Deadline for filing income tax return 2020

Deadline for filing income tax return 2020

The amended Tax Code that applies to the 2020 tax period and onwards has introduced changes to filing deadlines. Yes, the statutory deadline for filing the tax return for the previous calendar year remains 1 April of the following year, BUT only in case of a paper version.

Newly, if the tax return is filed electronically, the deadline is extended to four months after the end of the tax period (i.e. 3 May 2021 for the tax period 2020 since 1 and 2 May are public holiday and a weekend), instead of the standard three-month deadline.

The deadline for filing a tax return based on a power of attorney given to a tax advisor remains six months after the end of the tax period. This applies if the tax return was not filed within the three-month or four-month period and is subsequently filed by a tax advisor. However, what is new based on the amendment is the fact that the power of attorney no longer has to be delivered to the tax office before the statutory deadline (usually 1 April) to ensure the automatic deadline extension. This means that the power of attorney may be filed anytime before 1 July, for instance together with the tax return.

Should you wish to take advantage of the filing deadline extension, feel free to contact me.

Health insurance advance payments from January 2021

Monthly health insurance contributions are due until the 8th of the following month, i.e. for January until the 8th February.

Do you pay the minimum health insurance contributions in the CR as self-employed (in Czech “OSVČ”) or individual with no taxable income (in Czech “OBZP”)? Then you should make sure that you adjust your payments now.

Due to the increase in average salary every year, the minimum contributions increase as well.

Since 1 January 2021, the minimum advance payments of self-employed persons have been increased to CZK 2,393 (instead of the current CZK 2,352). This amount has to be paid as of the advance payment for January (due date till 8 February 2021).

The OBZP insurance premium and the minimum insurance premium for employees also increases – for 2021 to CZK 2,052 (instead of the current CZK 1,971).

Important changes from 2021 – tax package approved

Important changes from 2021 – tax package approved

The tax package 2021 which significantly alters the area of personal income taxation has been approved (again) by the Chamber of Deputies. The bill now goes to the President who has previously announced that he will neither veto nor sign the amendments. As such it is still unclear whether the amendments will have general effect already from 1 January 2021.

These are the most important personal income tax changes and their possible effectiveness:

  • Abolition of the super-gross wage and establishment of new income tax rates of 15% and 23% – effective for the entire period 2021 (technically, due to later effectiveness, the taxpayer can choose for 2021 between the current and the new state)
  • Increase of the basic taxpayer tax deduction (currently CZK 24,840 p.a.). The amount of the discount is set at CZK 27,840 for 2021 (effective for the whole period 2021) and at CZK 30,840 for 2022.
  • Monetary meal allowance provided by employers with a beneficial tax regime – an alternative to meal vouchers – effective from 1 February 2021, if the law is promulgated in January
  • Depreciation (abolition of depreciation of intangible assets, increase of the limit for mandatory depreciation from CZK 40 to 80 thousand and introduction of extraordinary accelerated depreciation of tangible assets acquired in 2020 and 2021) – effective for the periods 2020 and 2021

For most taxpayers these are for sure profitable changes. In case of individuals who have high income for instance from rent or sale of shares, it may be advisable to review which regime for 2021 they should choose.

Abolition of real estate acquisition tax approved

Abolition of real estate acquisition tax approved

The proposal to abolish the real estate acquisition tax has been approved and now also officially signed by the President.

The abolition of the real estate acquisition tax applies retroactively to acquisitions where the entry into the land register took place in December 2019 or later.

Together with this change, period for tax exemption of individuals’ income from the sale of real estate (that is not used to satisfy housing needs) was increased from the current 5 years to 10 years. However, the new period shall apply only to the sale of real estate acquired after 1 January 2021.

Moreover, the annual limit for the tax base deduction of interest on loans used to finance housing needs is reduced from CZK 300,000 to CZK 150,000, but again only for real estate acquired after 1 January 2021. (Originally, the proposal wanted to abolish this deduction completely.)

If you have already paid the tax, the abolition triggered a tax overpayment. In such a case, you have to request its refund from the tax office.

Those who have not filed their tax returns and paid the tax yet, do not have any further obligations towards the tax authorities.

Abolition of real estate transfer tax?

Abolition of real estate transfer tax?

The Ministry of Finance will likely submit a proposal to abolish the real estate acquisition tax to the government next week. The tax is currently 4% of the total purchase price. However, the proposal should include also an adjustment in the possibility of tax base deductions from newly concluded mortgage loans.

Anyone who paid the tax in the past or has acquired a property exempt from this tax (e.g. first purchase of a new apartment), should be able to continue to apply the tax base deductions in their income tax return. Mortgage refinancing should also be considered in the amendment so that it is not treated as a new loan.

The amendment should be retroactive, i.e. it should have retroactive effect as of the date of its approval by the government. In the meantime, whoever pays the acquisition tax should be further eligible for the mortgage interest tax base deduction.

Those whose transfers are currently taxable would most likely profit from this amendment, especially companies (if the amendment will apply to legal entities as well).

On the other hand, those individuals who bought a new property (for instance from a developer company) had the purchase tax free anyway and newly would not be allowed to apply the mortgage interest paid for financing such property.

But let’s wait for the final wording of the proposal as well as the fact whether it will be approved.

Financial support for self-employed individuals

Financial support for self-employed individuals

The Ministry of Finance and the Financial Administration introduced a direct support program for self-employed economically affected by the spread of coronavirus. The program will be administered by the Financial Administration and its aim is for applicants to receive funding already in April. A self-employed person will be entitled to a nominal amount of up to CZK 25,000 (CZK 500 per day), who will apply for it and declare that several basic requirements have been met:

  • You have to be self-employed under the law regulating pension insurance (typically having trade license, a self-employed farmer, author or artist, interpreter, veterinarian, doctor, healthcare provider, architect, tax advisor, etc.).
  • The activity performed is the main activity,
  • It may be also a supplementary activity, but only some cases, e.g. when you were entitled to disability pension or old-age pension, or to parental allowance or maternity benefit.
  • You suffered a decrease in taxable income (turnover) of at least 10% in the period January-March 2020 compared to the period January-March 2019. (In the event that you started your business later than January 2019, the comparison shall be used for the first three months of the start of your business, with the latest possible comparison period being December 2019 till February 2020).
  • In 2019, you received gross revenues of at least CZK 180,000. If you were not been in business for the whole year, at least CZK 15,000 per month.
  • You shall confirm the fulfilment of these facts by a sworn affidavit.

This concerns the period from 12 March to 30 April 2020, so the total amount for the full number of days is 25,000 CZK. The aid will be paid against the completed application, whose simple form will be published by the Financial Administration by 3 April 2020.

The Financial Administration will proceed with the acceptance of applications and the subsequent payment of direct support as soon as the legislative process is completed. The Ministry of Finance expects that the legislative process could be completed next week, i.e. by 12 April at the latest. The requests should be filed by 30 June 2020 the latest.

Please feel free to contact me in case you wanted help with the application.

COVID-19: Measures in the area of insurance of self-employed individuals – update

COVID-19: Measures in the area of insurance of self-employed individuals – update

Social security

The Senate has approved today afternoon a bill saying that no social security advance payments for March until August 2020 will be due.

On the annual basis, the amounts due for the months March till August 2020 will be decreased by CZK 2,544 per month (for those who have self-employment activity as main income) and CZK 1,018 per month (for those who have it as subsidiary activity).

Health insurance

Similarly, the Senate confirmed that also in the area of health insurance no late payment penalties will be assessed on late paid advance payments for the months March till August 2020 (for the period until 21 September 2020).

In addition, the advance payments for March till August 2020 in the minimum amount do not have to be settled at all.

For those who pay higher than the minimum payments, they will be obliged to repay for these months only the amount that exceeds the minimum payments, but can do so also only once filing the annual report for 2020.

Further, the deadline for filing the annual report for 2019 should be extended from 4 May until 3 August 2020.

The bills now only need to be signed by the President.

Update regarding COVID-19 measures

Update regarding COVID-19 measures

Following the steps taken by the respective ministries, I have summarized below the main meassures that have been already approved or are under discussion in the area of taxation and social security and health insurance with respect to the current state of emergency.

Tax measures

The Ministry of Finance and the Financial Administration are gradually responding to the current situation.

On 16 March 2020, the Government approved the so-called Liberation Package, which includes in particular the following measures:

Flat waiver of late filing penalty of personal and corporate income tax return and late payment interest until 1 July 2020, i.e. taxpayers are effectively allowed to file their income tax returns at the latest 3 months after the statutory deadline without the need to prove coronavirus-related reasons.

Waiver of tax return late filing penalty in all cases where interest for late payment, tax repayment or penalty for failure to file a VAT control report is individually waived by the tax office.

General waiver of fines for the late submission of a VAT control report of CZK 1,000 incurred between 1 March and 31 July 2020.

Possibility of individual waiver of a fine for failure to submit a VAT control report for the period from 1 March to 31 July 2020 if coronavirus-related reasons are proved.

General waiver of the administrative fee for filing an application for delaying or repayment of tax, the application for remission of a fine for failure to submit a VAT control report (for applications submitted by 31 July 2020).

On 22 March 2020, the Ministry of Finance, within the framework of the Liberation Package II, proposed further measures:

General waiver of the June advance tax payments for personal and corporate income tax. This means that the June advance payment (otherwise due by 15 June 2020) would not be paid at all.

General waiver of a fine for late filing of a real estate property acquisition tax return or for a late payment of a real estate property acquisition tax or an advance payment. The waiver would apply to all late tax returns with a deadline from 31 March to 31 July 2020. It should be possible to file a real estate acquisition tax return by 31 August 2020 at the latest without the risk of a penalty, interest on late payment would also be remitted. Effectively, all taxpayers would automatically be allowed to file the real estate property tax return up to five months later.

• Introduction of Loss carryback for both personal and corporate income tax for 2020. It should be possible to apply it in the 2019 and 2018 tax returns.

Suspension of the obligation for electronical record of sales („EET“) for entities in all phases of the EET for the period of state emergency and the following three months.

Social security and health insurance measures

The Ministry of Labor and Social Affairs responds similarly to the situation. On 19 March 2020, the so-called Antivirus program, which aims to protect employment, was approved by the Government. The state will compensate firms for the costs of incapacity for work under the quarantine order and, in part, for compensation for wages if there are obstacles on the side of the employer if it is shown that the obstacle to work is due to COVID-19.

The compensation will be provided by the Labor Office of the Czech Republic, the amount and duration of the support will depend on the reason of the obstacle at work.

Mode A – Quarantine employees

Scheme A is intended to contribute to employers’ paid wage compensation in the event of incapacity for work for employees who are subject to quarantine. The employer pays compensation for incapacity for work for the first 14 calendar days, the amount of compensation is 60% of the average assessment base. The employer will be provided with the full compensation of wage compensation paid.

Mode B – Inability to assign work to employees due to the government emergency measures

Scheme B concerns situations where an employer cannot allocate work to employees because of government emergency measures, i.e. the employer is ordered to close down operations following a government resolution. In such a situation, employees are entitled to wage compensation equal to their average earnings. The compensation to the employer should be 80% of the compensation paid.

On 23 March 2020, the government approved further measures proposed by the Ministry of Labor and Social Affairs, which should support other companies and extend the Antivirus program by three additional regimes:

Mode C – Inability to assign work to employees due to quarantine or childcare for a significant proportion of employees.

It should be considered a significant part if it is 30% of employees of companies, establishments or other organizational part according to the operating situation of the employer. Compensation of wages or salaries should be paid to the employee at 100% and the employer should be provided a compensation of 80% of the compensation paid.

Mode D – Restricting the availability of inputs (raw materials, products, services) necessary for the employer’s activity as a result of quarantine measures (or generally production failures) at the supplier, including abroad.

For example, there is an agreement proving the origin of inputs, bans on actions or other measures demonstrably affecting supplies to the employer. Compensation of wages or salaries should be paid to the employee of 80% and the employer should be provided a compensation of 50% of the compensation paid.

Scheme E – Reduced demand for employer’s services and products as a result of quarantine measures at the employer’s point of sale (CR and abroad).

Compensation of wages or salaries should be paid to the employee in the amount of at least 60% and the employer should be provided a compensation equal to 50% of the compensation paid.

On 20 March 2020, the Ministry of Labor and Social Affairs sent a draft law to the interdepartmental comment procedure for the waiver of compulsory pension insurance payments for self-employed individuals for a period of 6 months. If approved, the measure should be effective as of March. The proposal has so far been approved by the government on 23 March 2020, including a waiver also of the compulsory health insurance payments.

The area of ​​paid nursing is also discussed. It is still true that if an employee has to take care of a child under 10 years after the end of 9 days of nursing (16 for single parents), he / she can stay at home, but only on an unpaid leave. The employee will receive wage compensation only on the basis of an agreement with the employer, but there is no obligation.

Today, the Parliament shall approve an amendment to the law that will ensure that nursing allowance could be drawn for the entire period of school closures (also retroactively). Thus, if the law is passed, employees will be reimbursed for the entire period they were at home taking care of their small children.

Tax Impacts of Brexit

The withdrawal of the United Kingdom from the EU of 31 January 2020 was based on a deal. The deal ensured the so-called transitional period that will last until 31 December 2020, during which the United Kingdom will temporarily remain in the Single Market and negotiate an agreement regarding the future long-term relations with the EU and its Member States. Until 31 December 2020 business and other related relationships will continue to operate according to the existing procedures.

As such, there are no changes in the area of income taxes as well as the application of VAT during the transitional period.

Annual Tax Reconciliation

The Annual Tax Reconciliation (“ATR”) is a simplified reconciliation of payroll taxes withheld by the employer from the employee’s salary throughout the year. It happens only internally at the employer’s and no documents on behalf of the employee are filed with the tax office.

Who Is Eligible to the ATR?

The ATR for 2019 shall be made by the employer for an employee who:

  • Signed a Declaration of the personal income taxpayer with the employer, “Prohlášení poplatníka daně z příjmů fyzických osob ze závislé činnosti” in Czech
  • Is not obliged to file a personal income tax return
  • Applies until 17 February 2020 for the ATR, signs “Žádost o roční zúčtování záloh a daňového zvýhodnění” in Czech

Who Is Obliged to File a Tax Return?

Employees are obliged to file their own personal income tax return especially when:

  • Their annual gross employment income exceeded the amount of CZK 1,569,552 (for 2019), which is the limit for solidarity tax increase, or
  • They had employment income from multiple employers at the same time (and it was subject to advance tax, not final withholding tax), or
  • They had other income higher than CZK 6,000 that is not exempt from tax, e.g. self-employment, rent, capital income or other income

In general everyone whose annual income exceeded CZK 15,000 should file a personal income tax return, but employees having only one employment income where the annual amount was below CZK 1,569,552 can generally apply for the ATR instead of filing a tax return on their own.

What Has To Be Enclosed to the ATR Application?

The employee should submit the following attachments to the application for the ATR:

  • Confirmation of taxable income from all previous employers where he/she was employed in 2019, or information on his/her activities until joining his last employer, e.g. proof of registration at the labor office
  • Documents proving entitlement to the required tax deductions or tax base deductions