Childcare and student tax credits reinstated; employee benefits revised

As most of the measures will take effect on 1 January 2027, employers, businesses and preschool facilities should familiarise themselves with the new rules in good time and prepare the related administrative, payroll and system processes.

The most significant changes include the reinstatement of the tax credit for placing a child in a pre-school facility and the tax credit for being a student, the renewal of the tax credit for electronic sales reporting, the exemption of voluntary tips in catering services, changes to employee benefits and higher thresholds for filing tax returns.

We reported on the bill earlier in the legislative process (the original proposal and the version approved by the Chamber of Deputies).
 

Reinstatement of the tax credit for placing a child in a pre-school facility

The Income Tax Act will once again provide for a tax credit for placing a child in a pre-school facility. Taxpayers will be able to claim a credit equal to the expenses actually incurred for a nursery school, children’s group or similar facility, capped at the minimum wage for each dependent child living with the taxpayer in a jointly managed household.

The act will also address cases where a child lives in more than one jointly managed household. In such cases, the maximum credit will be divided equally among the households according to their number, while the parents may also agree in writing on a different allocation. However, the total amount of tax credits claimed in respect of one dependent child may not exceed the minimum wage limit. If more than one taxpayer supports the child in the same household, only one of them may claim the tax credit.

The evidentiary requirements for claiming the credit will also be expanded. In addition to confirmation from the pre-school facility of the amounts paid, taxpayers will have to provide confirmation from the other parent or another person supporting the same child of the amount of credit claimed by that person, or an agreement allocating the entitlement among several taxpayers.

Pre-school facilities will themselves be subject to a new administrative obligation: by 31 January following the relevant calendar year, they will have to report electronically to the tax authority individualised data on children placed in the facility, taxpayers paying the pre-school facility fees, and the total amounts paid by each taxpayer.
 

Reinstatement of the tax credit for being a student

The tax credit for being a student of CZK 4,020 per year will be reintroduced into the Income Tax Act. It will be available to taxpayers engaged in continuous preparation for a future profession, generally until they reach the age of 26. Full-time doctoral students will be able to claim the credit until they reach the age of 28.

Employees will be able to claim this credit already during the calendar year through monthly income tax prepayments calculated by their employer, provided they document that the relevant conditions have been met. If the credit is not applied when calculating the monthly income tax prepayments, it may be claimed through the annual settlement of tax or in the taxpayer’s tax return.
 

Tax credit for electronic sales reporting

Following the reintroduction of electronic sales reporting, individuals may claim a one-off tax credit of up to CZK 5,000, available only for the first taxable period in which the taxpayer reports a sale under the new Electronic Sales Reporting Act.

The amount of the credit will be determined based on the positive difference between 15% of the partial tax base from independent (gainful) activity and the basic income tax credit per taxpayer. If the difference is less than CZK 5,000, the credit will equal that amount; if it is CZK 5,000 or more, a credit of CZK 5,000 will apply. No entitlement arises if the difference is zero or negative.

The credit will also be available to entrepreneurs who reported sales under the original Electronic Sales Reporting Act, which remained in force until 2022. For these entrepreneurs, the decisive event will be the first sale that they are required to report under the new system.
The credit is intended to offset, at least in part, the costs associated with implementing the reporting system.
 

Exemption for entrepreneurs under the lump-sum tax scheme

The act introduces a special scheme for the smallest entrepreneurs. Self-employed individuals applying the lump-sum tax will be able to opt for a special surcharge, payment of which will exempt them from the obligation to report sales.

The surcharge regime will be available to taxpayers in the first band of the lump-sum tax scheme whose self-employment income for the immediately preceding taxable period did not exceed CZK 1,000,000. Their monthly lump-sum tax prepayment will increase by a surcharge of CZK 1,400.

Taxpayers may opt into the surcharge regime in their notice of entry into the lump-sum tax scheme, in a notice of changing their selected band to the first band, or in a separate notice electing the surcharge. The notice must be filed with the tax authority no later than on the tenth day of the taxable period from which the taxpayer wishes to apply the surcharge. A late notice will be ineffective.

The scheme is designed as a voluntary alternative to standard electronic sales reporting and aims to offer a simpler administrative procedure to the smallest entrepreneurs operating in the lump-sum tax scheme.
 

Exemption of tips in restaurant and catering services

A significant new measure is the exemption of tips in restaurant and catering services. Subject to the statutory conditions, tips received by an employee in an employment relationship while working at a food-service establishment will be exempt from personal income tax, and social security and health insurance contributions. The payment must be voluntary and directly connected with the provision of a service. The rules do not apply to tips received by self-employed individuals.

Typical establishments will include restaurants, cafés and bars. By contrast, takeaway food stands, marketplaces and food trucks—i.e. operations focused exclusively on takeaway sales—will generally fall outside the exemption.

The exemption is subject to a monthly cap. The total amount of exempt tips in a calendar month may not exceed 7% of the employer’s monthly revenue from food-service activities. For an individual employee, the exempt amount may be calculated as 7% of the employer’s monthly food-service revenue divided by the number of employees who received tips in that month. The employer may also determine the amount using another method of their choice. Any tips exceeding the limit will be subject to standard taxation and insurance contributions on employees’ part.
 

New rules for employee benefits

Contributions towards cultural or sporting events and participation in social events organised by the employer for a limited group of participants will no longer be subject to the current annual aggregate limit. Tax exemption will be available only where the provision of such benefits is customary for the employer in view of their nature and both their form and scope are reasonable.

Separate rules will apply to employee benefits in the form of holidays and travel packages. These will be tax-exempt only up to an aggregate annual limit of CZK 20,000 per employee. Any amount exceeding the annual limit will constitute taxable income and will also be subject to mandatory insurance contributions.

The range of exempt non-financial benefits will also be expanded to include employer contributions for selected social services provided to an employee or a family member as community-based services by an authorised provider under the Social Services Act. These include, for example, contributions towards personal assistance, home care, respite care services, early intervention, emergency care and day-care centre services.

The principle that benefits exempt from personal income tax constitute a non-deductible expense for the employer will remain unchanged.

The approved act also modifies employee benefits relating to employee healthcare. Selected healthcare benefits listed in the new Annex 4 to the Act will not be subject to tax on employees’ part. These will include, in particular, enhanced preventive examinations, certain screening tests, cardiovascular risk assessments and selected vaccinations administered by a healthcare provider. However, the exemption will not apply, for example, to cosmetic plastic surgery, beauty treatments or medical procedures lacking appropriate clinical justification.
 

Higher thresholds for filing tax returns

The annual income threshold triggering the obligation to file a personal income tax return will increase from CZK 50,000 to CZK 100,000. For individuals who receive both income from employment and other income under Sections 7 to 10 of the Income Tax Act, the threshold for such other income will increase from CZK 20,000 to CZK 40,000, provided that the other statutory conditions are met.
 

Tax deductibility of still wine

A promotional item in the form of still wine will newly qualify as a tax-deductible expense if the statutory conditions are met: its value must not exceed CZK 500 excluding VAT and it must bear the provider’s name or trademark, or the name of the promoted goods or services.