21st September 2020

Who will benefit from abolition of super-gross wage?


The ‘super-gross wage’ was introduced in the Czech Republic in 2008 as a part of the reform of public finance. Under this concept, the employment income tax base is determined as the employee’s gross wage increased by social security and health insurance contributions paid by the employer. An employee’s income tax base is thus artificially increased, which results in effective taxation at 20.1%, despite the income tax rate being 15%. The super-gross wage concept has been criticised as overly complicated and non-transparent, and its abolition has periodically been proposed.

The amending proposal also abolishes the 7% solidarity tax surcharge applied to gross income from dependent activity (employment) and to tax bases from independent gainful activity (self-employment) in excess of 48 times the average wage in aggregate for the taxable period.
If passed, the amending proposal would bring the tax base down to the employee’s gross income (gross wage). Furthermore, two tax rates would be introduced: a first tax rate of 15% would be applied to income up to 48 times the average wage; a second tax rate of 23% would be applied to income above this limit (approximately CZK 140,000 per month).

Unlike the current legal regulation, under which the solidarity tax surcharge only applies to income from employment and income from independent gainful activity, the two rates should apply to the total of all types of an individual’s taxable income (i.e. also, to rental income, income from the sale of movable or immovable assets, etc.).

The proposal also reintroduces a separate tax base for selected capital gains flowing to individuals from abroad (such as foreign dividend or interest income). This separate tax base would be subject to a single 15% tax rate, while income flowing from the Czech Republic would be subject to a 15% withholding tax. Introducing a separate tax base should prevent different taxations of selected kinds of income flowing to individuals from abroad and from the Czech Republic.

The proposed changes would have a positive effect on practically all employees, as their monthly gross income from employment up to CZK 140,000 would be taxed at 15% rather than at the present 20%. Income from employment above this limit will be effectively subject to the same tax burden as now.

On the other hand, tax would increase for individuals who have income other than from employment or independent gainful activity (for instance rental income or income from the sale of movable or immovable assets, etc.) and whose total income exceeds 48 times the average wage: other income above this level would be taxed at 23%, rather than at 15% as is now the case.
The amending proposal is to be a part of the currently debated amendment to the Income Tax Act which is to enter into effect on 1 January 2021. At the last session of the government, the governmental coalition of ANO and CSSD agreed on the proposal. The abolition of the super-gross wage is generally also supported by the other political parties. However, the question remains whether it will take place in the above described form as it would have a significantly adverse effect on the state budget.


Lenka Novákoválnovakova@kpmg.cz+420 222 123 364

Iva Krákorováikrakorova@kpmg.cz+420 222 123 837

Members of the American Chamber of Commerce in the Czech Republic