Income Taxes from Dependent Activities and Insurance: What Will 2019 Bring?
The period of annual tax reconciliations and tax returns is approaching. Therefore, we bring you a practical guide with which you will surely outsmart the taxes. We will summarise the tax and insurance news that await us in 2019 and we will also remind you of the important deadlines and responsibilities of both employees and employers.
EXPECTED CHANGES IN 2019
Although in 2019 there are not as many tax changes as in the previous years, there are certain news so it is definitely worth to learn more about them.
- Statutory executives and VAT – The original proposal, which was part of the new tax package, and which expected statutory executives to pay VAT on their income, was not approved. Statutory executives are considered as employees for the tax and insurance purposes. “The Czech VAT Act defines that employment income cannot be an economic activity subject to VAT. That is why, from the VAT point of view, statutory executives continue to be seen as other employees and their remuneration is not subject to VAT,” says Pavel Šnobl, Deloitte’s manager who engages in providing tax and legal advisory. Abroad, statutory executives often have the status of a self-employed person because their activities are highly independent and they have a considerable personal responsibility for the company’s management, which are the basic prerequisites for self-employment.
- Changing the method of calculating super-gross wages or the case of mariners – this step comes as a result of the case of Czech residents who worked in the Netherlands and paid taxes in the Netherlands (lower), although they should have been paying them in the Czech Republic. Therefore, they had to pay the rest of the taxes even for the previous years. From January 2019, the calculation of the super-gross wage for employees who are not part of the Czech social security and health insurance system will change – newly it will not be increased by the equivalent of the Czech insurance.
- New maximum tax base: CZK 1,569,552
- Adjustment of the minimum wage: CZK 13,350
Changes in sickness insurance and practical impacts
The applicable amount for employee participation in sickness insurance has increased from CZK 2,500 to CZK 3,000. The social security and health insurance will be payable in case of contracts for work with remuneration of CZK 3,000, but the withholding tax limit remains in the amount of CZK 2,500 – both limits are planned to be unified in the future.
In connection with this topic, an interesting question emerges: How do we deal with social security and health insurance payments in case of a large number of contracts for work or contracts for work activity at the same employer? Iva Matyášová, payroll supervisor at Deloitte, explains: “In the calendar month, to assess the decisive amount for insurance, we add together the income for each type of employment separately, for the calculation of income taxes, we add all types of employment, and so we assess one tax base.”
What if an employee is a participant of another insurance scheme? “This is not information that you would normally ask a new employee, but it is a good thing to know. The employer has to determine the correct insurance system first, to which he is obliged to pay the insurance. Maybe I would recommend having this question in the entry form,” advises Pavel Šnobl and he adds: “It is worthwhile checking this information carefully, even if the employee brings you an A1 form.”
A1 Form – a certificate of persons migrating for work reasons in EU member states; it shows in which social security and health insurance system such a person participates.
ANNUAL TAX RECONCILIATION IN 2018
Under what conditions is the annual tax reconciliation performed?
- An employee is not required to file a tax return.
- An employee had income from dependent activities from one employer and/or more employers in a row.
- An employee signed a ‘taxpayer’s declaration’ relating to the taxation period for all these employers.
- By 15 February 2019, an employee asks, in written form, his/her last employer to prepare an annual tax reconciliation (most frequently by signing a ‘taxpayer’s declaration’).
Examples when it is not possible to make an annual tax reconciliation and a tax return needs to be filed:
- If, for example, an employee has terminated one job, he/she takes a vacation, but he/she is already working in a new job during that time, it is a concurrent income. Even if it was only one day.
- If the income exceeds the maximum annual social security limit and an obligation to pay the solidarity tax surcharge arises, a tax return must be filed.
- An employee who has two parallel jobs of which one carries the withholding tax obligation, he/she may apply for an annual tax reconciliation while the income taxed at withholding tax is not included. If the employee wants to include the income from contracts for work or contracts for work activities, he/she has to file a tax return.
- An employee who has a parallel job, of which one is a contract for work, but he/she earns more than CZK 10,000 per month and therefore, he/she has to pay a prepayment tax. In this case, an annual tax reconciliation cannot be made.
- An employee had income only with withholding tax and worked, for example, on the basis of a contract for work. He/she did not sign the declaration; he/she may apply tax relief on a payer in the tax return and transform the withholding tax into a tax prepayment.
1 April 2019 – the deadline for filing a tax return and for submitting a power of attorney for representation by a tax advisor
TIP: The power of attorney has to be already present at the local tax administrator!
Annual Tax Reconciliation:
Tax overpayment has to be included in the March remuneration at the latest.
The amount has to be higher than CZK 50; any outstanding arrears are not deducted.
Income tax reconciliation has to be filed by 1 March 2019 (in the case of electronic filing, the deadline is 20 March 2019).
Reconciliation of the tax paid by withholding has to be made before 1 April 2019.