exceeding 48 times the average wage (CZK 141,764 per month). The solidarity tax surcharge according to the current Act applies only for persons who have income from employment (income pursuant to Section 6 of the Income Tax Act) or self-employed activities (income pursuant to Section 7 of the Income Tax Act). However, the new tax rate of 23% will be applied to all types of income, thus it will also apply to taxpayers who have rental income or capital income.
Under the current legislation, taxpayers whose income was subjected to the solidarity tax surcharge had to file a personal income tax return and they could not apply for a tax settlement from their employer. The tax package brings relief - this obligation is abolished and taxpayers to whom the second increased tax rate of 23% will be applied will not have to file a tax return under this title.
Abolition of the tax bonus maximum
The tax bonus arises when applying a tax discount for children in an amount exceeding the calculated tax. Until now, families with more children have been able to claim a tax bonus of up to CZK 60,330 per year. This limit has been abolished as part of the approved tax package. However, it still remains valid that only a taxpayer who had at least six times the minimum wage from employment or business income during the tax period is entitled to the tax bonus.
The tax package will offer employers a tax-advantaged meal package as a simple and cheap alternative to meal vouchers. Employers will now be able to provide a meal allowance in cash. According to the new wording of the law, the cash contribution provided by the employer to employees for meals is considered as exempt income up to 70% of the upper limit of the meal allowance, which can be provided to employees with a paid salary for a business trip lasting 5 to 12 hours. For the year 2021, the amount is CZK 75.60 per day.
Restrictions on the exemption of income from the sale of securities
The original proposal of the Chamber of Deputies contained changes concerning the exemption of income from the sale of securities, namely a limitation for this exemption of CZK 20 million per year. The parliamentary proposal introduced the taxation of sales income exceeding this amount. The Senate canceled the proposed change and the Chamber of Deputies supported the cancellation. The sale of securities thus remains exempt without restriction after three years of holding.
Changes in the categorization of assets and increase of the depreciation limit
The tax package also includes changes in fixed assets. Intangible assets as a category in the Income Tax Act are abolished and taxpayers will be able to claim costs related to long-term intangible assets as they are applied in accounting. For tangible assets, the limit for mandatory tax depreciation is increased from the current CZK 40,000 to CZK 80,000. Assets up to 80 thousand CZK can thus be deducted as a one-off expense.
Extraordinary accelerated depreciation
The Chamber of Deputies has reintroduced extraordinary accelerated depreciation, which was once valid for 2009 and 2010. These will be able to be applied to tangible assets acquired in 2020 and 2021. These are tangible assets included in the first and second depreciation groups. Assets in the first depreciation group can be depreciated in 12 months, instead of the current 3 years, and assets in the second depreciation group in 24 months, instead of the current 5 years. In the first 12 months, the taxpayer will be able to depreciate the tangible assets of up to 60% of the purchase price.
Reduction of excise duty on diesel
Another change of the tax package is the reduction of excise duty on diesel. The excise duty on diesel is currently CZK 10.95 per liter. Deputies approved a reduction in excise duty by CZK 1 per liter.
Increasing the threshold for the value of gratuitous performances
The proposal of the Chamber of Deputies to increase the maximum limit for the application of the value of gratuitous performance (gifts) as a deductible item from the tax base will be discussed. The Chamber of Deputies wants to enable natural persons to deduct a maximum of 30% of the tax base for the tax periods of 2020 and 2021, instead of the current 15%. Legal entities should also be able to deduct a maximum of 30%, compared to the current 10%, for the tax period that ended in the period from 1 March 2020 to 28 February 2022.
Should you have any questions regarding the above topics, do not hesitate to contact us.
Head of Tax Team
ASB Czech Republic
Junior Tax Consultant
ASB Czech Republic