Czech Republic: New income tax credit

A new income tax credit for taxpayers in the case of discontinued enforcement proceedings.

A new income tax credit for taxpayers in the Czech Republic

An amendment to the Enforcement Procedure Code and Civil Procedure Code among other things contains an amendment to the income tax law introducing a new income tax credit for taxpayers in the case of discontinued enforcement proceedings. The amendment will enter into effect on 1 January 2022.

The amendment allows for the discontinuance of excessively long enforcement proceedings concerning low-value receivables. When enforcement proceedings pertaining to a receivable not exceeding CZK 1,500 excluding interest and penalties continue for more than three years without resulting in the recovery of debt, within the three months of the amendment’s effective date, bailiffs must call on the entitled party (usually the creditor) to deposit an advance for expenses for enforcement proceedings. Without such advance deposit, bailiffs will discontinue the proceedings.

If proceedings are discontinued in this manner, creditors will be entitled to compensation equal to 30% of the receivable being recovered (excluding interest and penalties). However, compensation will not be provided in a monetary form but as an income tax credit for discontinuing the enforcement proceedings. The credit amount equals the compensation awarded to the creditor by the bailiff upon the discontinuance of proceedings—30% of the receivable being recovered.

If the taxpayer in the relevant taxable period does not report any tax from which the credit can be deducted (i.e., the taxpayer recognises a tax loss), the credit would forfeit and the creditor would not receive any compensation or relief for discontinued proceedings.

Considering the receivable value limit, it is expected that this new income tax credit will mainly be used by payers of personal income tax; however, it may also be useful for corporations with a large number of low-value receivables.

Read a September 2021 report prepared by the KPMG member firm in the Czech Republic


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