Technical amendment to consolidation package approved by chamber of deputies

Personal income tax

Events organised by employers

The amendment 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 amendment 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 pre-school facilities

The amendment provides for a special method to determine the amount of non-financial income of an employee using facilities caring for pre-school children. 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 (i.e., 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. This regulation will apply retroactively from 1 January 2024.

Meals for former employees

The amendment expands the range of employees for whom it will be possible to exempt from tax up to the statutory limit 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

The amendment changes 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 losing 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, the amendment will already apply retroactively for the 2023 taxable period.

Statutory insurance premium payments for employee stock option plans

The amendment synchronises 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. 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, which were due to come into force on 1 July 2024, will be abolished. The amendment introduces a new system: a special 'notified agreement' scheme, which should enter into effect on 1 January 2025. For employees under the notified agreement scheme, the obligation to participate in sickness and health insurance will only arise in the relevant month once the threshold of 25% of the average wage (CZK 10,500 per month if this were 2024) is reached. If an employee’s income from all agreements to perform work with 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 tax on income from employment: the employer will be able to apply withholding tax on such income if the employee has not signed their payroll tax statements and the amount of such income from the agreement or agreements with the registered employer does not reach the limit in the given month.

Income from agreements to perform work generated with other employers, i.e., those not using the notified agreement scheme, will be subject to sickness insurance payments and thus also to statutory social and health insurance 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.

According to the amendment, the above scheme applicable to agreements to perform work will become effective on 1 January 2025. The current regulation, which is valid but not yet effective, will be repealed, with an immediate effect. Until the end of 2024, the existing approach to taxation and insurance payments will thus be applied to agreements to perform work. However, employers’ obligation to register all agreements to perform work already from 1 July 2024 remains in application.

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. Their fixed assets, debts, provisions created for tax purposes, and other items whose method of creation or application is regulated by the law governing income taxes are then recorded in the accounting currency. The amendment specifies the FX rates to be used to translate fixed assets, debts, provisions created for income tax purposes, and other items measured in the accounting currency that arose in a currency different from 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 translation where there is no link to accounting and therefore no FX rate for accounting purposes. A criterion specified in Czech currency in a legal regulation (e.g., the threshold for tangible assets) shall be translated into the accounting currency at the exchange rate for the last day immediately preceding the taxable period or the period for which the tax return is filed. The purpose of this rule is to convert the criteria specified in legal regulations in Czech currency into the accounting currency so that the taxpayer can compare the two amounts directly in the accounting currency. The new rule shall also apply to fixed assets, debts, provisions created for tax purposes, and other items recorded in the accounting currency.

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.