Employee Benefits and Their Valuation

In our previous articles, we have already informed you about the major changes in the approach to employee benefits brought about by the Consolidation Package. Generally speaking, most employee benefits will be treated as a tax-deductible expense by the employer, but with the obligation to tax such income at the employee.

It is true that this amendment removes many exceptions in the Act; on the other hand, it introduces the issue of valuation of the supply that will have to be additionally taxed on the side of the employee, which was strongly criticised by the professional public in the external comment procedure. The explanatory report, therefore, provides draft answers to some of the questions. We select the following comments in the explanatory report in particular:

• In the case of non-monetary meals, the value of the meal, which is the starting point for additional income taxation for the employee, is determined as the price at which the meal is sold or could be sold. This amount is reduced, where appropriate, by the employee’s contribution.
• In general, therefore, the employee’s income will be the difference between the employee’s reimbursement to the employer and the price of the supply as determined under the Property Valuation Act or the price charged by the employer to others, even if the employer obtained the supply from its supplier at a discount.

We add that the accuracy of the valuation of income received by employees from employee benefits will have to be proven by the employer.

Employee Benefits and Family Members

In the previous understanding of employee benefits, only the benefit for the employee and not for their family members was possible to be considered a tax-deductible expense, despite the fact that it was taxable income of the specific employee. In practice, this regulation has led to many uncertainties regarding the tax deductibility of expenses, for example, if a foreign worker was provided with accommodation where his family lived with him in the Czech Republic. The Act now addresses this issue and states that in certain circumstances, i.e. generally if the expenditure is for social arrangements or health care for a family member of the employee resulting from a collective agreement or other internal guideline of the employer, it may be a tax-deductible expense.

Business car

There is an adjustment to the amount that will be additionally taxed by the employee if they use a business vehicle free of charge for private and business purposes. The new rate range is extended to include zero-emission vehicles and, in simple terms, the employee would be additionally taxed for each month:

• 25% of the input price if it is a zero-emission vehicle;
• 5% of the input price if the employee uses a low-emission vehicle; and
• 1% of input prices in other cases.

In this context, the definition of a zero-emission vehicle is introduced as a road motor vehicle that uses only electricity or hydrogen as fuel or another road motor vehicle with zero CO₂ emissions. For completeness we note, that the employee will be given a specified percentage of the full input price of the vehicle without being affected by the possible two million expenditure limit for M1 vehicles.

The tax treatment of employee benefits is one of the hottest topics related to the Consolidation Package. It is expected that there will be a heated debate during the legislative process and that this draft may see further changes. We will keep an eye on discussions for you and bring you updates in our articles and webcasts.