At the beginning of November 2023, the Czech Parliament passed the act on public budget consolidation (the so-called consolidation package), the main aim of which is to reduce the state budget deficit and consolidate public finances after the Corona and energy crises. The consolidation package strengthens the revenue side of the state budget, primarily through adjustments to the tax system, while at the same time limiting state spending (especially subsidies). It affects almost all taxes levied in the Czech Republic and is scheduled to come into force from January 1, 2024. The main changes are as follows:
Previously, the profits of legal entities were taxed at a linear tax rate of 19 % in the Czech Republic. From 2024 the rate will rise to 21%.
The tax-deductible depreciation of company cars or their leasing costs is limited to CZK 2 million (approx. EUR 81.9 thousand) excluding VAT. From this amount onwards, the associated costs are no longer tax deductible. The change affects cars purchased after January 1, 2024.
The possibility of extraordinary depreciation for electric cars will be extended until 2028. Electric cars purchased after January 1, 2024 will therefore continue to be depreciated over 24 months (standard over 5 years), evenly without interruption up to 60 % of the starting price in the first 12 months and up to 40 % of the starting price in the following 12 months.
Unrealized exchange rate differences resulting from the revaluation of foreign currency assets and liabilities into Czech crowns at the end of the assessment period may be excluded from the tax base. Previously, exchange rate gains represented taxable income, while losses represented tax-deductible expenses. In order to exclude the differences from the tax base, a separate report to the tax office is required by the end of the 3rd month of the first decisive period (the calendar or financial year), otherwise the standard procedure is applied, i.e. the exchange rate differences are included in the tax base for tax purposes.
It will now be possible to keep accounting in a currency other than the Czech crown, namely the so-called functional currency, which can be the Czech crown, the euro, the US dollar or the British pound. Czech accounting regulations previously did not allow this. Changing the accounting currency is only possible on the first day of the accounting period.
For corporate tax purposes, a conversion of the functional currency into Czech crowns is required, which is also completed in the tax return. The income or corporate tax is then calculated and paid in Czech crowns.
Until the end of 2023, there were three VAT rates in the Czech Republic - 21%, 15% and 10%. From 2024 there will only be a basic rate of 21% and a reduced rate of 12%.
The main objective of this measure is to simplify the VAT system by merging two reduced rates into a common rate of 12 %. Unifying the reduced VAT rates of 12 % will also reduce VAT on a range of goods and services, such as food and some construction work. Conversely, there will be an increase from 10 to 12 % for accommodation and food services, medicines, entry to cultural and sports activities, etc.
A special item are books that are completely exempt from tax. Conversely, some items will be switched from the reduced rate to the 21% tax rate. Specifically, this concerns draft beer, services from authors and artists, etc. Only the occasional public bus transport of people changes from the basic to the reduced VAT rate.
Restrictions on claiming VAT deductions on the purchase of passenger cars will be introduced. Taxpayers can now claim a maximum of around EUR 17.2 thousand of input tax, which corresponds to the net purchase price of a passenger car of around EUR 81.9 thousand. This means that the limit of EUR 81.9 thousand, which was introduced for corporate tax deductible costs for passenger cars, also applies for VAT purposes.
A significant part of the changes in the area of income tax concerns the restriction or elimination of a number of tax exemptions. The most significant innovation is the introduction of restrictions on tax exemption for the sale of stocks and company shares subject to the fulfillment of the period of 3 years, or 5 years between acquisition and sale up to CZK 40 million (approx. EUR 1,635 million) per person ( previously the exemption was unlimited).
The limit applies to income from 2025, although a special adjustment can be made for securities and shares acquired by the end of 2024 in order to recognize a pro rata portion of the acquisition price of securities and shares in corporations. The exemption from income from the sale of the real estate remains without restriction if the period of 10 years has been fulfilled.
In addition, there will be tax reductions for the wife (now only up to the child's 3rd birthday), the tax exemption on income from gambling (from currently around EUR 41 thousand to around EUR 2 thousand) and the exemption of the whole range of monetary assets Employer benefits to employees (particularly leisure, medical and therapeutic services) are restricted. Services and goods (training, sport, culture, etc.) are now tax-free up to half of the average monthly salary (approx. EUR 900). Above this limit, benefits are considered part of the salary and are subject to income tax and social and health insurance.
Tax breaks for placing a child in kindergarten, tax breaks for students and deductions for trade union contributions will be completely abolished.
The personal income tax rate is currently 15 % and 23 % (from 48 times the average wage). The progressive tax rate applies to income from employment as well as income from self-employment, rental or other income.
The income range in which the tax rate of 23 % applies now starts at 36 times the average wage (approx. EUR 59 thousand) instead of 48 times the average wage (approx. EUR 79 thousand). This will lead to an expansion of the group of people to whom the increased tax rate applies.
The amendment to the Labor Code introduced a flat-rate reimbursement of costs for home office work of approximately EUR 0.2 / working hour into Czech law. On the employee's side, the remuneration is not taxed, but on the employer's side it represents a tax-deductible expense. Reimbursement of costs is based on a written agreement with the employee or on the basis of an internal regulation. However, employers and employees can agree in writing that the employee is not entitled to reimbursements for home office.
The social security contributions paid by the employer remain at 24.8 % of the assessment basis for 2024. The social security contributions paid by employees will increase by 0.6 percentage points (health insurance) from 2024, i.e. they will now amount to 7.1 % of the assessment basis instead of 6.5 %. Overall, social security contributions increase from 31.3 % to 31.9 % of gross salary.
From 2024, the tax base for a sole proprietor/self-employed person will be at least 55 % of the tax base; previously it was 50 %.
The property tax rate will increase to 1.8 times from January 1, 2024. For agricultural land, the state will allow municipalities to introduce a local coefficient of 0.5 for agricultural land such as arable land, vineyards, hop plantations or gardens, thereby increasing the There is no tax increase for them.
From 2025, an inflation coefficient will be introduced, which will automatically increase the property tax by the inflation that was in the previous period.
The article was published in the ISTR-Länderbericht
From January 1, 2024, a number of significant changes will take place in the Czech tax system - the corporate tax rate will increase, VAT rates will change and, last but not least, the tax burden on natural persons will also increase.
In addition to changes in the area of corporate income tax, the Czech Ministry of Finance is preparing to adjust VAT rates. VAT rates should change from January 1, 2024.
The Czech Republic is planning extensive changes to its tax system, including changes to corporate income tax rates, effective from the beginning of 2024, which should help reduce the state budget deficit.