TaxAlert: Complications in calculating the super-gross salary from January 2019

The President of the Czech Republic signed the amendment to the Income Taxes Act on 11 December under which employers will have to distinguish a country in which an employee participates in a system of compulsory insurance (social security and health insurance) in calculating prepayments for employment income tax starting from 1 January 2019. The same procedure will apply to tax returns from the 2019 taxation period.

Nothing will change for those participating in the compulsory insurance system in the Czech Republic or a non-European country: the super-gross salary will be calculated as equal to the gross taxable income increased by the Czech compulsory insurance contributions paid by employers, or hypothetical Czech insurance contributions. If your employee is insured in another EU Member State, an EEA state or in Switzerland you will have to adjust the calculation: the super-gross salary will include the compulsory foreign insurance contribution paid by employers.

As Member States have different structures of insurance systems (often consisting of multiple sub-systems) it will be complicated to find out what amount of insurance contribution to include. Insurance rates and calculation methods are different as well. Therefore, the change in salary calculation will require much attention and effort.

This amendment is a draft proposed by deputies for which financial administration has not been prepared at all. Some of you may remember a similar situation, which occurred ten years ago; however, at that time, the method of calculation was so difficult to administer that the Ministry of Finance quickly unified determination of the super-gross salary into a form prevailing to date. Again, financial administration may have serious difficulties in reviewing accuracy of prepayments for employment income tax of employees insured abroad but employers should not rely on weaknesses on both sides. We recommend that you undertake all reasonable efforts to set up your tax prepayment calculations correctly.

The article is part of dReport – January 2019, Tax news; Grants and investment Incentives.

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