Early this week the Czech government approved a package of measures to relieve the taxpayers in complying with their tax filing and payment obligations in the current extraordinary situation affected by the coronavirus epidemy.
The measures were implemented by a decision of the Minister of Finance on general waiver of selected types of tax penalties and by issuing a decree of the General Tax Directorate on the waiver of tax sanctions on application.
For taxpayers (both legal entities and individuals) obliged to file the 2019 income tax return and pay the 2019 income tax by 1 April 2020 who do so after this date but by 1 July 2020 at the latest, the relief package provides for a general (automatic) waiver of default interest for late payment and the fine for late filing. In practice, this group of taxpayers can file the tax return and settle the tax due within a period prolonged by three months without any penalties. All this without the taxpayer having an obligation to have their financial statements audited, without having to involve a certified tax advisor into the preparation of the tax return or without having to apply for the extension of the period for filing the tax return.
If, despite the above waiver, the tax return is filed earlier than 1 July 2020 and overpayment is reported in this tax return, this overpayment will be refunded within the standard 30-day period.
We note that the above general relief does not extend to situations in which a special time limit is laid down for filing the tax return (such as companies entering into liquidation) nor to taxable periods deviating from the 2019 calendar year.
Further, the general relief does not apply to annual reconciliation of payroll tax advances, which the employers are obliged to file within the statutory deadline by 20 March 2020, and the relating settlement of payroll tax.
Value added tax
Based on the relief package, fines for late filing of VAT control statement at CZK 1,000 (VAT control statement is filed after the statutory deadline but before the tax authority issues an official request) are automatically waived. This, together with the 5day penalty-free period for filing the return, provides for a couple of additional days to prepare and file the VAT return and VAT control statement without any penalties. This general waiver covers fines imposed from 1 March 2020 to 31 July 2020, i.e. those resulting from late filing of VAT control statement for months February 2020 to June 2020, or those for the first and second quarter of 2020.
As regards fines for late filing of the VAT control statement at CZK 10,000, CZK 30,000 and CZK 50,000 individual waiver on the application will be possible, provided that the taxpayer can prove that the delay was attributable to the extraordinary measures taken by the government to coronavirus prevention.
In other cases than the above mentioned, an individual waiver can be applied for in relation to default interest for late payment of tax. If the default interest is at lease partially waived, fine for late filing of tax return or annual reconciliation for the same tax will be waived automatically. It should be stressed that the fine for late filing cannot be waived if, at the same time, no default interest arises (e.g. if a deduction is reported in the VAT return or if the tax underpayment resulting from a tax return is settled within the deadline by payment or by setting off against an existing overpayment).
Again, the individual waiver is conditioned upon the proof that the delay in the payment of tax is attributable to the extraordinary measures taken by the government to coronavirus prevention. According to the decree, this can be proved e.g. by showing the impact of the quarantine measures, disease or the necessity of individual childcare as a result of educational institutions closure (in relation to a taxpayer, the representative of the taxpayer or the taxpayer’s business key persons). In addition, the tax authorities will accept proof by documenting real financial impact of the extraordinary measures on the taxpayer’s business (such as an overview of cancelled tours or entrance tickets, comparison of occupancy rates or sales volumes against previous periods, closure of production due to restrictions and measures taken by suppliers etc.).
The main prerequisite for the admissibility of the application for waiver of default interest is the settlement of overdue tax. Thus, applications for waiver filed before the payment of tax, in advance, will be dismissed by tax authorities.
Neither the Czech social Security Office not health insurance companies have implemented similar comprehensive relief package as the one adopted by the tax administration. Thus, the current obligation of individual entrepreneurs to pay monthly advances for social security and health insurance contributions remain valid. The same applies to the obligation of employers to withhold and pay on a monthly basis social security and health insurance for their employees.
The individual entrepreneurs are obliged to file an annual reconciliation with the social security office and the relevant health insurance company by the end of month following the deadline for filing the income tax return. As the tax relief package does not extend the deadline for filing the return (but rather it waives certain penalties connected with non-compliance of this deadline), this means that the deadline for filing the annual reconciliation of social security and health insurance is not automatically postponed by the tax relief package. Individual entrepreneurs are still obliged to file these reports by 4 May 2020, unless the tax advisor is involved in the preparation and filing of their tax return. Only Všeobecná zdravotní pojišťovna declared recently that the annual reconciliation report for 2019 will be accepted as duly filed if delivered by 3 August 2020.
It is likely that the relevant institutions would adopt similar relief measures later. In order to secure the automatic prolongation of the deadline for filing the annual reconciliation reports for social security and health insurance, it is recommended that individual entrepreneurs grant a power of attorney to a certified tax advisor for the preparation of the personal income tax return by the end of March 2020.
The situation is constantly evolving. Should your or your company’s situation require that the relief measures are utilized, we would be happy to assist in analyzing the situation and recommend an optimum approach.
Jana Pytelková Svobodová
Head of Tax
ASB Czech Republic