Income taxes - summary of selected changes approved by chamber of deputies

The current system of withholding tax on agreements to perform work (outside employment) and agreements to complete a job (i.e., small-scale employment) is being abolished. Withholding tax is generally applied where the income does not reach a set monthly limit and the taxpayer has not signed a declaration of a taxpayer liable to personal income tax from dependent activity with the respective employer. Income from agreements to perform work (outside employment) up to a given monthly income level and income from small-scale employment will now be subject to monthly income tax prepayments. However, this income does not give rise to an obligation to file an income tax return, meaning that taxpayers will still be able to decide whether to declare such income in their tax returns, e.g., because they want to claim relevant tax credits and allowances.  In the third reading of the bill, deputies have approved the abolition of withholding tax from 1 January 2027.

 

The amendment also abolishes the often advantageous taxation regime of remuneration paid to Czech tax non-resident members of corporate bodies. The current withholding tax is being replaced by taxation through monthly income tax prepayments. If the remuneration of a tax non-resident exceeds 36 times the average wage, the corporate body member will be obliged to file a tax return for the relevant taxable period. This provision is proposed to be effective from 1 January 2026.

In the past, the tax authorities have been rather ambiguous and inconsistent in their treatment of employees posted abroad.  To change this, the amendment now specifies that the employer as the payer of tax is not obliged to withhold tax prepayments for employees who: 

The provision that a payer who is a Czech tax resident is not obliged to withhold tax prepayments if the wages are paid by their permanent establishment located in another state remains unchanged. However, the amendment specifies that this must be a state with which the Czech Republic has concluded a double taxation treaty.

A clarifying definition of employee leisure benefits was also passed. The Income Tax Act now stipulates that non-financial benefits which, subject to meeting certain other conditions (e.g., fulfilment of a purpose such as health care, culture, sports, education, etc.) may be exempt from tax within defined limits, may not at the same time constitute wage, salary, remuneration, compensation for lost income or other type of consideration related to the work performance. This is to prevent employers from, for instance, granting performance bonuses to employees in the form of non-financial benefits, thus taking advantage of their more favourable taxation. This amendment to the Income Tax Act responds to recent case law of the Supreme Administrative Court. 

The amendment to the Act on Social Security Contributions introduces a discount on social security contributions for workers under agreements to perform work (outside employment) in the fruit and vegetable farming sector. The amendment to the Agriculture Act defines new parameters of agreements for seasonal work in fruit and vegetable farming. If these special conditions are fulfilled, the discount is to be 7.1% of the employee's assessment base, i.e., the social security contributions would be zero on the employee's part. The conditions for granting the discount will have to be met throughout the time of its application. However, the discount will not be available if the employee on aggregate generates more than the average wage for social security purposes (rounded down to the nearest five hundred Czech crowns) from all their agreements to perform work in the fruit and vegetable farming sector with the same employer