Corporate income tax and common provisions of the Income Taxes Act
The corporate income tax rate will increase from 19% to 21%, and the increase will apply to all taxable periods beginning after the Act comes into force, i.e. probably from 1 January 2024.
Extraordinary depreciation will be newly applied only to electric vehicles in the period from 1 January 2024 to 31 December 2028, and existing assets depreciated under this scheme will be depreciated according to the existing rules.
The maximum possible tax-deductible value of a passenger vehicle will be limited to CZK 2 million. This limit will apply only to M1-category vehicles acquired in periods beginning after the Act comes into force.
In periods beginning after the amendment comes into force, it will no longer be possible to provide wine as a tax-deductible advertising or promotional item up to CZK 500.
Only royalties and profit shares will now be reported in the notification of foreign income, regardless of the amount, in respect of income exempt from or not subject to taxation in the Czech Republic. However, the new regulation will only apply 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.
Personal income tax
The threshold for applying the 23% personal income tax rate will be reduced from 48 times the average wage to 36 times the average wage from 2024 onwards.
A limitation on the exemption of income from the sale of a security or share in a company will be introduced, if the time test of 3 or 5 years between the acquisition and sale has been met, to an amount of CZK 40,000,000 per taxpayer. The new regulation will apply to sales made from 2024 onwards, with a special provision for the acquisition price of securities and shares acquired before the end of 2023.
Other proposed changes that would apply to individuals in 2024 include:
– applying the tax credit on a spouse only in case of care for children under 3 years of age,
– abolition of the tax credit for placing a child in a preschool institution (the “pre-school credit”) and the abolition of the student tax credit,
– abolition of the possibility to reduce the tax base by contributions paid to a trade union and by payments for examinations verifying the results of further education,
– linking the limit for the application of withholding tax on contracts to perform a job to the employee’s participation in sickness insurance (i.e. abolishing the fixed limit of CZK 10,000),
– reduction of the limit for exemption of lottery winnings from CZK 1,000,000 to CZK 50,000,
– the state contribution to building savings is now treated as other income,
– introduction of a “general” limit of CZK 50,000, within which some other income of the same kind will be exempt.
Benefits in non-monetary form (including meal vouchers or the operation of the employer’s own canteen) will be a tax-deductible expense for the employer, regardless of their amount.
The “classic” employee non-monetary benefits (i.e. holiday, health and medical services and goods, educational and sports facilities, culture, and printed books) will be treated as taxable income and should therefore also be subject to insurance contributions on the part of both the employee and the employer.
Meal vouchers or meals in kind provided at the workplace will be subject to the same tax treatment as the existing cash meal allowance.
Furthermore, the tax exemption for gifts and donations up to CZK 2,000 per year and for social assistance to overcome exceptionally difficult circumstances is abolished for employees.
From 2024, the new regulation will apply depending on the type of benefit, either from the date of the legal entitlement to the benefit or from its actual provision.
Social security contributions and contributions to the state employment policy
The employee’s insurance rate will increase from 6.5% to 7.1% of the assessment base, i.e. by 0.6%, which is the newly introduced sickness insurance.
The assessment base for self-employed persons for pension insurance and contributions to the state employment policy will be at least 55% of the tax base from 2024 (with the possibility of a voluntary increase).
From 2024, the minimum assessment base for self-employed persons will also keep increasing until 2026 and it will be based on the average wage.
The rate for a self-employed person participating in sickness insurance will increase from 2.1% to 2.7% of the assessment base.
Value added tax
The Government proposes to introduce three VAT rates from 2024: 0%, 12%, and 21%.
A zero tax rate should be applied to books (including e-books).
Contrary to initial expectations, the Government‘s proposal includes a 12% VAT rate on the supply of magazines and newspapers (including their electronic forms). Several items that are currently subject to one of the reduced VAT rates will now be subject to the 12% rate, such as gluten-free food.
Conversely, the following items will be reclassified to the basic 21% VAT rate:
– delivery of cut flowers or firewood,
– supply of beverages (except selected milk drinks for children),
– hairdressing services, serving drinks in restaurants except for water,
– services of authors and artists, collection, transport, and dumping of municipal waste,
– repairing shoes, leather goods, and bicycles or cleaning work in households.
On the other hand, occasional public passenger bus transport is being moved from the basic 21% to the reduced 12% VAT rate.
Real estate tax
As part of the consolidation package, the Government is also proposing a relatively substantial increase in the real estate tax, up to twice as much from 2024.
Furthermore, there is a change in the budget designation, where part of this tax will now be a revenue for the state budget.
At the same time, the introduction of an inflation coefficient is proposed, which would automatically increase the real estate tax by inflation for the previous period from 2025.
Excise and energy taxes
In the area of excise duties, the proposal includes an increase in the tax on cigarettes, smoking tobacco, cigars, and cigarillos by 10% from 2024 and 5% each year from 2025 to 2027. The tax on heated tobacco is to increase by 15% each year from 2024 to 2027.
There are also plans to introduce a new tax on nicotine pouches and refills for e-cigarettes.
Excise duty on alcohol is set to rise by 10% in 2024 and by 5% in each of the years 2025–2027.
On the other hand, the rate for so-called still wine will remain zero.
Excise duty on diesel will return to its original level before the start of the war in Ukraine, i.e. an increase of CZK 1.50 per litre.
It is also proposed to abolish the exemption from excise duty on aviation fuel for domestic flights.
The Government also plans to abolish the refund of excise duty on mineral oils consumed in mineralogical and metallurgical processes and the abolition of tax exemptions on natural gas, electricity, and solid fuels used in these processes.
In addition to the above-mentioned amendments, the Government’s proposal will also include an extension of Act No. 128/2022 Coll., on measures in the field of taxation in connection with the armed conflict on the territory of Ukraine caused by the invasion of the troops of the Russian Federation. In other words, the Government’s announced extension of the preferential tax treatment of donations to Ukraine will be extended for 2023.
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