Supergross Salary If Employee Participates in Other Social Security System

May 9, 2019 Czech Republic

On 1 January 2019, based on a deputies’ proposal, an amendment to the Income Taxes Act came into effect altering the base for the tax on wages and salaries - "supergross salary", in the event an employee participates in a foreign social security system.

According to provisions in the Income Taxes Act valid until the end of 2018, income from employment was increased by the amount of mandatory insurance premiums paid by the employer totalling 34%, for all employees, i.e. even for those where the payment of mandatory insurance premiums was not governed by the regulations of the Czech Republic and to which foreign insurance applied.

According to the new provisions, starting in January 2019, when calculating supergross salary a difference may arise depending on the social security system an employee is subject to. If an employee is in a foreign insurance system in an EU, EEA or Swiss system, fictive insurance premiums of 34% are no longer taken into account. The tax base is wages and salaries increased by the amount that the employer actually paid into the foreign system as mandatory foreign insurance for an employee of the same type. In contrast to employees that fall into a foreign insurance system in the EU, EEA or Switzerland, for employees from third countries gross income will continue to be increased by fictive insurance premiums totalling 34%.

This change will bring a significant amount of administrative work and lots of unknowns. For reasons of interpretation and a lack of clarity in practice, the Chamber of Tax Advisors of the Czech Republic has prepared a Coordination Committee, whose aim is to arrange an interpretation of the law and specific procedures for a payer that will be accepted by revenue authorities. In the event you are interested, we will be happy to provide you with more detailed information.

Lucie Berglová
Tax Manager