Top-up Taxes Act

The taxpayers who are constituent entities of large multinational groups are interested namely in the amendment to the Act on Top-Up Taxes discussed under Parliamentary Document No. 783. The proposed changes amend the existing law so that it is closer to the requirements of the OECD Model Rules and so that our Czech top-up tax is considered qualified for Pillar II purposes. These are very much desired changes that the payers of the top-up tax and their parent companies are waiting for. The most requested information from parent entities is the deadline for filing a tax return and an information return on the Czech (domestic) top-up tax, which should be extended by the new law from the current 10 months to:

• 22 months after the end of the tax period for filing a tax return for the Czech top-up tax , and
• 15 months after the end of the taxable period, or within 18 months in the case of the transitional period of the group for filing the information return for the Czech top-up tax.

The amendment to the Top-up Taxes Act comes into effect on the day following its publication in the Collection of Law and will also apply retroactively to tax liabilities for top-up taxes for the taxable period commencing from 31 December 2023.

Accounting Act

The Chamber of Deputies Document No. 783 also includes  the long-discussed amendment to the Accounting Act. The amendment implements Directive (EU) 2023/2775 of 17 October 2023 amending Directive 2013/34/EU of the European Parliament and of the Council, thus modifying the turnover and asset criteria for the categorization of  accounting units, which are increased by 20%, the limit of the number of employees remains unchanged.

Furthermore, following the loosening approach of the European Commission in the area of ESG reporting, the originally proposed ESG obligations in the Czech Accounting Act have been amended.  The sustainability report is now prepared by an accounting unit that is a company, savings and credit cooperative or insurance company and that

• is a public interest entity,
• meets the turnover and assets criteria for a large accounting unit;
• As of the balance sheet date, it exceeded the criterion of an average number of 1,000 employees for the accounting period.

Another amendment is the significant reduction in the number of obligatorily audited accounting units, which occurs as a result of the abolition of the audit obligation for small accounting units. Newly, only medium-sized and large accounting units have a mandatory audit, and thus the obligation to compile and publish an annual report. In connection with the change in the limits for the categorization of accounting units mentioned above, this effectively means that the criteria for the statutory audit have changed as follows:

• Net turnover increases from CZK 80 mil. to CZK 240 mil. CZK,
• The net value of assets increases from CZK 40 mil. CZK to 120 mil. CZK,
• The number of employees (currently 50) remains unchanged.

Uniform monthly employer’s report

Another closely monitored law is Parliamentary Document No. 925 and Parliamentary Document No. 926, which concern the new Act on the Uniform Monthly Employer’s Reporting and related regulations. The uniform monthly employer’s report itself should introduce regular information obligations of employers towards state institutions, with the fact that data collection should be merged into a single form that will contain each of the information items only once. This new law thus interferes with many regulations, for example, changes in the area of withholding tax on employment income are planned for Income Tax Act in the coming years.

However, Parliamentary Document No. 926 is also interesting for other amendments that were introduced during its second reading in the Chamber of Deputies. We have already mentioned selected government proposals in our previous alert. The third reading was then passed, for example, by proposals for:

• the introduction of another alternative tax regime for employee stock option plans for so-called qualified employee options – in the form propose by the governmental coalition;
• modification of the current taxation regime of employee stock option plans – partial changes at defined moments of deferred taxation;
• a change in the provisions on the exemption of non-monetary employee benefits, where the exempt benefit must not be by its nature a wage, salary or other benefit related to the performance of work;
• changes confirming the absence of the obligation to withhold tax advances on employment income in the case of international hire of labor;
• changes in the application of research and development deduction and the introduction of the so-called deduction unit;
• increase in the value of an “insignificant” receivable, for which a 100% statutory provision can be created on a one-off basis from the current CZK 30,000 to CZK 50,000.

On the other hand, the following applications were rejected, among others:

• the abolition of the limit of CZK 40 mil. CZK for the exemption of income from the sale of securities, shares in business corporations and crypto-assets from personal income tax – the above types of income will continue to be exempt in total only up to this amount;
• increase of the taxpayer’s tax credit and the increase in the child tax credit.

We will discuss all these news and the subsequent legislative process in detail in articles on our blog and on our webcasts.