The GFD has issued Information for Payers of Income Tax on Employment relating to the Amendment to the Income Tax Act effective from 1 July 2022, which concerns employee non-monetary income in form of the free-of-charge provision of a motor vehicle by an employer to an employee for both business and private purposes.
For low-emission vehicles, the non-monetary income has now been set at 0.5% of the purchase price of the car per month. While the amendment is effective from 1 July 2022, transitional provisions allow the new rule to be applied for the entire taxable period of 2022 (i.e., the entire calendar year of 2022). The GFD's information addresses how to treat the reduction in non-monetary income (and the resulting tax overpayment) for months prior to the effective date of the law (i.e., January through June 2022), both with respect to the annual settlement of income tax prepayments done by the employer and to the certificate of taxable income from employment issued by the employer for employees who file their own income tax returns.
However, the GFD information does not address how to proceed with social security and health insurance contributions for the first six months of 2022, nor does it provide a more detailed definition of low-emission vehicles. This raises several questions, namely as to which cars fall under this category and how taxpayers can prove that the conditions set out in the law have been met.
Czech health insurance company Všeobecná zdravotní pojišťovna also commented on the issue, responding to a query from the Chamber of Tax Advisors: for the purposes of calculating health insurance contributions, the reduced value of a given non-cash beneﬁt can be included in the assessment base only from the effective date of the law, i.e., from 1 July 2022 and not retroactively for the first half of 2022. VZP justifies this by the decisive period for determining the employee's assessment base for health insurance being the calendar month for which the premium is paid and not the calendar year. Consequently, the transitional provisions of the amendment to the Income Tax Act cannot be applied.
In practice, this means that the total annual assessment base for health insurance premiums and the employee's total annual taxable income for 2022 will differ.
We are still awaiting a statement from the Czech Social Security Administration on the procedure relating to social security contributions. As soon as we have this information, we will update you.