Czech Republic: Tax bill for 2021 advances with changes

Czech Republic: Tax bill for 2021 advances with changes

The Chamber of Deputies passed a bill that includes amendments to the tax laws for 2021, and the bill is now pending consideration by the Senate.

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The 2021 tax package bill would introduce the following income tax changes:

  • Repeal of the super-gross wage
  • Introduction of progressive taxation of individuals at 15% and 23% rates
  • Acceleration of tax depreciation
  • A revision to the taxation of discounted bonds
  • Introduction of a cap on the exemption of income from the sale of securities

Changes approved by Chamber of Deputies

During its consideration of the bill, the Chamber of Deputies approved changes to the original version of the bill. These changes include:

  • An amendment introducing a limit of CZK 20 million for the exemption of income from the transfer of a security, a mutual fund or an equity certificate when a three-year (or five-year, for equity certificates) time-test is met. It is not clear from the wording of the adopted amendment as to what income would be subject to the limit—whether income for the tax period, from a single sale transaction or from the sale of a single security. 
  • An amendment repealing tax depreciation of intangible assets was also passed, specifically when accounting depreciation can be claimed as a tax-deductible expense. These new rules would be applicable retroactively for intangible assets acquired during 2020. Another change is an increase in the limit for tangible fixed assets (from currently CZK 40,000 to CZK 80,000). The extraordinary depreciation of tangible assets was also approved. 
  • A one-year postponement of the repeal of the tax exemption of non-residents’ interest income from “Eurobonds,” (i.e., bonds issued abroad by Czech companies or the Czech Republic) would therefore be repealed only for Eurobonds issued after 31 December 2021. A new exemption for EU and EEA governmental bonds would start to apply from the beginning of 2021. The new rules for the taxation of bonds (in particular discounted ones) would remain unchanged from the original draft.
  • Repeal of the “super-gross wage” and the 7% solidarity tax surcharge so that only employees’ gross income would be subject to taxation without it being increased by the compulsory premiums paid by employers. The amendment would introduce two tax bands—the first tax rate of 15% would apply to income up to 48 times the average wage, and the second rate of 23% to income exceeding this limit (i.e., approximately CZK 141,000 per month). Under transitional provisions, the new method of calculating tax would apply to the entire 2021 tax year, even though the amendment would enter into effect in 2021. Employees’ individual (personal) income tax (payroll tax) prepayments for the calendar months of 2021 preceding the amendment’s effective date would continue to be calculated considering the “super-gross wage,” according to the original wording of the bill. The new calculation method would then be applied to the income for the whole year in employees’ annual payroll tax settlement or in their 2021 tax returns, meaning that any overpayments for the months of 2021 preceding the amendment’s effective date would only be received by employees after the end of the year. As a result of the repeal of the “super-gross wage” rule, the gross amount of remuneration paid to an officer or member of a corporation’s body to be a Czech tax non-resident would be subject to a 15% withholding tax only. If the amendment were to be effective after 1 January 2021, individual taxpayers would have a choice to calculate the tax on their 2021 income either under the prior procedure or under the new rules. If they opt to apply the prior procedure, the taxpayers would make this election by filing a tax return.

The basic tax relief for individual taxpayers would equal the average wage for the prior calendar year. Currently, basic tax relief is stipulated as a fixed amount (CZK 24,840) and has not changed since 2008. As a result of linking basic tax relief to the average wage, the 2021 tax relief would be CZK 34,125. The tax package would also repeal the cap for the “tax bonus” (CZK 60,300). Tax bonuses are paid to taxpayers if their child credit for the year exceeds their tax liability.
 

Read a December 2020 report prepared by the KPMG member firm in the Czech Republic

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