Consolidation Package

The consolidation package was published on 12 December 2023 in the Collection of Laws under No 349/2023 Coll. and entered into force on 1 January 2024. This amendment brings the following selected changes:

Accounting Act

• Reporting entities may, subject to specified conditions, keep their accounts in a “functional currency”, which may be, in addition to the Czech crown, the euro, the British pound, and the US dollar.
• For the purposes of the Accounting Act, the calculation of net turnover is modified, which affects, for example, the obligation to have financial statements audited, etc.
• In addition, new obligations for reporting entities in the area of sustainability reporting and income tax reporting are laid down following the mandatory transposition of European directives.
• The changes to the Accounting Act are also reflected in related regulations and the Czech Accounting Standards.

Corporate Income Tax and Common Provisions of the Income Taxes Act

• The corporate income tax rate will increase from 19% to 21%, and the increase will apply to all taxable periods beginning after the entry into force of the Act, i.e. from 1 January 2024.
• In the period from 1 January 2024 to 31 December 2028, extraordinary depreciation will be applied only to emission-free vehicles (e.g. electric vehicles); existing assets depreciated under this regime will be subsequently depreciated according to the current rules.
• The maximum possible tax-deductible value of a passenger car is limited to CZK 2 million. This limit will apply only to M1 vehicles acquired in periods beginning after the Act comes into force, i.e. from 1 January 2024.
• In periods beginning after the amendment comes into force (i.e. from 1 January 2024), it will no longer be possible to provide still wine as a tax-deductible advertising or promotional item up to CZK 500.
• In the notification of income going abroad, the scope of the reported income exempt from (or not subject to) taxation in the Czech Republic has been narrowed to only include royalties and profit shares, regardless of their amount. In addition, interest will also be reported, but only if it exceeds CZK 300 thousand per month. The new regime is effective for income generated on or after 1 January 2024. There is also an option to retroactively apply the new treatment to the year 2023. Income subject to withholding tax will be reported under the same conditions as before.
• The amendment also introduces the possibility of not including unrealised foreign exchange gains or losses in the tax base upon a notification to the tax administrator, with effect from 1 January 2024.
• The Income Taxes Act also contains adjustments to the exchange rates used in the tax base, especially in connection with the introduction of the “functional currency” in accounting and the related tax calculation in Czech crowns.

The consolidation package has extended the effectiveness of Act No 128/2022 Coll., on measures in the field of taxation in connection with the armed conflict on the territory of Ukraine caused by the invasion of the troops of the Russian Federation, and thus the preferential tax treatment of donations to Ukraine, for the year 2023, or for the financial years ending 29 February 2024.

Personal Income Tax

• The threshold for applying the 23% personal income tax rate has been reduced from 48 times the average wage to 36 times the average wage for 2024.
• A limitation on the exemption of income from the sale of a security or share in a company will be introduced if the time test of 3 years or 5 years between the acquisition and sale is met, to an amount of CZK 40,000,000 per taxpayer. The new amendment will apply to income received from 2025 onwards and a special adjustment to the acquisition price will apply to securities and shares acquired before the end of 2024.
• Other selected changes that will apply to individuals in 2024:

– applying for the dependent spouse tax credit only when caring for children under 3 years of age,

– abolition of the tax credit for placing a child in a pre-school institution and abolition of the student tax credit,

– abolition of the possibility to reduce the tax base by contributions paid to a trade union and by payments for examinations verifying the results of further education,

– linking the limit for the application of withholding tax on work performance agreements (DPP) to the employee’s participation in sickness insurance (i.e. abolishing the fixed limit of CZK 10,000),

– reduction of the limit for exemption of lottery or raffle winnings from CZK 1,000,000 to CZK 50,000,

– the state contribution to housing savings scheme is now considered as other income,

– introduction of a “general” limit of CZK 50,000, within which some other income of the same kind will be exempt, etc.

Employee Benefits

• For employees, non-monetary benefits (i.e. recreation, health and medical services and goods, services of educational and sports facilities, cultural events, and printed books) will be exempt up to the limit of half of the average wage, which for 2024 is CZK 21,983.5. Benefits exceeding this limit become taxable and incur insurance contributions by both the employee and the employer.
• Non-monetary benefits provided up to this amount are a tax non-deductible expense, while above this limit, they may be tax deductible for the employer.
• The amendment unifies the approach to all forms of meal allowances, whether they are meal vouchers, in-kind meals provided at the workplace, or a cash meal allowance.
• Furthermore, the tax exemption for gifts up to CZK 2,000 per year and for social assistance to overcome exceptionally difficult circumstances is abolished for employees.
• Please note that these rules apply from 1 January 2024 regardless of the employer’s taxable period.

The GFD’s methodological information on employee benefits is available on the website of the Financial Administration.

Social Security Contributions and Contributions to State Employment Policy

• The employee’s contribution will increase from 6.5% to 7.1% of the assessment base in 2024, i.e. 0.6%, which is the new rate for sickness insurance.
• From 2024, the assessment base of a self-employed person for pension insurance contribution and state employment policy contribution is at least 55% of the taxable base (with the possibility of a voluntary increase).
• From 2024, the minimum assessment base for the self-employed will gradually rise each year until 2026, based on the average wage.
• The contribution for a self-employed person participating in sickness insurance will increase from 2.1% to 2.7% of the assessment base.

Value Added Tax

• The limitation of the VAT deduction for the purchase of M1 cars to CZK 420,000 is introduced. This implies that the modification will not impact the purchase of cars priced below CZK 2 million exclusive of VAT.
• Three VAT rates apply from 2024: 0%, 12%, and 21%.
• A zero-tax rate is applied to books (including e-books).
• Several items that were previously subject to one of the reduced VAT rates are now subject to a 12% tax rate. These include:

– catering services (except for most drinks),

– accommodation services,

– tickets to cultural and sporting events, museums, zoos, etc.,

– building work on houses or flats,

– newspapers and magazines,

– food products and consumables,

– tap water.

• On the other hand, items such as the following will be reclassified to the standard 21% VAT rate:

– supply of cut flowers or firewood,

– supply of beverages (except for selected milk beverages for children),

– hairdressing services, serving of beverages in a restaurant except for drinking water,

– services of authors and artists; collection, transport, and dumping of municipal waste,

– repair of footwear, leather goods, and bicycles, house cleaning services.

• On the other hand, occasional public bus transport or the supply of disposable medical and diagnostic devices (including repairs thereof) is moved from the basic 21% to the reduced 12% VAT rate.

In the area of VAT, the GFD issued two methodical guidelines, one on VAT rates and the other on the limitation of VAT deduction for M1 passenger vehicles.

A separate amendment effective from January 2024 has revised the rules for determining the date of taxable supply on the supply of electricity, gas, heat, cold, and other supplies provided under the conditions set out in the Energy Act. The change should thus affect only producers and/or distributors of these commodities; the amendment will allow them to delay VAT payments beyond the timeframe specified in the current regulations.

Real Estate Tax

• From 2024, real estate tax rates increase, in some cases by 1.8 times.
• At the same time, an inflation coefficient is introduced which would automatically increase the real estate tax by the inflation rate for the previous period from 2025.
• The consolidation package also brought other substantive changes that in many cases may mean an obligation to file a tax return. For more information, see our article Real estate tax: Review your tax return obligation.

Excise and Energy Taxes

• In the area of excise taxes, the consolidation package increases the tax on cigarettes, smoking tobacco, cigars, and cigarillos by 10% from 2024 and an additional 5% each year from 2025 to 2027. The tax on heated tobacco is set to increase by 15% each year from 2024 to 2027. Chewing tobacco and snuff will also be newly taxed, with the tax rate increasing gradually over the next four years.
• In addition, a new tax on nicotine sachets and e-cigarette refills is introduced, in the form of a gradual increase in the tax rate between 2024 and 2027 instead of a one-off tax.
• The excise tax on alcohol is set to rise by 10% in both 2024 and 2025. Subsequently, there will be a more moderate increase of 5% in 2026. In contrast, the zero-tax rate will continue to apply to still wine.
• The amendment introduces the abolition of excise tax exemption on aviation fuel for domestic flights.
• Furthermore, the refund of excise tax on mineral oils consumed in mineralogical and metallurgical processes is abolished, which should result in alignment of taxation with the rate for fuel oils of
  CZK 660/1,000 l.
• Similarly, tax exemptions on natural gas, electricity, and solid fuels in mineralogical and metallurgical processes are abolished. Thus, the rate of CZK 30.60/MWh of combustion heat for natural gas, CZK 28.30/MWh for electricity, and CZK 8.50/GJ of combustion heat for solid fuels in the original sample will now apply.

Gambling Tax

• The rate for other games of chance (e.g. fixed-odds betting) is increased from 23% to 30%, while the tax rate for lotteries and technical games remains at 35%. The minimum sub-tax on technical games will now be CZK 13,400 per authorised device.

Changes to the Income Taxes Act Outside the Consolidation Package

The Income Taxes Act has seen yet another amendment, related to a change in the law on financial market development. This law was published on 29 December 2023 in the Collection of Laws under No 462/2023 Coll. and also came into force on 1 January 2024. We have already informed you about these changes in our previous articles and therefore only provide a link to selected issues here.

Perhaps the most discussed change in this amendment is the taxation of employee stock option plans (ESOP). In essence, the tax treatment of employee stock option plans remains almost unchanged, except that in terms of personal income tax, the taxation of income is deferred to a certain future date – for more information, see our article ESOP: New Rules for the Taxation of Employee Stock and Options to Purchase Stock in a Business Corporation. In this context, the open question is how to deal with the social security and health insurance that must be paid on such employee income. We also discuss this issue on our blog in the article ESOP: Uncertainties regarding social security and health insurance premiums.

The amendment also modified the esearch and development deduction, specifically with the taxpayer’s burden of proof, where in case of doubts of the tax administrator, the content of the project documentation can be proven by other means of evidence. This provision will apply to tax proceedings initiated from the date of entry into force of the amendment, i.e. from the beginning of 2024, and its analysis can be found in our article Are better times ahead for R&D deduction checks?.

An extensive change is represented by the setting up of a new system of support for the so-called retirement savings schemes, i.e. additional pension insurance with state contributions, supplementary pension savings under the law regulating supplementary pension savings, pension insurance with a pension insurance institution, private life insurance, and long-term investment products for employees. The so-called long-term care insurance, which covers situations where the policyholder or their loved one becomes dependent on the assistance of another person, is eligible for tax support. We have covered this topic in detail in our article Long-term investment product is a new option for saving for retirement.

The start of 2024 is indeed full of tax-related updates and developments; in addition to the above, Act No 416/2023 Coll., on top-up taxes for large multinational groups and large domestic groups (the Pillar II), which we regularly comment on in our blog, has also come into force. The amendment to Act No 426/2023 Coll., on investment incentives, also takes effect.

2024 does bring about numerous changes, however if the proposed Accounting Act and its associated legislation are approved, it would be a real tax revolution in the foreseeable future. We will keep an eye on all the news for you and bring you the necessary information in due course.