The Recovery Package in the context of tax changes
Following the Government announcement on the Recovery Package, the related amendment to the tax regulations was published. Below we summarise a selection of the most important changes in this area.
On Wednesday, 9 March 2022, a governmental draft bill on tax measures in connection with the armed conflict in the territory of Ukraine caused by the invasion of the troops of the Russian Federation was introduced to the Chamber of Deputies to provide tax reliefs for taxpayers' charitable activities related to assisting Ukraine and its people in the conflict. The amendment to the Act could come into effect around May/June, with the law providing for retrospective effect from the beginning of 2022. The tax administration shall therefore already be proceeding in agreement with the planned amendment.
The complete text of the bill is available on the website of the Chamber of Deputies.
According to the proposed amendment, donations made in 2022 would be deductible on the donor’s side for the 2022 tax year, namely:
This reduction of the tax base could be used not only by Czech tax residents (legal entities and natural persons) but also by tax residents of Ukraine if the total of their income for the 2022 tax year from sources in the Czech Republic amounts to at least 90% of all their income, excluding income that is exempt from tax or income subject to withholding tax. Standard conditions apply to the proof of the donation, i.e. a document showing the recipient of the donation, its value, its subject, its purpose and the date of its provision.
The draft amendment also provides for special treatment for non-monetary donations meeting the above-mentioned conditions. These should be directly deductible as an expense for achieving, securing and maintaining taxable income if the taxpayer has a positive tax base (not deductible in the case of a tax loss). In such a case, the donation will not be utilised as a non-taxable part of the tax base or as an item reducing the tax base.
The proposed amendment would, among other things, extend the current list of exempt gratuitous income on the part of the recipient (currently, in connection with the situation in Ukraine, only gratuitous income accruing to a public fundraising and gratuitous income for a humanitarian or charitable purpose can be exempt) to include gratuitous income received in 2022 for the purpose of supporting the defence efforts of Ukraine. This exemption would apply not only to Czech tax residents but also to any withholding tax on donations made to tax residents of Ukraine. The above-defined donations should be exempt from withholding tax in the Czech Republic.
The proposed amendment also provides for the exemption from personal income tax for 2022 of income of an employee in the form of accommodation provided in the tax year 2022, if it is provided by the employer to the employees and their family members residing in the territory of Ukraine due to the fact that these family members left Ukraine in connection with the armed conflict on its territory. This exemption should also apply to cases where a newly arrived Ukrainian citizens obtain employment in the territory of the Czech Republic with accommodation provided by the employer for them and their entire family.
The amendment to the Income Tax Act also introduces a proposal to maintain the increase of the deduction for donations to 30% of the tax base for 2022, i.e. for the tax period of 2022 for natural persons and for the tax period ending in the period from 1 March 2022 to 28 February 2023 for legal entities. This higher limit would then apply to any donation, i.e. donations made for both existing and newly introduced purposes in support of Ukraine, subject to other statutory conditions.
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