Expected and Unexpected Changes in the Amendment to the Income Taxes Act for 2021
At its meeting on Thursday, 19 November 2020, the Chamber of Deputies passed several motions to change the Amendment to the Income Taxes Act (“ITA”) for 2021 (Parliamentary Document 910), which may have significant impacts on both corporate income tax and personal income tax payers.
Limiting the exemption for an individual’s income from the sale of securities
Based on the (non-governmental) motion to amend that has been passed, the exemption for an individual’s income from the sale of securities (including an equity certificate), or income from a share attributable to a participation certificate in the event of dissolution of the mutual fund, is newly limited to CZK 20 million for one taxation period. Due to the absence of a specific transitional provision, the income from the sale of securities generated by individuals in 2021 may already be subject to the new taxation treatment.
Increasing the threshold value for tangible assets
The motion to amend increases the threshold value for tangible assets and its technical improvements from the current amount of CZK 40 thousand to CZK 80 thousand. It will also be possible to apply this new limit to assets acquired since 1 January 2020 and to technical improvements on tangible assets completed since the same date.
Cancelling special amortisation of intangible assets for tax purposes
Pursuant to another motion to amend, the special tax treatment of the monthly amortisation of intangible assets should be cancelled. Amortisation for tax purposes should newly be set as amortisation for accounting purposes. It should be possible to apply this treatment already to intangible assets acquired since 1 January 2020. Intangible assets acquired before that date continue to be amortised in line with the then effective legislation, which will also govern the subsequent technical improvements of those assets. In this context, the motion to amend also resulted in a corresponding amendment to the VAT Act.
Introducing extraordinary depreciation for the 1st and 2nd depreciation group
The motion to amend also proposes re-introducing so-called extraordinary depreciation under Section 30a of the ITA. Such extraordinary depreciation would relate to tangible assets classified in the 1st and 2nd depreciation group and acquired in the period from 1 January 2020 to 31 December 2021. Assets classified in the 1st depreciation group could be depreciated by payers for a period of 12 months. Assets classified in the 2nd depreciation group could be depreciated by payers for a period of 24 months. The proposed transitional provisions also allow the retrospective application of extraordinary depreciation starting from 1 January 2020.
Cancelling the super-gross salary
The motion to amend shall also cancel the super-gross salary and introduce progressive taxation with 15% and 23% rates. The tax base subject to a 23% rate should be the amount exceeding the 48-multiple of the average wage, i.e. in 2021 the amount exceeding CZK 1,701,168 per year. The new rules are presumed to apply already to the wages and salaries for January 2021 (including the income accounted for by the employer before 1 January 2021 and paid to the employee after 31 January 2021).
Other changes approved as part of motions to amend:
- Increasing the tax allowance for individuals from the current amount of CZK 24,840 to CZK 34,125 (by approximately CZK 773 per month). The new allowance corresponds to the average salary which will be subject to regular adjustment in subsequent years.
- Removing the cap for child tax bonus; it will newly be possible for the bonus to exceed CZK 60,300.
- The cancellation of the exemption for interest income rising for tax non-residents from bonds issued abroad by payers residing in the Czech Republic (so-called Eurobonds) is postponed to 1 January 2022.
- Non-monetary gifts provided in relation to the outbreak of the SARS-CoV-2 coronavirus for purposes defined in Section 15 (1) or Section 20 (8) of the ITA will be deemed a tax-deductible expense if provided between 1 March 2020 and 31 December 2020.
We would like to note that no motions to amend have been passed with regard to the cash contribution to meals, i.e. the original wording remains unchanged.
The Chamber of Deputies referred the Parliamentary Document 910 to the Senate. The Senate is presumed to discuss it in mid-December 2020. We will keep you informed about the future developments of the amendment process depending on the current situation. Should you have any questions regarding the above matters, please do not hesitate to contact us.
In any case, we will discuss the aforementioned changes in our regular webcast Regular Debate about Current Topics – Taxes and Law in Day-to-Day Practice, which will take place on 1 December 2020 and which we would like to invite you to.