COVID-19: tax package

The government approved a package of liberating tax measures to mitigate the impact of coronavirus pandemic.

Guidance for taxpayers on how to make use of these measures has been published  by the financial administration.

General waiver of penalties and default interest in respect of income tax

The financial administration chose to waive, on a general basis, any penalties for the late submission of personal and corporate income tax returns and default interest for the late payment of tax until 1 July 2020. From a Tax Procedure Code perspective, this still involves the late filing of a tax return, but without sanctions.

The waiver only applies to tax returns for the 2019 taxable period whose original filing deadline is 1 April 2020. Corporations with taxable periods other than the calendar year may not make use of the general waiver and must apply for a waiver individually (see below).

The Ministry of Labour and Social Affairs has not yet issued any analogical guidance waiving sanctions for the late submission of statements of income and expense for social security and health insurance purposes and for the late payment of social security and health insurance contributions by the self-employed. The deadlines here depend on the regular deadline for filing tax returns. However, the ministry expects to adopt such measures soon.

Based on information available to us, so far only the VZP health insurance company has disclosed on its website a notification allowing the self-employed to submit the statement for 2019 until 3 August 2020. Any underpayment for 2019 is payable within 8 days of the date the statement is filed, i.e. no later than on 11 August 2020. Any overpayment will be automatically refunded by VZP based on the filed statement.

Generally, the deadline for filing an income tax return can be postponed without any sanctions by granting a power of attorney to a tax advisor. The present extension of the deadline in a form of waiver of  penalties,  however, does not affect the refunding of an overpayment by the tax authority, as the overpayment is refunded within a standard time limit of 30 days of the statutory filing deadline or the date a tax return was actually filed if after the statutory deadline. Therefore, if you are entitled to an overpayment refund, it is worth filing an income tax return within the statutory deadline.

The waiver of penalties for late submissions also applies to the statement of income tax withheld, excepting the statement of income tax on employment withheld in form of prepayments.

Individual waiver of penalties for the late payment of tax and related penalties for the late filing of returns in respect of all taxes

On a case-by-case basis, the financial administration will also allow applying for a waiver of default interest for late payments of tax, or for the payment of tax in instalments, if taxpayers can prove that their troubles have been caused by the coronavirus pandemic.  Typically, this may involve the illness or quarantine of a company’s accountant or other key personnel resulting in the entity’s failure to fulfil its tax duties.

If the application is at least partially accommodated, the penalty for the late filing of a tax assertion (tax return, tax statement, etc.) will also be waived. This measure applies to all taxes (including withholding taxes and value added tax) and is not limited to the 2019 taxable period only.

Since the waiver of penalties for the late filing of a tax return is linked with the waiver of default interest, this does not involve situations in which tax returns show overpayments or excess deductions, not giving rise to default interest.

Waiver of default interest for the late payment of tax (including prepayments)

If a taxpayer applies for the waiver of default interest or tax deferment and reliably proves that default in the payment of tax had been caused as a result of extraordinary circumstances associated with the coronavirus, the entire default interest amount will be waived.

According to the tax liberation package, such extraordinary circumstances include, for example, effects of quarantine measures; illness; caring for a household member; cancelled trips, air tickets or events; comparison of current vs prior period occupancy rates and sales; production outages for obstacles on the side of suppliers as a result of coronavirus-related extraordinary measures; etc.

This should also apply to tax prepayments; but the tax or its prepayment must actually be paid to claim the waiver of default interest.

It is also possible to apply for assessing tax prepayments in another manner or for an exception from the duty to pay tax prepayments, even for the entire taxable period. The law does not exclude the possibility to apply for this retrospectively, i.e. in relation to prepayments payable on 15 March and unsettled as a result of extraordinary circumstances. 

General waiver of penalties for the late filing of VAT ledger statements

On a general basis, the financial administration will waive penalties of CZK 1,000 for the late filing of VAT ledger statements between 1 March and 31 July 2020. This penalty is usually charged where the taxpayer files a VAT ledger statement later than within the statutory deadline but earlier than called upon by the tax administrator. The question therefore is when the tax administration will challenge taxpayers to file their VAT ledger statements.

Based on preliminary information from the financial administration, calls will be sent around five days after the statutory deadline. Consequently, it is appropriate to submit VAT ledger statements as soon as possible. If the VAT ledger statement is not filed before the respective call is received, it will be possible to apply for the waiver of other penalties (CZK 10,000 or CZK 50,000) for the late filing of VAT ledger statements between 1 March and 31 July 2020. Applications will only be accommodated if it can be proven that the late submission was caused by extraordinary measures associated with the coronavirus.

General waiver of administrative fees

On a general basis, the financial administration will waive administrative fees for the filing of applications regarding the above matters submitted before 31 July 2020. It is expected that the Ministry of Finance and the Ministry of Labour and Social Affairs will adopt further measures to help out entrepreneurs with their businesses.

In addition to opportunities given by the tax liberation package, the Tax Procedure Code offers other procedural options aiming to boost cash flows:
  • Application for the release from an obligation to pay corporate income tax prepayments: If a decline in income is expected, it is possible to apply for the cancellation of a duty to pay tax prepayments, covering also a prepayment payable on 16 March that has already been paid. 
  • Application for tax deferment (in form of a postponement of the tax due date or the division of tax into instalments): In our experience, the tax administrator can allow the deferment of a specific tax liability amount (e.g. VAT, income tax). It is appropriate to file the application together with the tax liability calculation or the relevant tax return. The tax liberation package then allows for the waiver of interest on the deferred sum.
  • Extension of the deadline for filing corporate income tax returns (including fiscal years): It is possible to apply for the extension of the statutory deadline for up to three months, or ten months where income from abroad is also involved. If the tax administrator agrees with the extension, the due date for the payment of tax will also be postponed.
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