After a long negotiation by the government, the consolidation package was approved by the Chamber of Deputies and is now heading to the Senate. Below is an overview of the most important changes that were approved.
Corporate income tax / accounting
Increase in the corporate income tax rate
The corporate income tax rate will increase from the current 19% to 21%. The increase in the tax rate will apply to all tax years after 1 January 2024.
Taxation only of realised exchange rate differences
From 2024 it will be possible to exclude from the tax base unrealised exchange rate differences, which companies must tax today. This income will now be considered tax ineffective and will only be taxed in the period when the exchange rate difference is realised. This scheme must be notified to the tax authorities.
Possibility of keeping accounting in foreign currency
Another change from the new year is the possibility to keep accounting not only in the domestic currency (CZK), but also in EUR, USD and GBP, if this currency is also the so-called functional currency, i.e. if most of the accounting unit's transactions take place in that foreign currency. The tax base will be based on profits in the foreign currency and the tax will also be calculated in the foreign currency. The accounting currency can only be changed on the first day of the accounting period.
Limitation of the deductibility of the amount for the acquisition of a passenger car
From 2024, the maximum tax-deductible amount for the acquisition of a passenger car (M1 category) will be limited to CZK 2 million. This will be similar for the purchase of a car on an operating or finance lease.
Notification of income received abroad
Of all income exempt or not subject to tax in the Czech Republic, only royalties and profit shares (regardless of their amount) will be reported in the Notification of Income Paid Abroad. However, the new regulation will apply only to income for which the obligation to withhold tax would arise after the amendment comes into force. Income subject to withholding tax will be reported under the same conditions as before. It should be possible to apply this new regulation already to income for 2023.
Silent wine
From 2024, it will not be possible to include in tax deductible costs "silent wine" provided as an advertising or promotional item up to CZK 500.
Extraordinary depreciation from 1 January 2024
In the period from 1 January 2024 to 31 December 2028, exceptional depreciation will only apply to electric vehicles. Assets depreciated under this scheme will be depreciated according to the existing rules.
Personal income tax
Employee benefits
The tax advantage of employee benefits will be maintained, but from the new year the government has set the annual limit for the exemption of non-monetary benefits at half the average monthly wage (currently CZK 21,983 for 2024).
Catering
The exemption for the provision of meals and the non-monetary contribution to meals (meal vouchers) will be limited to a maximum amount identical to the cash contribution to meals. For shifts of more than 11 hours, the amendment will allow two meal allowances to be provided with the above tax treatment for exemption. At the same time, the possibility of providing a meal allowance for employees who do not have a shift schedule (e.g. managing directors) and work at least three hours per calendar day has been added.
Personal income tax rates
The personal income tax rates in the Czech Republic are 15% and 23%. The higher rate applies if the aggregate tax base exceeds a certain threshold. The current threshold is 48 times the average wage (CZK 1,935,552 for 2023). From 2024, the threshold should be reduced to 36 times the average wage (CZK 1,582,812 for 2024).
For the purposes of the advance tax on employment, the threshold for applying the 23% tax rate is reduced from four times the average wage (CZK 161,296 for 2023) to three times the average wage (CZK 131,901 for 2024).
Increase in levies for self-employed persons
Social security contributions for self-employed persons will increase by increasing the assessment base. The increase should apply to self-employed persons who are subject to the minimum assessment base (an increase of 5% of the average wage per year over the next three years). For self-employed persons whose income is subject to an assessment base higher than the minimum assessment base, the assessment base is to be increased from the current 50% of the tax base to 55% from 2024.
Sickness insurance
Employee social security contributions are to increase by 0.6% (up from a maximum contribution percentage of 11% to 11.6% of gross wages). Employees will contribute this additional payment to the sickness insurance scheme.
Abolition of the exemption for so-called managerial flats
The proposal abolishes the form of remuneration for selected employees. A transitional provision should ensure that the abolition does not affect persons who were resident in the dwellings before the law came into force.
Deferral of exemption of income on sale of securities and shares
From 2025, a limit for exempt sales of shares and securities should be set at a maximum of CZK 40,000,000 per tax year. This limit should have been in force as early as 2024, but its effectiveness is postponed in the proposal until 2025.
Clarification of work performance agreements
Agreements for the performance of work under the Labour Code are exempt from the payment of insurance premiums (up to CZK 10,000 per month). In connection with the draft law, new upper thresholds for exemption from the insurance premium system will be introduced so that all agreements concluded with more than one employer are cumulated when testing these thresholds. To this end, a new employer notification and employee information obligation is to be introduced.
Introduction of a limit for the exemption of certain income
To simplify the system of exempting small income (e.g. income from the state contribution to building savings, exchange gains on money exchanges, income from beekeeping, income from occasional activities, gifts from a single donor), an aggregate limit for exempting income of CZK 50,000 per tax period should be introduced, which should apply to individual types of other income.
Tightening of the spouse discount and cancellation of selected discounts
Currently, a taxpayer can claim a tax credit for a spouse with an annual income of less than CZK 68,000 if the spouses live in the same household. Under the new legislation, the tax credit will only apply to taxpayers living in a joint household with a child under three years of age.
The Child Placement Tax Credit and Student Tax Credit will be abolished.
Use of an emission-free vehicle for private purposes
The taxation of the employee's non-cash income on an emission-free passenger car used for both business and private purposes will be 0.25% of the entry price of the car.
VAT
In connection with the limitation of the deductibility of the amount for the purchase of cars from the perspective of income tax, the application of VAT deduction will also be limited. In the case of the purchase of passenger cars, it will be possible to claim a deduction of a maximum of CZK 420,000. This is the amount of VAT attributable to the purchase of a car of CZK 2,000,000 excluding VAT.
From 2024, only two VAT rates will be applied, the standard 21% and the reduced 12%. This will lead to the reclassification of some goods and services to a different rate.
Selected goods and services for which the VAT rate will be reduced from 15% to 12%:
- food
- tap water
- medical devices
- child car seats
- properties for social housing
- construction work on single-family homes and apartments
- funeral services
Goods and services for which the VAT rate will be reduced from 21% to 12%:
- occasional (irregular) public bus transport of passengers
- disposable medical and diagnostic devices and their repairs
Selected goods and services for which the VAT rate will increase from 10% to 12%:
- accommodation and catering services
- water and sewerage charges
- heating and cooling
- medications
- newspapers, magazines and their rental or lending
- tickets for sports and cultural events
- Turkish and steam baths, saunas and salt caves
Selected goods and services for which the VAT rate will increase from 10% or 15% to 21%:
- most drinks, including draft beer
- hairdressing services
- services of authors and artists
- collection, transport and disposal of municipal waste
- repair of footwear, clothing, leather goods and bicycles
- cleaning work in the household
- firewood
- cut flowers
Printed and electronic books will now be exempt from VAT with the right to deduct. Lending and rental of these books will also be subject to this exemption.
Excise duties
Excise duty on alcohol
The gradual increase in excise duties on alcohol will take place over three years, with increases of 10% in 2024, 10% in 2025 and 5% in 2026. There will also be an increase in the security of the alcohol tax for tax warehouse operators.
Excise duty on nicotine
According to the proposal, the taxation of tobacco products and alternative products (e.g. electronic cigarettes, nicotine pouches, etc.) should increase over the next four years. The excise duty on cigarettes, smoking tobacco, cigars and cigarillos is to be increased by 10% in 2024, and by 5% each year in 2025, 2026 and 2027. The tax increase on electronic cigarettes is to be in the pattern of 2.5 + 5.0 + 7.5 + 10 CZK/1 ml of refill, and on nicotine pouches in the pattern of 0.4 + 0.8 + 1.2 +1.7 CZK/g. In addition, the proposal includes a 15% increase in the tax on heated tobacco each year from 2024 to 2027.
Fossil fuel excise duty
The exemption for aviation fuel for any domestic transport (including air ambulance services) is removed.
Real estate tax
Real estate tax rates will increase to 1.8 times the current rates on average. All property tax revenue
will remain with the municipalities. At the same time, municipalities will be given greater authority in the taxation of agricultural land. There will also be a new inflation factor that will automatically increase property taxes by inflation over the previous period.
Gambling tax
From 2024, the tax on one gaming machine will increase to CZK 13,400 (from the previous CZK 9,200). The redistribution of the proceeds of this tax will also change. The state will now receive 55% of all revenues and the rest will be distributed to municipalities according to set criteria.
The tax rate on gambling is increased to 30% (from 23% previously). The tax rate on lotteries and technical games remains at 35%.