Planned Tax changes from 2024
At the beginning of summer 2023 the Czech Government introduced significant changes to the current CZ tax legislation known as the “Consolidation Package”. The Consolidation Package has been recently approved by Chamber of Deputies with only minor changes. It is expected that the Consolidation Package will be approved now by the Senate and signed by CZ President afterwards by which most of the changes should be effective as of 1st January 2024.
The most substantial changes contain changes in reduced VAT rates (newly only one single reduced VAT rate of 12%, instead of the current two of 15% and 10%), introduction of zero VAT rate for supplies of books and e-books (newly 0%), increase of corporate income tax rate (newly 21%, instead of the current 19%), decrease of a threshold for applying progressive personal income tax rate of 23% (newly 36 times the average salary, instead of 48 times average), introduction of new obligatory employees sickness contribution (newly 0.6%), changes on tax treatment of various employee benefits, increase in Real Estate Tax and various other changes.
A government proposal for law amendments (the so-called “Consolidation Package 2024”), was recently approved by the Chamber of Deputies. It amends certain laws in connection with the consolidation of public budgets and it was delivered to the Senate. The purpose of this planned amendment is to implement measures which will contribute to the recovery of the state budget and also it is the government’s effort to modernize the Czech law system.
The amendments will have an impact on more than 60 Czech laws. From the CZ tax perspective, the following changes are in our opinion the most important to note:
Value Added Tax
The most important change is an abolition of second reduced VAT rate of 10%, and a decrease of the first reduced VAT rate from 15% to 12%. Consequently, as of 1 January 2024, in the Czech Republic there should be only two VAT rates, the standard VAT rate of 21% and the reduced VAT rate of 12%. Beside these two VAT rates, the Czech Republic intends to introduce new zero VAT rate for supply of books or e-books.
There are several categories of goods or services which were moved newly from reduced VAT rate to standard VAT rate of 21%, such as: hairdressing and barber services, draught beer and other beverage deliveries, public waste collection, household cleaning services, firewood delivery, cut flower delivery.
The planned VAT amendment further introduces a restriction on VAT deduction for the acquisition of passenger cars. The maximum amount of input VAT deduction from purchases of passenger cars should not exceed CZK 420 thousand which corresponds to tax base of CZK 2 million.
Corporate Income Tax
The most important changes on Corporate Income Tax include the following:
Increase of the Corporate Income Tax rate from the current 19% to 21%
Tax deductible expenses related to the acquisition or financial leasing of personal vehicles will be limited to 2 million CZK
Expenses on representation items in the form of quiet wine gifts up to 500 CZK will no longer be considered as tax deductible costs
Personal Income Tax
The most important changes on Personal Income Tax include the following:
Reduction of the threshold for applying the 23% personal income tax rate from 48 times the average wage to 36 times the average wage
Cancellation of exemption for most non-monetary benefits such as recreation, medical, health, education, culture services.
Introduction of sickness insurance for employees amounting to 0.6%
Changes in the conditions for applying the dependent spouse discount, cancellation of the discount for placing a child in a preschool (so-called kindergarten fee) and cancellation of the student discounts
Restriction on tax exemption of income from the sale of a security or a share in a company. The maximum amount of tax exemption on such income is CZK 40 million per person. This limitation should apply as of 2025. The taxable persons planning to sell a security or a share in company can take, however, certain action until the end of 2024 to adjust the acquisition price.
Real Estate Tax
In connection with the Real Estate Tax, starting from 2025, an “inflation coefficient” should apply, which will automatically adjust the property tax for inflation each year.
There are also various changes in Excise duty, Energy taxes and Gambling taxes.
Please note, that although the amendment is currently in the legislative process, the chances that the amendment will be enacted are high, however some changes to the current version are possible. Furthermore, the proposed date from which the amendment should be effective is 1st January 2024.
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