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What will the consolidation package entail? Updates and clarifications

The governing coalition has introduced several legislative changes with which it intends to increase state budget revenues. Below, we aim to update and clarify information on the imminent regulations resulting from the material approved by the government on 28 June 2023.

A complete summary of the impending changes in corporate income tax, indirect taxes and real estate tax can be found here. Upcoming changes in personal income tax can be viewed here.

Corporate income tax: Limitation of tax deductibility of selected costs

  • The tax deductibility of expenditures on employee benefits provided as non-monetary benefits become conditional on the right to the benefit being stated in the collective or employment agreement or in the employer's internal regulations. The amendment is intended to explicitly state that expenses for benefits provided to family members of employees are also tax deductible.  

Abolition of exemptions (of non-cash benefits and several others)

  • Abolition of the exemption of the state contribution to building savings.
  • Abolition of the separate exemption for foreign exchange gains on money exchanges. Taxpayers will now be able to apply an exemption on these foreign exchange gains up to the general limit for the exemption of other income (in aggregate up to CZK 50,000).

Reduction of non-cash income for employee vehicles

  • The amount of an employee's monthly non-cash income when using a vehicle for private and business purposes will be 0.25% of the purchase price for emission-free vehicles.

Donations to Ukraine

  • The amendment extends the validity of the measures related to the armed conflict in Ukraine and introduced by Act No. 128/2022 Coll. to the tax period of 2023. Thus, e.g., the 30% limits on gifts provided in connection with the armed conflict in Ukraine and exempt temporary accommodation provided by the employer will remain in force. According to an explanatory memorandum, the taxpaying employer will have to reimburse the taxpaying employee in the form of a correction of the individual affected months of the payroll register in accordance with Section 38i of the Income Tax Act. At the same time, this correction will also result in the reimbursement of social security and health insurance premiums, if paid.

Real estate tax

  • The amendment also includes a comprehensive modification of the coefficients by which municipalities can influence the proceeds from this tax and several other partial changes, e.g., in the definition of individual immovable property for tax purposes and the scope and exemption of land and buildings, which can significantly affect tax liabilities.

Value added tax

  • The possibility of deducting VAT on passenger cars will be limited to CZK 420,000, which corresponds to a tax base of CZK 2 million, not only for the purchase of such a car, but also including any subsequent technical assessment. The Ministry of Finance plans to further consult the European Commission on this change.