Changes to income tax after 2019 amendment

Corporate income tax

• The amendment introduces a new duty to report payments abroad that are subject to withholding tax even if these payments are exempt from tax or not liable to tax based on a relevant double taxation treaty. Payments of one type to one recipient not exceeding CZK 100 thousand a month constitute an exception.
• The implemented EU Anti-Tax Avoidance Directive (ATAD) introduces the following:
  • Restricted deductibility of borrowing costs from transactions with related and unrelated parties exceeding the limit of excess borrowing costs, which is the higher of 30% of earnings before interest, tax, depreciation and amortisation (EBITDA) or CZK 80 billion in a taxation period. The existing rules limiting the deductibility of borrowing costs due to thin capitalisation remain in force for all taxpayers. The new rule is also applicable to financial instruments contracted before 1 April 2019.
  • CFC rules, i.e. rules for the taxation of income of a foreign company controlled by the Czech controlling company where the foreign company does not carry out any substantial economic activity and its tax liability abroad is lower than one half of the tax liability that such company would have had if it were taxed under Czech tax laws.
  • Exit taxation, i.e. taxation of the relocation of assets without a change of ownership (e.g. when a Czech tax resident transfers assets to its foreign permanent establishment or when a Czech tax resident changes its tax residence).
  • Taxation of profits or deduction of losses on equity securities voluntarily classified as securities measured at fair value through equity (IFRS 9), by adjusting the taxpayer’s tax base.
  • A new manner of taxation of revenues from equity certificates measured at fair value.
  • Rules neutralising the effects of hybrid mismatch arrangements, such as a ‘double deduction’, when one amount reduces the tax base in more than one jurisdiction, or a ‘deduction without inclusion’, when the tax base is reduced in one jurisdiction without the same amount being included in the tax base in another jurisdiction.

Personal income tax

• For entrepreneurs, the limits of income decisive for claiming expenses as a percentage of income have again been increased. The new limits will be applied already for the 2019 taxable period. 
• In connection with the increase of the income decisive for mandatory participation in sickness insurance of employees to CZK 3 000 monthly, the amendment adjusts the provisions relating to withholding tax. This tax will be applied to income of up to CZK 2 999 monthly generated by taxpayers who have not signed their payroll tax statements. This provision will become effective on 1 May 2019 and may be applied for the first time upon the settlement of wages for May 2019, i.e. in June 2019.
• The new duty to report payments abroad applicable to legal entities now also applies to individuals.