2021 tax package heading to the Chamber of Deputies
The government has submitted to the Chamber of Deputies a bill to amend tax laws in 2021. What news are to be expected in income tax? Apart from the monetary contributions for meals, the changes mainly concern bonds and reporting of income flowing abroad.
In the April issue of the Tax and Legal Update we presented the governmental wording of the amendment to the Income Tax Act. Below, we now summarise the most important changes to be expected from January 2021.
- The amendment cancels the exemption of Czech non-residents’ interest income from Eurobonds, i.e. bonds issued by Czech companies or by the Czech Republic abroad. After going through the comment procedure, the bill now also contains the exemption of income from governmental bonds issued by member states of the EU or European Economic Area, for both individuals and corporate entities. The new rules should apply to Eurobonds and governmental bonds issued after the amendment’s effective date.
- The intention to change the taxation of discounted bonds remains unaltered from the original wording: under the new rules, the actual income from bonds determined as the difference between the bond’s nominal value and its acquisition cost should be taxed, rather than the difference between the bond’s nominal value and its issue price. The income should be taxed by individuals within their income tax returns, as part of a separate income tax base – income from capital. For foreign investors, the redemption of bonds will be subject to a tax securement of up to 1% of the nominal value if other criteria are met as well.
- The monthly administrative burden associated with the reporting of income paid to abroad that is not subject to tax or is tax-exempt should be reduced to one summary report prepared for the entire calendar year. The monthly limit for the reporting of tax-exempt income paid to abroad at CZK 100,000 should increase to CZK 300,000. It is also proposed that income reportable under the Act on International Cooperation in Tax Administration (such as income covered by GATCA or FATCA reporting) should not have to be included in the report. The reporting of income that is taxed using withholding tax and paid to abroad on a monthly basis remains unchanged.
- The employer’s option to contribute to meal allowances also in monetary form remained in the bill: on the employee’s part, a monetary contribution would be treated as a tax-exempt income up to 70% of the meal allowance amount; on the employer’s part, as a tax-deductible expense with no limitation. The ministry thus intends to help employees as well as small entrepreneurs without their own foodservice facilities for whom the administration connected with meal vouchers would be excessively burdensome.
- The original proposal also contained an extension of the time test for exempting income from the sale of real property. However, this has instead been included in the bill cancelling the immovable property acquisition tax: the time test for exempting proceeds from the sale of real property is to be extended to 10 years, rather than the originally assumed 15 years. The exemption should also apply before the elapse of 10 years, if the proceeds from the sale are used to satisfy the taxpayer’s own housing needs.