New income tax credit

Recently published in the Collection of Laws, an extensive amendment to the Enforcement Procedure Code and Civil Procedure Code among other things contains an amendment to the Income Tax Act introducing a new income tax credit for taxpayers in the case of discontinued enforcement proceedings. The amendment will enter into effect on 1 January 2022.

The amendment allows for the discontinuance of excessively long enforcement proceedings concerning low-value receivables.  Where enforcement proceedings pertaining to a receivable not exceeding CZK 1,500 excluding interest and penalties continue for more than three years without resulting in the recovery of debt, within the three months of the amendment’s effective date, bailiffs should call on the entitled party (usually the creditor) to deposit an advance for expenses for enforcement proceedings. Without such advance deposit, bailiffs will discontinue the proceedings.

If proceedings are discontinued in this manner, creditors shall be entitled to compensation equal to 30% of the receivable being recovered (excl. interest and penalties). However, compensation will not be provided in a monetary form but as an income tax credit for discontinued enforcement proceedings. The credit amount equals the compensation awarded to the creditor by the bailiff upon the discontinuance of proceedings: compensation for the discontinued proceedings equals 30% of the receivable being recovered.

If the taxpayer in the relevant taxable period does not report any tax from which the credit can be deducted (i.e. the taxpayer recognises a tax loss), the credit shall forfeit and the creditor shall not receive any compensation or relief for discontinued proceedings. 

Considering the above receivable value limit, it can be expected that this new income tax credit will mainly be used by payers of personal income tax; however, it may also be useful for corporations with a large number of low-value receivables, as further tax savings through this type of credit can be obtained if a greater number of discontinued enforcement proceedings are involved.

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