Tax rate package published in Collection of Laws on New Year’s Eve
Just before Christmas, the Chamber of Deputies overruled the Senate and passed the original version of the tax rate package, which was then published on 31 December 2019 under No. 364/2019 and amends certain tax laws in connection with a plan to boost public budget revenues. Effective from January 2020, it increases excise duties, and changes the taxation of one-crown bonds and the method of creating technical provisions by insurance companies.
In addition to increasing excise duties on spirits and tobacco products, the package will primarily affect insurance companies. From a tax perspective, only technical provisions created under EU Solvency II, and not as has so far been the case under accounting regulations, will be relevant with certain adjustments. Based on comments from the professional public, tax deductible provisions will be reduced by the amounts recoverable from reinsurance contracts and, simultaneously, increased by deferred acquisition costs for insurance contracts. Any impact of the transition to the new rules will be distributed over two taxable periods after the amendment’s effective date. Additional taxes will therefore be charged in 2020 and 2021. In its explanatory report, the ministry estimates a one-off increase in public budget revenues of CZK 10.5 billion.
Another important part of the law is the taxation of one-crown bonds, taking the form of a transitory provision applicable to Section 36 (3) of the Income Tax Act, otherwise entirely unaffected by the amendment. In the taxable periods after the amendment, interest income from bonds with a low nominal value issued before 2013 will not be rounded at the level of one security. This in reality has led to the non-taxation of this income. In accordance with the new provision, not interest income, but the final tax per one taxpayer will be rounded. This method of rounding shall apply to all bonds irrespective of their issue date.
The tax rate package also restricts the tax exemption of winnings from gambling only to one million Czech crowns or less. Winnings exceeding one million Czech crowns will be subject to a 15% withholding tax. During the package’s second reading, the deputies passed an amending proposal under which gaming payments shall be regarded as related expenses. It will thus no longer be possible for the actual winning to be lower than the tax withheld.