In December 2019, the President of the Czech Republic signed Press No. 509 of the Chamber of Deputies, which amends certain acts in the tax area, and thus finished the legislative process. The Act was published on 31 December 2019 in the Collection of Laws of the Czech Republic under No. 364/2019 Coll. This means certain regulations have changed since 1 January.
Changes concern, apart from others, the following Acts:
- Act No. 586/1992 Coll., on Income Taxes, as amended (hereinafter the “Income Taxes Act”);
- Act No. 593/1992 Coll., on Reserves for Establishing Income Tax Base, as amended (hereinafter the “Reserves Act”);
- Act No. 353/2003 Coll., on Consumption Tax, as amended (hereinafter the “Consumption Tax Act”);
- Act No. 187/2016 Coll., on Gambling Tax, as amended (hereinafter the “Gambling Tax Act”).
We have already informed you of the planned changes in our previous article, Planned Income Tax Changes for 2020. Let us briefly summarise the following areas:
The amendment has annulled the exception (transitional provision) for bonds issued before 1 January 2013, meaning that all interest income is only rounded off at the level of total income tax from one issuer, regardless of the date of issue of the bond. The identical rounding-off method is thus used for all bonds, eliminating the advantageous position of the so-called “one-crown bonds”.
The new rules apply to interest income that is realized by a taxpayer after 1 January 2020 from bonds issued prior to 1 January 2013.
Insurance and reinsurance companies consider the creation of reserves under the Insurance Industry Act, which is based on the Solvency II directive, tax-deductible expenses. This, however, no longer applies to technical reserves created in line with accounting legislation. Technical reserves created based on accounting regulations will therefore no longer be considered a tax-deductible expense. The wording of the Act on Reserves has also been modified in this respect. Due to the fact that technical reserves created in line with the insurance act are not accounted for, reserves in the insurance industry will be reflected in the tax base in the form of non-accounting adjustments to the profit or loss.
It is estimated that the transition to the new system will have a relatively large impact on the tax liability of insurance and reinsurance companies. This is why the Act includes certain transitional provisions which should divide this tax burden into two taxation periods.
Gambling games have been classified into individual income categories. Winnings from lotteries, raffles and receipt lottery are now subject to withholding tax, under which the gross value of the winning (not reduced by expenses) is used as the tax base. The tax exemption only applies to individual winnings that do not exceed CZK 1 million. Taxpayers now have the possibility of including their income from lotteries or raffles, which was subject to withholding tax, in their personal income tax returns, where they can declare the withheld tax similarly as an advance payment if this is advantageous for the taxpayer. The withholding tax applies to winnings from lotteries and raffles obtained by individuals with effect from 1 January 2020.
Income from other types of games is subject to the same tax as other income in personal income tax returns, ie it will not be subject to withholding tax imposed by the organiser of the game (the payer). The tax base is calculated as the difference between the sum of the winnings of the given type of income (the given income category) and the sum of the stakes (deposits) in the game within the given type of income. If the difference between the total income and the total deposits from the respective gambling game (the given income category) does not exceed CZK 1 million for the entire taxation period, the income from the respective gambling games will be exempt from tax. No other expenses than the deposits (stakes) placed into the game, will be deductible from the tax base in the calculation. The new rules will apply to winnings from other types of gambling games that are subject to tax with effect from 1 January 2020.
We have already dealt with the changes proposed to the Consumption Tax Act in the tax package article, among other things. Let us briefly go over the key changes that the amendment introduces.
A major change concerns a significant increase in alcohol tax. Starting from 1 January 2020, the alcohol tax on products containing alcohol listed under nomenclature code 2207 (eg products with an alcohol content of over 80% or products containing alcohol which are used as fuel) and under nomenclature code 2208 (such as whisky, vodka, gin), and in other cases, is at CZK 32,250/hectolitre of ethanol. The tax has also been increased for alcohol contained in fruit spirits originating from minor distilleries (not exceeding 30 litres of ethanol per producer in the course of one production period), where the alcohol tax has been raised to CZK 16,200/hectolitre of ethanol.
Tax from tobacco products has also seen a major increase: the percentage for cigarettes has grown to 30%. The fixed tax rate is now at CZK 1.61/piece on cigarettes, CZK 1.88/piece on cigars and cigarillos, and CZK 2,460/kg on tobacco for smoking. The minimal tax rate on cigarettes has also been increased to a total minimum fee of CZK 2.9/piece. Tax has also gone up on heated tobacco products, where the tax rate is now CZK 2.46/piece.
As a result of the fact that this act has been passed, tax warehouse operators or beneficiaries entitled to repeated receiving of selected products may now be obliged to change their “tax collateralisation”. It is therefore necessary to calculate with this possible increase in the tax collateralisation.
Another interesting piece of news is the raised limit for home beer production (produced by natural persons). If the amount of beer produced in this manner does not exceed 2,000 litres per calendar year and is not sold, the producer is now not considered a taxpayer.
The tax package also includes a tax rate change concerning the partial tax base from lotteries, which should now be 35% instead of 23%. The original wording of the Amendment counted on an increase in gambling tax for the other partial tax bases as well, however the bill underwent several motions to amend, which led to the cancellation of the remaining tax increases from the final wording of the Act.
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