Ministry of Finance introduces new old-age savings scheme
The Ministry of Finance has prepared a bill introducing a new old-age savings scheme, in form of a long-term investment account. The bill is part of the Czech Capital Market Development Concept for 2019-2023. The new product should work as an alternative to pension insurance or life assurance schemes and should be associated with similar tax benefits.
The long-term investment account should be regulated by the Act on Capital Market Undertakings, allowing old-age savings via investments in shares, bonds, investment funds and other investment instruments. The product is to be offered by banks and securities brokers. The new regulation also involves an amendment to the Act on Income Tax and introduces a new old-age savings framework, comprising already-existing tax efficient saving schemes (such as supplementary pension insurance, pension insurance, supplementary retirement savings plans and private life assurance) as well as the new long-term investment accounts.
The conditions and forms of tax benefits applicable to old-age savings schemes should not significantly differ from the existing rules. Employers’ contributions to these schemes should again be tax efficient employee benefits: contributions of up to CZK 50 thousand a year will be exempt from income tax on an employee’s wage, whereas employers will be able to treat this contribution as a deductible expense. Natural persons will be allowed to deduct paid contributions of up to CZK 48 thousand a year from their income tax bases. Under the new rules, this limit will apply aggregately for all old-age savings schemes.
Other conditions to draw tax benefits will be similar to those currently in effect. Accumulated savings will only be paid to the person who contracted the product, excepting cases involving the person’s death. The savings will only be paid out at the earliest 60 months after the product was contracted, and only to clients older than 60 years or in stage III invalidity, or upon a client’s death or the product’s termination. Similarly as now, if the savings are paid out earlier, additional tax will be charged on the previously applied tax benefits, which will be designated as ‘a refund of obtained tax benefits’ under the new regulation.
The act is proposed to be effective from 2022. As the bill is currently subject to its external comment procedure, we may expect that it will change further.