2021 tax package
The Chamber of Deputies has passed an amendment to the tax laws for 2021 (Print No. 910) in the third reading. The bill is now to be debated by the Senate. The most important changes that the tax package introduces to income tax are the abolition of the super-gross wage, the introduction of the progressive taxation of individuals at 15% and 23%, the acceleration of tax depreciation, a change in the taxation of discounted bonds, and, quite unexpectedly, also the introduction of a cap on the exemption of income from the sale of securities. Below, we bring a summary of the most important changes from the original bill that the chamber has approved.
The amendment introduces a limit of CZK 20,000,000 for the exemption of income from the transfer of a security, a mutual fund or an equity certificate where a three-year (or five-year, for equity certificates) time-test is met. It is not clear from the wording of the adopted amending proposal what income will be subject to the limit: whether income for the taxable period, from a single sale transaction, or from the sale of a single security.
An amending proposal abolishing tax depreciation of intangible assets was also passed; this means a return to a system where accounting depreciation can be claimed as a tax-deductible expense. These new rules can already be applied for intangible assets acquired during 2020. Another change is the increase in the limit for tangible fixed assets: from currently CZK 40,000 to CZK 80,000. The extraordinary depreciation of tangible assets was also approved. Read more here.
Deputies have also passed a one-year postponement of the abolition of the tax exemption of non-residents’ interest income from ‘Eurobonds’, i.e. bonds issued by Czech companies or the Czech Republic abroad. The exemption will therefore be abolished only for Eurobonds issued after 31 December 2021. A new exemption for EU and EEA governmental bonds should start to apply from the beginning of 2021. The new rules for the taxation of bonds (in particular discounted ones) remain unchanged from the original draft.
Deputies have also approved an amending proposal abolishing the super-gross wage and the 7% solidarity tax surcharge. Only employees’ gross income shall thus be subject to taxation, without it being increased by the compulsory premiums paid by employers. The amendment introduces two tax bands: the first tax rate of 15% should be applied to income up to 48 times the average wage, and the second rate of 23% to income exceeding this limit (i.e. about CZK 141,000 per month). For more details, see Tax and Legal Update’s September 2020 issue.
Under the transitional provisions, the new method of calculating tax shall apply to the entire 2021 tax year, even though the amendment could enter into effect only in the course of 2021. Employees’ personal income tax (payroll tax) prepayments for the calendar months of 2021 preceding the amendment’s effective date will continue to be calculated from the ‘super-gross wage’, according to the original wording of the Act. The new calculation method shall then be applied to the income for the whole year in employees’ annual payroll tax settlement or in their 2021 tax returns; this means that any overpayments for the months of 2021 preceding the amendment’s effective date would only be received by employees after the end of the year.
As a result of the abolition of the ‘super-gross wage’, the gross amount of remuneration for exercising the office of member of a corporation’s body considered to be a Czech tax non-resident will be taxed by a 15% withholding tax only.
Should the amendment only enter into effect after 1 January 2021, taxpayers – individuals will have the choice to calculate the tax on their 2021 income either in the old or in the new way. If they opt for the old method, they will have to do so by filing a tax return. The basic tax relief for individual taxpayers themselves may also change: from now on, it should always equal the average wage for the calendar year before last; currently, basic tax relief is stipulated by the law as a fixed amount of CZK 24,840 and has not changed since 2008. As a result of linking basic tax relief to the average wage, the 2021 tax relief would be CZK 34,125. The tax package also abolishes the cap for the tax bonus (so far CZK 60,300); tax bonuses are paid to taxpayers if their child credit for the year exceeds their tax liability.