In October 2023, the Chamber of Deputies approved and on 22 November the President of the Republic approved the consolidation package, which will increase levies on the self-employed and all taxpayers. The changes will affect property tax, VAT, income taxes. We now offer you an overview of some of the most significant changes.
From 2024, corporation tax will increase from the current 19% to 21%
The change in the corporate tax rate will increase for all tax years beginning after the law takes effect. Therefore, if a corporation has a financial year commencing before 1 January 2024, the 19% rate will still apply for that period.
Personal income tax rate
Currently, two personal income tax rates apply, namely 15 and 23%. The higher tax rate applies if the annual income exceeds 48 times the average wage.
For 2024, the threshold is reduced to 36 times.
The average wage is to be CZK 43 967 as of 1 January 2024. 48 times is therefore CZK 2 110 416. Reducing this threshold to 36 times means that it is only CZK 1 582 812, i.e. a monthly wage of CZK 131 901. Above this amount, the income tax rate will therefore be 23%.
There is no change in the range of income that counts towards the threshold. In addition to income from employment and self-employment, income from capital assets, rental income or other income is also counted.
Value added tax also sees changes
There are three VAT rates in the proposal from 1 January 2024:
- 0% for books, including electronic books.
- The reduced VAT rates of 10% and 15% will be merged into one rate of 12%.
- The standard VAT rate of 21% will remain.
The reduced VAT rate will apply to foodstuffs other than beverages, drinking water, medical devices, medicines, water charges, public transport, culture, sport, accommodation, food services other than beverages, newspapers and magazines, etc.
The basic rate will now apply, inter alia, to beverages, including soft drinks and draught beer, flowers, firewood, waste removal, hairdressing and barbering services, services of authors and artists or domestic cleaning, repair of shoes, leather goods and bicycles.
Property tax growth
The property tax will also increase by an average of 1.8 times and all of the proceeds will continue to go to the municipalities. In the case of agricultural land, the municipality will have the power to exempt it. Starting in 2025, an inflation factor is planned for the real property tax, which would automatically increase the real property tax by inflation for the previous calendar year.
Increase in so-called nuisance taxes
Excise tax on alcohol, tobacco and gambling tax will be increased.
Changes for employees
For non-monetary employee benefits (culture, sports, travel, medical goods and services, education, recreation, books…), instead of the originally intended complete abolition of the exemption, a limit of half of the average wage is introduced (in 2024 this will be a limit of CZK 21,984 per year per employee). Sports or cultural events organised by the employer will not be counted towards this limit under certain conditions. At the same time, the exemption for gifts and social assistance to employees is completely abolished.
Expenditure on non-monetary benefits will be a tax deductible expense on the employer’s side if it exceeds half of the average wage and the entitlement to it is provided for in a collective agreement, internal regulation or other agreement.
For employee meals, regardless of the form (meal vouchers, company meals, cash allowance for meals), the limit on the employee’s exempt income will be 70% of the upper limit of the meal allowance applicable to a working trip lasting 5-12 hours (currently approx. CZK 107). The limit will not apply to small refreshments at the workplace or meals in the form of a working breakfast, lunch or dinner.
Changes in deductions from the tax base
Certain deductions from the tax base (deduction for union membership, deduction for professional exams) and tax deductions for student and child in kindergarten are abolished. The dependent spouse deduction will only be available when caring for a child under 3 years of age. The ability to deduct the value of gratuitous benefits up to 30% of the tax base is extended for 2023 (individuals) and for tax years ending from 1 July 2022-29 February 2024 (corporations).
Sickness insurance
Employees will now also pay sickness insurance at the rate of 0.6%. Until now, only the employer paid this insurance. This means that the employee will pay 7.1% of his/her monthly salary (gross salary assessment base) against the 6.5% social insurance contribution.
Changes for the self-employed persons
Changes are also taking place for self-employed persons. The assessment base for pension insurance and the state employment policy contribution for self-employed persons will be at least 55% of the tax base from 2024. The minimum assessment base for self-employed persons will also be increased until 2026, with it being based on average wages. The premium rate for self-employed persons participating in sickness insurance will increase from 2.1% to 2.7% of the assessment base.
Changes to work performance agreements
A major change is expected to be made to agreements for the performance of work, with deferred effect from 1 July 2024. Two new thresholds will be introduced, above which social and health insurance must be paid on the income in question, namely 25% of the average wage per agreement and 40% of the average wage on the income from all agreements in a given month. The application of withholding tax on these agreements will be linked to the employee’s participation in sickness insurance.
Taxation of securities and share transactions
The exemption of income from the sale of securities and shares in companies will apply to individuals up to a maximum income limit of CZK 40 million per tax year, regardless of the length of holding. The effectiveness of this provision is postponed to 1 January 2025 (including the related possibility to revalue the acquisition value of shares and securities at the date of sale or at the end of 2024 at the latest).
Other tax and accounting changes
As of 1 January 2024, the possibility to exclude from the tax base unrealised exchange differences, i.e. exchange differences from the revaluation of outstanding receivables and liabilities at the balance sheet date, will be newly introduced. This scheme will be voluntary and will apply if the taxpayer submits a notification to its tax authorities within 3 months from the beginning of the relevant tax period, which cannot be withdrawn after this period.
Also, the amendment to the Accounting Act introduces, effective from 1 January 2024, the possibility to keep accounting records in a currency other than the Czech currency, namely in euros, US dollars or British pounds, provided that it is the so-called functional currency, i.e. the currency of the primary economic environment in which the entity operates.
The amendment to the Accounting Act also contains other changes, such as the calculation of net turnover or obligations arising from the implementation of European directives, namely the obligation to prepare and publish a sustainability report and an income tax report.
In the case of passenger cars (cat. M1), a limit of CZK 2 million is introduced for the application of tax depreciation and costs in financial leasing. Similarly, for passenger cars, a limit of CZK 420 000 is introduced for claiming VAT deductions, i.e. 21% of the CZK 2 million limit.
The provision of silent wine as a traditional advertising item will no longer be considered a tax-effective expense, and silent wine as an advertising or promotional item up to CZK 500 will no longer be a tax deductible expense.
