As usually the approaching year end is accompanied by hectic adoption of amendments to tax laws. The effective date of tax amendments planned for 1 January of the coming year will be postponed. Despite that fact, we have prepared a summary of tax news so that you have enough time prepare for the expected changes. We trust that you will find the articles included in this issue of the ASB tax news useful. Should you request any further information on the topics covered, please do not hesitate to contact us. ASB Tax Team Czech
TAX PACKAGE FOR 2019 NOT ADOPTED YET
The amendment package of tax laws which the government presented this year in June passed the second reading in December. Therefore it is obvious that the originally planned effective date 1 January 2019 cannot be adhered to. Thus, the changes will have an impact later, in terms of VAT by several months and in the income tax area by a year with some exceptions.
As regards the income tax, the amendment brings, in particular, the ATAD implementation of which we have already informed you in the previous issues of ASB newsletter. In addition, we would like to draw your attention to the extension of a reporting duty in relation to some outgoing cross-border payments (see below).
The VAT area will also undergo series of changes. In particular, new VAT provisions and rules will apply regarding vouchers, the adjustment of tax base for bad debts, setting the Date of Taxable Supply (DUZP) in terms of service re-invoicing related to real estate lease, delivery of tax documents or input VAT adjustments for major repairs. In the course of the Chamber of Deputies debates, several law amendments were still put forward. As soon as the final version of the amendment is released, we will inform you regarding the VAT changes in detail in the following issue of the ASB newsletter.
NEW REPORTING DUTY FOR OUTGOING CROSS-BORDER PAYMENTS
The tax package for 2019 considerably extends the reporting duty as regards the outgoing income payments to non-residents paid by Czech taxpayers. This measure remains overshadowed by the implementation of European legislation (ATAD directive), however it deserves more attention because it covers a wide variety of taxpayers. According to the new draft provision Section 38da of the Act on Income Tax, the reporting duty (until now only applied in relation to the income actually subject to withholding tax) will apply even to income exempt from withholding tax or income which under the international agreements is not taxable in the Czech Republic. Typical examples include interest or dividend income, but also e.g. the payment for services provided by non-residents in the Czech Republic and other less frequent income types.
Using a special form, the payers will be obliged to report the payment of this income to tax administration/authorities. Exceptions to this duty will only apply when the relevant income does not exceed CZK 100 000 in a calendar month. Given the low limit, it can be assumed that the impact of this measure will affect a great number of companies, which is to result in an increasingly higher administration burden. For instance, companies paying on a monthly basis interest, which is exempt from withholding tax, to foreign related parties, will be obliged to report the payment to the tax administrator every month. The information on interest amount paid to related parties is stated in the Report on Transaction with Related Parties, which forms a part of a corporate income tax return. In another words, it means duplicate reporting of the data.
The draft amendment enables granting an exception from the reporting duty. At the moment it is not clear what approach to this measure is to be adopted by the Financial Administration and to what the extent the exception will be granted. We recommend paying attention to the implementation of this new reporting duty and considering the option of applying for the exception.
COUNTRY BY COUNTRY REPORTING
Last year the new obligation to submit Country by Country Reports (CbCR) was introduced, it involved multinational groups with an annual consolidated turnover exceeding EUR 750 million.
In general, the report is filed by the ultimate parent entity of the respective group. Provided the entity does not reside in the country which sets out the duty to submit the CbCR, then the report is to be filed by another member entity chosen by the group and which resides in the country where the CbCR is enacted by the law. The other entities of the multinational group have a duty to submit so called “notification” in their country of residence, where they inform the tax administrator regarding the entity, which will be filing the report for the group.
Provided Your Company is a member of a multinational group we recommend checking whether the duty to submit the new notification has risen (if the turnover of the group has exceeded EUR 750 million in 2017) or as the case may be a notification of change (if the reported data have changed or the duty to file the CbCR for the group ceased to exists). This report needs to be submitted by the end of this year.
EXERCISE CARE WHEN ACCOUNTING FOR ACQUISITION TAX
In the context of the debate in November, the Coordination Committee of the Chamber of Tax Advisors and the General Financial Directorate (GFD) discussed the issue of treatment of the real estate acquisition tax in terms of accounting and income tax.
The translators among the tax advisors deduced the possibility of the acquirer of immovable property on the grounds of a purchase contract to choose whether to account for the real estate acquisition tax as an expense in the current period which becomes tax deductible the moment it is paid or as a part of acquisition price of the property. Their conclusion was based on the ambiguity of the existing legislation.
The representatives of the Financial Administration asserted their disapproval regarding this conclusion. According to their point of view, the real estate acquisition tax is clearly a cost which is directly connected to the acquisition of the immovable property and therefore the obligation to account for this tax in the acquisition price arises. The option of accounting for the acquisition tax as expense in the current period does not according to the Tax Administration comply with the applicable legislation.
Different situation arises in terms of contribution where the manner of recognizing the real estate acquisition tax from income tax perspective depends, besides other things, on the manner of calculating the price in the expert opinion issued for this purpose. Should your company acquire immovable property through contribution please do not hesitate to contact us we shall provide you with any advice and assistance.
UPDATE ON INSUREANCE ADVANCE PAYMENTS FOR SELF-EMPLOYED (OSVČ)
Effective from January 2019, the minimum advance payments of social and health insurance will be raised; the amount is calculated on the grounds of an average wage which amounts to CZK 32,699 for 2019. The minimum pension insurance advances therefore rise to CZK 2,388 and those for health insurance to CZK 2,208 for 2019.
As from 2019 the deadlines for advance payments for pension insurance and payments of sickness insurance change and these will be due already in the month for which they are paid and that is between the first and the last day of the respective month. It basically means that the amounts relating to January 2019 have to be settled in the course of January 2019.
In order to avoid paying two advances at the beginning of 2019 (for December 2018 and for January 2019), the entrepreneurs have according to the transitional provisions two options:
- December advance for pension insurance can be paid between 21st and 31st December, after having paid the November advance and before the January advance payment is due,
- December advance will not be paid and additional payment will be made after submitting the Revenue and Expenditure Report for 2018 (no penalty will apply).
Sickness insurance, however, has to be paid for all months. Payment for December 2018 needs to be paid between 1st and 20th January 2019 and payment for January 2019 must be paid between 1st and 31st January 2019.
The rules of penalty calculation for unpaid advances have also changed. Provided the advance payment for a particular month is credited to the account of the Social Security Administration by the end of the month following the month when the advance was due, then the penalty is not assessed. Similar new rules apply to sickness insurance; insurance payment due in a particular month can be settled by the end of the following month without the insurance ceasing to exist.
Should you require any further information, please don’t hesitate to contact us:
Jana Pytelková Svobodová, Head of Tax Team, firstname.lastname@example.org
Lucie Berglová, Tax Manager, email@example.com
Michala Darebná, Tax Manager, firstname.lastname@example.org