Technical amendment to consolidation package on horizon

Personal income tax: non-financial benefits

Events organised by employers

The proposal specifies the scope of tax-exempt cultural and sports events organised by employers for employees and their family members and redefines them as employer-organised social events, including those having cultural or sporting elements. This confirms the interpretation that these events may include Christmas parties, company anniversary parties, St Nicholas Day parties, etc. The proposal highlights that the employees’ income from these events should be in non-financial form. The condition that the events must be ordinary and reasonable in scope and form, for a limited number of participants, and that related expenses are not tax deductible for the employer continues to apply.

Determining the amount of non-financial income related to childcare facilities

The draft amendment provides for a special method to determine the amount of non-financial income of an employee using childcare facilities (including kindergartens). The employee's income will be either the price commonly charged at the place and time for a pre-school facility established by a public entity (e.g., a state, region or municipality) or the highest monthly payment for pre-school education according to the Decree on Pre-School Education, i.e., a maximum of 8% of the minimum monthly wage applicable in a given month (CZK 1,512 for 2024). The measurement method shall be chosen by the employer for each employee’s child separately. It is also necessary to consider the period during which the child uses the pre-school facility in a given month. The employee's non-financial income will then be the difference between the amount determined as described above and any payment made by the employee to the employer. The proposed regulation should apply retroactively from 1 January 2024.

Meals for former employees

The amendment proposes to expand the range of employees for whom the employer will be able to exempt from tax the non-financial benefits in the form of meals for direct consumption at the workplace or for direct consumption at a catering facility operated by another entity. This will also apply to employees having worked for the employer immediately before retiring on an old-age pension or a third-degree invalidity pension. In aggregate, up to 70% of the upper limit of the meal allowance provided to employees receiving salaries on a domestic business trip of 5-12 hours (i.e., CZK 116.20 for 2024) may be exempt from income tax. Thus, these former employees will not be required to have worked at least three hours per shift/calendar day to qualify for the exemption. The exemption will be applicable to income provided as early as 1 January 2024. This change does not affect monetary meal allowances or multi-purpose meal vouchers, which will continue to be subject to the legislation currently in force.

Less strict condition for exempting income if used for one’s own housing needs

It has been proposed to change the notification condition for the exemption of income from the sale of real estate in which the taxpayer has resided for less than two years or has owned for less than 10 years if the taxpayer uses the funds to provide for their own housing needs. Such an exemption will no longer be conditional on submitting the notification. The taxpayer will still be obliged to submit the notification to the tax administrator by the end of the deadline for filing the tax return, however, failure to comply with the notification obligation will not lead to loosing the entitlement to exemption, as is the case now. It will be penalised despite its non-financial nature, but the tax exemption will remain in existence. According to the transitional provision and the explanatory memorandum, the amendment should already apply retroactively for the 2023 taxable period.

Statutory insurance premium payments for employee stock option plans

The plan to synchronise insurance regulations with the already valid tax regulations concerning the acquisition of shares in a business corporation or (transferable) options to acquire such shares by an employee under employee stock option plans is underway. The point in time when income is subject to insurance premiums will be linked to the point in time when the income is taxed (more on the tax-related changes in the January 2024 and November 2023 issues of the Tax and Legal Update). At the same time, if the employer reduces this income due to a decrease in the market value of the share under the Income Tax Act, the reduced income will be subject to the relevant insurance premiums.

Income tax and statutory insurance payments for concurring agreements to perform work (outside employment)

The problematic changes resulting from the consolidation package concerning agreements to perform work outside employment, due to come into force on 1 July 2024, will be further amended. It is proposed that a special 'notified agreement' scheme be introduced. For employees under the notified agreement scheme, the obligation to participate in sickness and health insurance will only arise in the relevant month when the threshold of 25% of the average wage (CZK 10,500 per month in 2024) is reached. If the income from all agreements to perform work of an employee for an employer who has used the notified agreement scheme does not reach this threshold, the obligation to participate in the insurance scheme shall not arise. At the same time, this special scheme will also be applicable for the purposes of income tax on employment: the taxpayer will be able to apply withholding tax on such income if the amount of such income from the agreement or from all agreements with a registered employer does not reach CZK 10,500 per month.

Income from agreements to perform work generated with other employers, i.e., those not under the notified agreement scheme, will be subject to sickness insurance payments if remuneration of at least CZK 4,000 per month has been agreed on or if the relevant income in a given month is at least CZK 4,000.

Only the employer who first notifies the Czech Social Security Administration (CSSA) in a manner similar to that for claiming the tax credit by part-timers will be able to apply the preferential notified agreement scheme to the employee in a calendar month. If the employer applies the notified agreement scheme, they will have no further obligation towards health insurance companies, as these will obtain the information directly from the CSSA.

The payment of insurance premiums on agreements to perform work under the above scheme should not become effective earlier than 1 January 2025. The current wording of the law, which is valid but not yet effective, will be repealed. Until the end of 2024, the existing approach to taxation and insurance payments should be applied to agreements to perform work. The registration obligation will already apply from 1 July 2024.

Corporate income tax

Exclusion of unrealised FX differences from income tax base and transition to functional currency

The consolidation package introduced the possibility for taxpayers to apply the regime of exclusion of unrealised FX differences for corporate income tax purposes. The amendment extends the range of cases where this regime automatically ceases, by operation of law, to situations involving a transition to a functional currency in accordance with the Accounting Act. When switching to a different accounting currency, taxpayers shall follow the same procedure as in other situations (e.g., entering into liquidation) and adjust their result of operations for any previously excluded unrealised FX differences arising from the original accounting currency.

Functional currency and foreign currency translation for the purpose of income tax return preparation

Taxpayers who use their functional currency in their accounting must still file their income tax returns in Czech crowns. The amendment specifies the FX rates to be used in the conversion of fixed assets, debt, provisions created for income tax purposes, and other items measured in the accounting currency. For items that are kept in the accounting records (e.g., the input costs of assets for tax depreciation purposes), taxpayers shall use the general FX rate applied in the accounting records. The general FX rate announced for the last day of the taxable period will now be only used as a secondary method of conversion where there is no link to accounting and therefore no FX rate for accounting purposes.

Non-deductible expenses related to employee benefits

The employer's expenses for social events, including those with cultural or sporting elements, are to be added to the list of expenses non-deductible on the employer’s part so that the wording matches the one for the purposes of exemption of such expenses on the employee's part. As regards the calculation of non-deductible expenses in facilities designed to meet the needs of employees (expenses exceeding the income from these facilities are considered deductible for income tax purposes), the amendment clarifies that for the purposes of this calculation, expenses that are non-deductible under other provisions of the Income Tax Act shall not be included. 

Most provisions on corporate income tax are proposed to take effect on 1 July 2024, or their effective date has been linked to their publication in the Collection of Laws.