27 November 2023
Employment Tax
Czech Republic | Proposed changes to individual income taxation
Impact High
Summary
The Act on the Consolidation of Public Budgets has recently been approved by the President, and most of the provisions are proposed to come into effect from 1 January 2024. This bulletin provides an overview of key changes in personal income tax area included in the consolidation package.
The Detail
1. Personal Income Tax Rates
The annual threshold for applying the marginal 23% personal income tax rate will be reduced to 36 times the average annual wage (currently 48 times) i.e., for the 2024 tax year, the individual’s annual tax base up to CZK 1 582 812 will be subject to 15% tax rate, while the tax base above will be subject to 23% tax rate.
2. Changes in the Employee Benefits
Employee non-monetary benefits (e.g., school fees, medical treatment, cultural and sport facilities, etc.) will retain their tax advantage, but up to an annual limit set at half the average monthly wage (CZK 21,983 for 2024) only.
There will be a unified limit for tax exemption of cash meal allowances and non-monetary meal
vouchers. Additionally, as of 2024 a second meal allowance can be provided for working shifts
longer than 11 hours.
3. Increase in Social Security and Health Insurance Duties for Self-Employed Individuals
Self-employed individuals will be affected by an increase of assessment base for calculation of their mandatory social security and health insurance contributions from the current 50% to 55% of the income tax base.
4. Sickness Insurance
The employee’s social security rate will rise from 6.5% to 7.1% due to sickness insurance newly covered also by employees.
5. Abolition of Certain Deductions and Tax Credits
The student tax credit and tax credit for placing a child in pre-school facilities will be abolished. The tax credit for a spouse will apply only to the spouse with own annual income lower than CZK 68 000 who lives in a joint household caring for a child under three years.
6. Proposed Changes to Pension Contribution Regulations
There is a suggestion to introduce a single annual cap of CZK 48,000 to reduce the taxpayer’s income tax base. This cap would encompass the total of the existing limits for deductible contributions, specifically CZK 24,000 per year for voluntary pension insurance and CZK 24,000 per year for private life insurance. Newly, this unified limit would be applicable also to contributions made towards tax-efficient retirement savings long-term investment product.
7. Limitation on Tax Exemption of Income from Sale of Securities and Shares
There will be a further limit on tax exempt income from the sale of securities or shares already meeting an ownership time test of three years for securities and five years for other shares in a corporation. The proposed limitation, effective from 1 January 2025, will set a maximum of CZK 40 million of gross income from security/share sales to be tax exempt per taxpayer/year.
8. Limit for Tax Exemption of Other Income
A new annual limit of CZK 50,000 will be introduced for certain “other” types of income. Also, the limit for tax exempted donations received from one donor will increase from the current CZK 15,000 to CZK 50,000 for the tax period.
9. Emission-Free Vehicle Taxation
If a company-owned emission-free vehicle is used by employee for both private and business purposes, 0.25% of the car’s entry price will be taxed as noncash income of the employee per each month during which the employee is entitled to use the company car.
Contact us
For a deeper discussion on the above, please reach out to your Vialto Partners point of contact, or alternatively:
Petra Bobkova
Director
petra.bobkova@vialto.com
Alice Jurkova
Manager
alice.jurkova@vialto.com
Daniela Kralova
Manager
daniela.kralova@vialto.com
Further information on Vialto Partners can be found here: www.vialtopartners.com