Following the amendment to the Income Taxes Act effective since 1 January 2021, a decree of the Ministry of Finance (No. 335/2021 Coll.) was published in the Collection of Laws after more than 8 months, amending and supplementing the relevant Personal Income Tax Return forms (included in Decree No. 525/2020 Coll.). The decree allows taxpayers to file a tax return for 2021 (or a part of the year beginning on or after 1 January 2021) and correctly calculate the relevant tax, which would not be possible in some cases in the form valid for 2020.
The forms and related instructions for their completion reflect changes in legislation; primarily amendments to Act No. 586/1992 Coll., on Income Taxes, as amended, in effect since 1 January 2021. The most significant, yet not the only changes include the abolishment of the so-called super gross salary, whereby the gross salary, i.e. taxable income from dependent activities, became the income tax base, thus eliminating the difficulties of calculating the super gross salary for employees with mandatory social security insurance in another EU member state, EEA country or Switzerland. Furthermore, the changes include the introduction of progressive taxation at a rate of 15% and 23%, where personal income is taxed at a rate of 15% up to the tax base limit of 48 times the average salary (i.e. up to CZK 1,701,168 per year in 2021) and a tax base exceeding 48 times the average wage will be subject to an increased rate of 23%, which replaces the so-called solidarity tax surcharge. Please note that the rate of 23% applies to all partial tax bases in total exceeding the respective limit, i.e. for instance, also to rental income, capital income or other income, i.e. not only to income from dependent activities and partial tax base from self-employment, as it was the case previously with the solidarity tax surcharge.
The introduction of progressive taxation also entails changes for taxpayers who have income from sources abroad, for which they apply the so-called exemption with progression as a method of avoiding double taxation, in which the relevant income is exempt from taxation in the Czech Republic; nonetheless, the income influences the total level of taxation the taxpayer should bear subsequent to its exemption. This calculation of the total tax burden is enabled by a new form field in the form of Appendix No. 3 to the Personal Income Tax Return for the tax period of 2021 – calculation of income tax from sources abroad (Section 38f of the Act), which was previously used only when the method of crediting tax paid abroad was applied.
Another significant change, which required the creation of a completely new form of Appendix No. 4 to the Personal Income Tax Return for the tax period of 2021, is the reintroduction of a separate tax base for selected personal income, which taxpayers receive from sources abroad (e.g. dividend income from abroad). This change is also related to the abolition of the uniform rate of personal income tax and the need to maintain the possibility of avoiding double taxation in accordance with the relevant double tax treaties. A rate of 15% will be applied to this separate tax base (i.e. a rate equal to the rate used for withholding tax at a special tax rate). It is worth noting that taxpayers with this foreign capital income may consider whether to include the relevant income in the general partial tax base for capital income (similarly to previous years) despite the progressive taxation introduced, for instance in cases in which they could use loss from rental income, losses from previous years, non-taxable parts of the tax base or tax reliefs and tax discounts more efficiently.
Other changes that have affected personal income taxpayers and that are reflected in the new forms and related instructions include, for example:
- a temporary increase in the amount that can be deducted in total from the tax base arising from a gratuitous performance (donation) up to 30% of the tax base (for the tax periods of the calendar years 2020 and 2021);
- reduction of the limit on the amount of interest that can be applied within a jointly maintained household as a non-taxable part of the tax base to CZK 150,000;
- increase of the basic tax relief for the taxpayer to CZK 27,840;
- increase of the limit of the maximum relief for the placement of a child in preschool in connection with the increase of the minimum wage for the year 2021 to CZK 15,200;
- abolition of the possibility to claim a relief for the registration of sales (due to the abolition of the related registration obligation for 2021);
- increase in the decisive amount for the application of the tax bonus (depending on the amount of the minimum wage);
- abolition of the maximum annual limit for the tax bonus.
Although the form of the relevant personal income tax forms is already known, we would like to note that they have not yet been added to the Tax Form Database on the Financial Administration website or to the e-forms on the Tax Portal of the Financial Administration.