Amendments to Digital Tax Act: 7% Tax Rate Possibly to Decrease

The legislative process of passing the Digital Tax Act has not yet come to an end. At present, the act is being considered by the parliamentary Committee on the Budget that is preparing its motions to amend. What are the developments of the digital tax? What changes have been made to the bill in question? What changes may be expected in the coming months?

The substance and main pillars of the Act on Digital Service Tax have been described in the article Introduction of digital tax in the Czech Republic.

Following the comment procedure, a change was made in the conditions for companies to become a person liable to digital tax. The required level of consolidated revenues of a company remained the same (EUR 750 million); nevertheless, the amount for providing taxable services in the Czech Republic increased from CZK 50 million to CZK 100 million. Furthermore, an additional condition has been introduced: the tax will not apply to companies whose income from digital services accounts for less than 10% of their total income. The Ministry of Finance thereby seeks to eliminate companies for which income from digital services is not the substance of their business.

Furthermore, new limits have been added with respect to individual taxable digital services.

A company will be subject to digital tax if:

  • The income received from a targeted advertising campaign is at least CZK 5 million;
  • It provides digital mediation services and the number of users in the Czech Republic exceeds 200,000; and
  • It sells user data and the income generated in the Czech Republic is at least CZK 5 million for a period.

What may be expected in the future?

After the first reading at the Chamber of Deputies, the bill has been referred to the Committee on the Budget for consideration. Motions to amend are being prepared and further consideration will be possible from 23 March 2020. Motions to amend most often involve decreasing the tax rate from 7% to 5%, or even 3%, as well as postponing the effective date at least to 1 January 2021. The amount of the tax rate seems to be the most intensely debated issue at present. The 7% tax rate proposed in the Czech Republic is substantially higher than that of other European countries, such as the UK and France where the digital tax amounts to 2% and 3%, respectively. Although the digital tax is considerably lower in France, it drew a highly negative response from the USA, followed by customs duties levied on French production. This restrictive measure by the USA may certainly be imposed on the Czech Republic as well; its potential consequences have been analysed in detail in a study by David Marek, Deloitte Chief Economist. We will keep you informed about further developments.

Digital Tax dReport newsletter

Upcoming events

Seminars, webcasts, business breakfasts and other events organized by Deloitte.

    Show morearrow-right