We have had a busy time preparing tax returns and paying taxes for 2022.
We have seen many legislative changes. Although we have kept you informed, we consider it useful to summarise and remind you of the most important ones. Where appropriate, we have listed what to look out for.
Road tax
In 2022, fuel prices rose sharply. The government responded by abolishing advance payments of road tax, which are no longer applicable from 1 January 2022 , and then abolishing the tax altogether for vehicles weighing up to 12 tonnes.
This also removed the obligation for operators of vehicles up to 12 tonnes to register for the tax. For those who were registered from the past, registration ceased by law on 1 January 2022, there was no need to apply. On the contrary, the refund of the advance payments had to be requested in writing to the Tax Office.
Road vehicles weighing over 12 tonnes remained subject to the tax, but the tax was significantly reduced. It is payable in one lump sum by the deadline for filing the tax return, 31 January of the year in question.
The taxpayer is a natural or legal person who is registered in the technical licence and operates a vehicle in the territory of the Czech Republic for the purpose of securing income.
Only vehicles subject to the tax, i.e. vehicles and their trailers with a maximum permissible weight of 12 tonnes or more, will be listed on the tax return. This includes vehicles which, thanks to a tax credit or exemption, are zero-rated.
We remind you that if the taxpayer claims the discount, he is obliged to keep the transport documents with confirmed details of the transhipment point.
Example: if you own one vehicle weighing more than 12 tonnes and four other vehicles weighing up to 12 tonnes, you become liable for road tax, but you only declare the taxable vehicle, i.e. the one weighing more than 12 tonnes.
Real Estate Tax Return
The declaration is made on 31 January for the year 2023, i.e. in advance, according to the data valid on 1 January 2023.
If you acquired land, a house or an apartment in 2022, you were obliged to file a tax return, as well as if you made an extension, superstructure or liquidation of a part of the property, if the changes led to a change in the area of the land or type of building, an increase in the number of floors, etc.
The cadastral authorities continuously carry out revisions of the actual state of the real estate and the land area in comparison with the data registered in the cadastre. Many property owners do not comply with the notification obligation and as a result the data in the cadastre are not up-to-date. This review may result in an obligation to file a tax return, especially if the land area or type of land has changed. So keep this in mind.
No tax return is filed unless the facts for determining the tax have changed. Also, a change in the coefficient is not a reason for filing a return. The tax office will take the change into account itself and send you information on the amount of tax due for the year.
In connection with real estate, do not forget about the obligation to report to the tax office for exempt income, which is mainly acquisition by inheritance or donation. The obligation arises when such income exceeds CZK 5 million. If you have more than one exempt income during the year, they are not added up, i.e. you only report the ones that exceed this amount.
In addition to an inheritance or gift, other exempt transactions must be reported if they exceed the amount shown, such as income from the sale of real property if the time test is met, benefits from an insurance company arising from the insurance of property or persons, income from the sale of an interest in a corporation if the time test is met, income from the sale of securities if exempt, and others.
There is one exception where you don’t have to report exempt income over 5 miles. This is in the case of income from the sale of immovable property on the basis of a purchase contract, which is entered, together with information about the change, in the Land Registry.
Detailed information on the obligation to report exempt income can be found on the website of the tax administration in the section Tax – notification of exempt income of individuals. The penalties for failure to comply with this obligation are significant. It is 0.1% of the exempt income for a late notification, 10% if the tax office calls you. The deadline for filing the notice is the same as the deadline for filing the current year’s tax return.
New VAT turnover amount
A significant change was the increase in the turnover triggering mandatory VAT registration from 1 million to 2 million crowns as of 1 January 2023.
We still get a lot of clients asking us what period the turnover is calculated for. It’s for the 12 immediately preceding consecutive months. So it’s not for a calendar year, but for example in March 2023 we test turnover for the period April 2022 to March 2023.
The turnover includes transactions (supply of goods or services) provided on the territory of the Czech Republic, i.e. domestic transactions. Sales of assets and advances paid are not included in turnover.
We also encounter the question whether it is more advantageous to be a VAT payer or not. This depends mainly on to whom I provide the service or sell the goods, i.e. whether I am trading with VAT payers or supplying end users, non-taxpayers (e.g. citizens). And then it also depends on how much input I have, how much VAT I recoup from my own purchases.
For example, if I provide services with a high proportion of my own work (cosmetics, pedicure), which I supply to citizens, i.e. non-payers, it is more profitable not to be a VAT payer, because the relevant VAT rate increases the price of the service and it becomes unnecessarily expensive for customers.
On the other hand, if my suppliers and customers are mostly taxpayers, it is an advantage to be a taxpayer as well, because the VAT on my purchases is recovered and I can provide my customers with a lower price if I calculate the margin on the price without VAT.
It is also more profitable to be a taxpayer if expenses exceed income or if the VAT rate on purchases from suppliers is higher than the rate on sales to customers.
The VAT issue is one of the most complicated areas, and we recommend consulting a specialist when making the decision.
Definitive abolition of “EET”
As of 1 January 2023, the “EET” system is no longer operational. The legislation that came into force in December 2022 does not foresee any further operation of the system, even for entrepreneurs who would like to register voluntarily. Sales sent in 2023 are no longer recorded by the Tax Administration.
Data boxes
In 2023, the circle of persons who must use only data mailboxes to communicate with the Financial Administration was expanded. By law, data boxes have been automatically set up for all natural persons in business, typically self-employed persons.
The original legislative intention envisaged the establishment of data boxes also for non-business individuals, but it was not implemented in the end.
An important piece of information in this context is that the allocation of a data box obliges the subject to make all submissions exclusively in electronic form, i.e. via a data box or other form of remote electronic communication available on the Financial Administration’s “My Taxes” portal.
Failure to comply with this procedure may be fined (in practice, we have already encountered that an entrepreneur who had an active data box made a submission in paper form and was subsequently fined CZK 2,500), or the submission may be marked as ineffective.
Messages in the data box are available for 90 days, after which they are automatically deleted. However, you can arrange for a paid Data Vault service to store the messages.
Communication with state administration bodies is free of charge, whereas communication with commercial entities is charged.
There has also been a change in the case of service by fiction. A document sent by a public authority is deemed to have been automatically delivered upon expiry of ten days from its delivery to the data box. As of 1 January 2023, the Senate passed an amendment which provides that Saturdays, Sundays and public holidays are not counted in this time limit.
Control reports
In 2023, the penalties for failure to file a VAT control report have been reduced to half for natural persons, for legal persons who are quarterly VAT payers, and for limited liability companies with one shareholder who is a natural person.
Let us recall the amount of penalties for violation of the obligation to submit a VAT control report, whereby the above mentioned entities would pay 1/2 of the fine in case of assessment.
- CZK 1 000 for late submission of KH
- CZK 10,000 for filing on the basis of the tax administrator’s request
- CZK 30,000 if the payer fails to submit the KH even after being requested to do so
- CZK 50 000 if the KH payer does not file even within the replacement period
The so-called Liberation Act has also come into force, which provides that if there is a breach of the obligation to file a KH within one year, the first fine of CZK 1,000 and the first fine of CZK 10,000 will be automatically forgiven, no need to apply for anything.
A very welcome change is the extension of the deadline for responding to the FU’s request for information in the sent KH. The deadline has been extended to 17 calendar days from the original five days.
Changes to the flat-rate tax
From 1 January 2023, there has been a significant change in the flat tax. There are now 3 bands of the flat-rate regime depending on the amount and nature of the taxpayer’s income. The conditions, including examples, of each band are listed on the website of the Financial Administration in the section Taxes – Income Tax – Flat Tax.
The advantage of applying a flat-rate tax is a single payment, which solves social security and health insurance contributions and payment of personal income tax. The taxpayer also does not file a tax return. The flat-rate tax includes a minimum pension payment plus 15%. Since most business owners only pay the minimum necessary, the pension for flat-rate taxpayers will be slightly higher.
The disadvantage may be that no reliefs can be claimed, such as child tax credit or tax bonus, interest on loans, life assurance or pension etc., nor can income be distributed to another taxpayer.
Don’t confuse flat tax and flat expenses.
The lump-sum tax is a special type of tax that allows entrepreneurs to voluntarily pay a single monthly amount of mandatory social and health insurance contributions and income tax to the state budget, provided that the statutory conditions are met.
Lump-sum expenses are notional expenses that an individual entrepreneur can claim as a percentage of income. This expense can be between 30% and 80% of the entrepreneur’s income. The percentages are set by law according to the type of activity. Lump sum expenses are used by entrepreneurs whose real expenses are low.
Extraordinary depreciation
Extraordinary depreciation has been reintroduced for assets classified in depreciation group 1 and 2 and acquired by 31.12.2023. It is important to remember that the taxpayer must be the first depreciator, so beware of purchasing vehicles from demonstration events, and that extraordinary depreciation cannot be interrupted or reduced in value.
If technical improvements are made to the assets subject to extraordinary depreciation, the value of the assets is not increased. The technical appreciation will be depreciated separately.
Change in the taxable income limit
The income limit, which triggers the obligation to file a tax return, will increase from CZK 15,000 to CZK 50,000 in 2023. Therefore, if the income of a non-entrepreneur does not exceed this limit, there is no need to file a tax return.
Also, for taxpayers who have income from employment and at the same time income from business or other income, the limit when it is necessary to file a tax return is increased from CZK 6,000 to CZK 20,000. Therefore, if the taxpayer’s income in 2023 does not exceed this limit in aggregate, there is no need to file a tax return.
We monitor news and changes in legislation for you and, as always, will keep you informed in advance. We are now waiting for the amendment to the Accounting Act and in particular the amendment to the Labour Code. Both amendments should come into force on 1 January 2024.
