Income tax view on 2022 donations to Ukraine

The bill was approved by the government on Wednesday 9 March 2022 but has yet to go through the legislative process. The proposed changes should apply to both natural and legal persons who made donations in 2022, even before the law takes effect.

• It will now be possible to deduct from the tax base the value of donations made directly to the State of Ukraine (e.g., through the Ukrainian Embassy) or to its territorial self-government units, as well as donations made to legal and natural persons who have their registered offices or places of residence in Ukraine if the donation recipient meets the existing conditions under which the donation value can be deducted (i.e., in particular humanitarian, charitable and similar purposes).

• Beyond the current wording of the law, it will also be possible to deduct donations made to support Ukraine's defence efforts (e.g., provision of military equipment).

• The possibility to deduct the value of donations from the tax base shall be extended to natural persons who are tax residents of Ukraine and whose taxable income from the Czech Republic amounts to at least 90% of their total taxable income. Under the legislation currently in effect, only Czech, EU or EEA tax residents can deduct the value of donations.

• The amendment also extends the applicability of the increased 30% limits on the maximum value of donations that taxpayers may deduct from the tax base: individuals will continue to apply these limits also in the 2022 taxable period, legal entities in the taxable periods ended between 1 March 2022 and 28 February 2023. The increased limits shall be used for all donations.

• For gratuitous non-monetary supplies provided in 2022 to help Ukraine, natural persons who claim actual expenses and legal entities may decide whether to claim the non-monetary donation either as an item deductible from the tax base (allowance), or as a tax-deductible expense. In the latter case, it is not necessary to meet the condition of the eligible recipient, but it should be sufficient to meet the purpose of the gratuitous supply. If the value of the gratuitous supply is not fully claimed in the taxable period in which the supply was provided, the remaining value shall be claimed using the tax loss regime without limitation as regards the amount of the tax base. If the taxpayer chooses to claim the non-monetary donation as a tax-deductible expense, they will no longer be able to claim it as a donation deductible from the tax base.

• Currently, donation recipients may exempt from income tax contributions for humanitarian or charitable purposes or from public fundraisers. The new regulation will also allow tax exemption for donations received by the taxpayer in support of the defence of Ukraine. By exempting such income from income tax, it will not be necessary for taxpayers to pay withholding tax on such income in the Czech Republic when making a donation.

• The amendment allows for an all-around payroll tax exemption of an employee’s income in the form of accommodation provided by the employer in 2022 to an employee and their family members residing in the territory of Ukraine who left the country in connection with an armed conflict.

• Where an employee receives a monetary donation from their employer for the purpose of providing help in a difficult life situation connected with the armed conflict, the donation may also be exempt from income tax as a gratuitous supply received for humanitarian or charitable reasons.

The act will only come into force during 2022, which means that employers may have already withheld advances for income tax on the above-mentioned supplies for first months of 2022. They will thus be able to correct their monthly payroll records by the deadline for the annual settlement of personal income tax for the 2022 taxable period and refund any difference to the employee.