Ministry of Finance income tax plan for 2021
2020 has just begun, but two new amendments to the Income Tax Act for 2021 are already being discussed. The ministry is planning to introduce a lump-sum tax for selected individuals, monetary contributions for employee meals and the cancellation of the 35% withholding tax. But, according to most recent information, investors may remain calm, as the cancellation of the tax exemption of income from the sale of investments that meets the time tests will probably be left out from the amendment.
Changes worthy of our attention are:
- The five-year test for claiming the tax exemption of income from the sale of real property not primarily intended for residential purposes should be extended to 15 years. If the proceeds from the sale are used to satisfy one’s own housing needs, within the set time limit, income from the sale should remain tax exempt. The extended time test should not apply to sales of real property acquired before the amendment’s effective date.
- The proposed exemption of interest income generated by Czech tax non-residents from bonds issued by Czech entities or the Czech Republic abroad will be analysed further. If concerns regarding the administrative burden are found to be unsubstantiated, the exemption from tax of interest income from Eurobonds generated by both individuals and legal entities might be cancelled.
- Changes to the taxation of zero-coupon bonds and deposit certificates for individuals: under the amendment, the taxable income will likely be determined as the difference between the paid nominal value or the redemption price and the acquisition price that will only be deducted up to the amount of income. Issuers would no longer have to withhold tax but investors themselves would have to include any related profits into their income tax returns.
- The abolishment of a 35% withholding tax for the residents of countries with which the Czech Republic has not entered into the Tax Information Exchange Agreement. The introduction of taxation of controlled foreign companies (CFC) from countries included in the EU list of non-cooperative jurisdictions; for these countries, neither the level of taxation abroad nor the performance of substantial economic activity would be tested. Any income of such entities would be included in the controlling company’s tax base.
- The introduction of a voluntary lump-sum tax for self-employed persons whose income does not exceed CZK 1 million and who are not VAT payers and meet certain other criteria. The tax would be paid in monthly instalments as a fixed amount including both an income tax prepayment (of CZK 100, according to the current proposal) and mandatory statutory payments deriving from the minimum assessment base, and pension insurance and state employment policy contributions deriving from the minimum assessment base increased by 15 percent.
- The introduction of a tax-efficient monetary contribution of an employer for the meals of their employees, which would be an alternative to meal vouchers.
- A less strict reporting duty relating to income generated from abroad – the ministry considers increasing the limit for reporting income not subject to withholding tax from the existing CZK 100 thousand to CZK 300 thousand or extending the reporting periodicity.
Based on the latest information, the traditional time test for the exemption of income from the sale of ownership interests and securities, whose cancellation was subject to speculation, should remain in place after the internal comment procedure.
The draft amendment introducing the lump-sum tax is currently subject to external comment procedure, while the second draft amendment containing other changes is still being discussed. The text is likely to change further before it is submitted for further legislative procedures.