Social Security and Health Insurance after Brexit

On 29 January 2020, the European Parliament approved the Agreement on the withdrawal of the United Kingdom of Great Britain and Northern Ireland from the European Union.

In the area of ​​social security and health insurance, this report means that the current European rules – Regulations on the coordination of social security systems No. 883/2004 and 987/2009, which, among other things, includes the principle of single insurance – will continue to apply , govern the use of the European Health Insurance Card and the provision of the necessary care based on it, the use of forms S1, E106, E109 and E121 for taking full care in the State of residence, or issuing of A1 Certificates for the determination of applicable legislation.

These rules apply for a transitional period – until the end of 2020. Thereafter, they will only apply to situations that arose before the end of 2020. The exact course of action after 2020 will also depend on whether and how the future EU-UK relations will be governed.

Increase of the minimum wage and its impacts

The minimum wage was increased as of 1 January 2020 by CZK 1,250 to CZK 14,600.

The increase of the minimum wage has an impact not only on the employer, who is obliged to pay the salary to his employees reaching a minimum of CZK 14,600 per month for the “lowest” group of jobs, but at the same time it also has an effect on tax and other liabilities.

According to the Income Tax Act, in some cases the minimum wage has an impact on the total tax liability. The above-mentioned relates for example to income, which the taxpayer obtains in the course of the year in the form of pension payments. The tax-free sum, which the taxpayer does not declare and tax in the given taxable period, is set based on the minimum wage. A total sum of this income, which does not exceed 36 times the minimum wage, i.e. in the year 2020 regularly paid pension up to CZK 525,600 (CZK 43,800 per month) is exempt from taxation. 

The increase of minimum wage is also reflected in the area of tax deductions. The adopted change impacts the chance of parents to receive a tax advantage in the form of a so-called child tax credit. The child tax credit represents the part of the child tax deduction that exceeds the final tax and is actually paid by the tax office to the taxpayer. With the increase of the minimum wage, the specified limit for the possibility of obtaining tax credit raises. In 2020, a taxpayer, whose income reached at least 6 times the minimum wage, i.e. a parent with annual income exceeding CZK 87,600, is entitled to the tax credit. Here it needs to be noted that this income currently includes only taxable income from employment or self-employment, i.e. the taxpayer’s “active” income.

The rate of the minimum wage also impacts the maximum possible tax deduction of “kindergarten fees”. The allowance for placing a child in a childcare facility corresponds to the expenses provably spent by the taxpayer on placing a dependent child in a pre-school facility, but only up to the level of the minimum wage per every dependent child.

In addition, the minimum wage impacts also the minimum health insurance payments for employees as well as for persons without taxable income. Persons without taxable income generally do not perform gainful activity, employed or self-employed, during the entire calendar month, but at the same time they do not fulfil the conditions for so-called state-insured persons, for whom the minimum insurance is paid by the state. In case of persons without taxable income, the minimum wage is their assessment base and in the year 2020 as a result of its increase, they are obliged to pay CZK 1,971 per month to health insurance companies, i.e. 13.5 % from CZK 14,600. At the same time, this minimum payment needs to be observed by employers for instance in case of an employee, who works part-time for lower than a minimum wage, or an employee on unpaid leave. Such an employee should prove to his employer that for example at a different employer the minimum payment of insurance is settled.

Another indirect effect of the increase of minimum wage is on persons registered at the labour office who can earn a maximum of CZK 7,300 extra, i.e. up to a half of the minimum wage.

Changes in health insurance advance payments from January 2020

Changes in health insurance advance payments from January 2020

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.

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

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

Since 1 January 2020, the minimum advance payments of self-employed persons have been increased to CZK 2,352 (instead of the current CZK 2,208). This amount has to be paid as of the advance payment for January (due date till 8 February 2020).

Due to the increase in the minimum wage, the OBZP insurance premium and the minimum insurance premium for employees also increases to CZK 1,971 (instead of the current CZK 1,803).

Online registration of sales as of 1 May 2020

Online registration of sales as of 1 May 2020

Registration of sales (in Czech abbreviated as “EET”) is a system of online communication between businesses and Financial Authority.

The EET generally concerns all legal entities as well as self-employed individuals who are obliged to pay income tax in the Czech Republic.

Within the EET should be reported all sales that are generated from the business activity and are paid in cash, cheque, meal ticket, electronic wallet, voucher or other similar means. Direct bank account transfers and card payments have been excluded from the reporting.

Since December 2016, resp. March 2017 sales coming from accommodation, food services, retail trade and wholesale have been reported.

From 1 May 2020 also other business activities should be reported, such as freelancing activities, transportation, agriculture or production.

If you receive payments from your clients in cash or vouchers, you should think about preparing yourself for 1 May.

VAT calculation since 1 October 2019

VAT calculation since 1 October 2019

Based on the Amendment to the VAT Act from 1 April 2019 it is necessary to follow a method of tax calculation from 1 October 2019 – in accordance with the transitional provisions.

The VAT calculated “from top” is calculated as the difference between the amount corresponding to the amount of the payment for a taxable supply including tax (excluding the amount resulting from the rounding of the total payment in cash) and the amount calculated as a proportion of the amount defined in par. 37 of the VAT Act and a coefficient of 1.21 for the standard rate, 1.15 for the first reduced rate or 1.10 for the second reduced rate.

Calculation of the tax “from below” as defined remains the same, i.e. the tax is calculated as the product of the tax base and the tax rate. This change results in the unification of the amounts (identical results) of the calculated tax regardless of the chosen calculation method. Newly, there should be therefore no (not even small) differences in results.

Tax base CZK 100,000 CZK; tax rate 21 %; value of supply including tax CZK 121,000

Calculation “from below”: 100,000 x 0.21 = CZK 21,000
Calculation “from top”: 121,000 – (121,000 / 1.21) = 121,000 – 100,000 = 21,000 CZK

In my next post I will also comment on the new rounding method valid as of 1 October 2019.

Belarus-Czech Agreement on Social Security

Belarus-Czech Agreement on Social Security

The Totalization Agreement between the Czech Republic and the Republic of Belarus, signed on 14 March 2018, entered into force on 1 October 2019. An Administrative Arrangement for the implementation of the Agreement also came into force on 1 October 2019.
The treaty is based on the four basic principles that are common in modern totalization treaties and in the European Union coordinating regulations, namely:

  • Equal treatment of nationals of the Contracting States
  • Affiliation to insurance in the State of employment, with specific exceptions
  • Aggregation of periods of insurance completed in both States for entitlement to benefits (pension)
  • Payment of benefits (pensions) to the other Contracting State

The material scope of the Agreement is limited as it covers only pension insurance benefits, i.e. old-age, disability, widow’s, widower’s and orphan’s pensions in the Czech Republic, and in Belarus so-called occupational pensions, i.e. old-age, retirement, long-term, disability and for loss of the breadwinner. The Agreement shall also apply to the laws of both Contracting States governing the payment of insurance premiums. The contract does not cover sickness insurance, accidents at work and occupational diseases, unemployment benefits or health insurance.

What kind of health insurance card can you get as a foreigner in the CR?

What kind of health insurance card can you get as a foreigner in the CR?

As an EU national insured in the CR you receive a standard blue European health insurance card based on which you are entitled to full health care in the CR and necessary health care in the other states of EU, EEA and Switzerland. As the card is valid in the above mentioned states, it has a standardized form.

Citizens from countries outside the EU who work in the CR receive a green health insurance card. Compared to the blue European health insurance card the green card is valid only in the CR and is generally issued for one year.

People who are registered with VZP as a Czech assistance insurance company (mostly foreigners paying mandatory insurance in another EU country) receive yellow cards. These are usually valid for one year and indicate to which kind of health care the holder is entitled (e.g. full care or necessary care).

Všeobecná zdravotní pojišťovna (VZP) has started to issue the green and yellow cards with slightly changed colour shades as of this week:

Health Insurance after Brexit

Health Insurance after Brexit

According to current information, the United Kingdom is to leave the EU on 31 October 2019. Given the variability of the situation, it is still uncertain how exactly Brexit will happen. There are three scenarios for the area of health insurance, each affecting health insurance and the provision of health services to Czech policyholders in the UK and UK policyholders in the Czech Republic in a different way.

Scenario 1 – Another postponement of Brexit for later

Due to previous delays, further postponement cannot be excluded. Should Brexit be postponed until a later date, the existing EU rules would continue to apply until the new Brexit date.

Scenario 2 – Brexit with a deal

If the Withdrawal Agreement is approved, all existing rules will continue to apply until the end of 2020. The principle of a single insurance would continue to apply (i.e. individuals cannot be insured in the UK and the Czech Republic at the same time). European Health Insurance Card would continue to apply.

Scenario 3 – Hard Brexit

This scenario would have the greatest and immediate impact on health insurance. The current EU health insurance rules would cease to apply on the Brexit date and the United Kingdom will find itself in a third country position with certain benefits for persons who were in a cross-border situation prior to the Brexit date thanks to the 2019 EU Regulation that provides for alternative measures in the field of social security coordination following the withdrawal of the United Kingdom from the EU. This new regulation contains a rule on equal treatment, the principle of assimilation of facts and addition of periods of insurance. This new Regulation is to take effect from the date of Brexit. Otherwise, the Czech Public Health Insurance Act will apply.

It will no longer be possible to use the European Health Insurance Card. Some areas of this scenario also still remain unclear.

Validity of EHIC abroad

Validity of EHIC abroad

When traveling abroad, it is wise to remember unpleasant surprises. It is always good to have insurance in case of illness or accident. Did you know that in the European Union, Norway, Liechtenstein, Iceland and Switzerland your Czech public health insurance is valid?

On the basis of the European Health Insurance Card (Blue Health Insurance Card, “EHIC”), you are entitled to receive the health care required by your health condition for the duration of your stay under the same conditions as the local insured. For example, if something happened to you on vacation, the local medical facility would treat you as they would treat the local insured.

In fact, within the EU, you are entitled to medically necessary health care taking into account the nature of the benefits (illness) and the expected duration of your stay in another country. Care should be provided so that the patient does not have to return to the country of insurance earlier than originally intended.

You only pay for the treatment as much as the local insured would pay for it (regulatory fee, prescription fee, hospitalization, etc.). However, the care costs themselves will be billed to your Czech health insurance company. Last year, 45,000 Czech insured persons were treated abroad and health insurance companies paid a total of CZK 520 million for these treatments.

In addition to the EHIC, you can choose a supplementary commercial travel insurance, which may provide some additional benefits. When concluding a commercial travel insurance, carefully read the insurance terms and conditions.

The Planned Tax Code Amendment Is Not Only Positive for the Taxpayer

The Planned Tax Code Amendment Is Not Only Positive for the Taxpayer

On 26 August 2019, the Government approved an amendment to the Tax Code prepared by the Ministry of Finance.

Part of the amendment is the legislative anchorage of the online tax office, thanks to which taxpayers will be able to solve more of their obligations online. For example, it should be possible to use an e-citizen login, data box login or login assigned by the tax authority to log into the tax portal and authorize submissions. The Ministry of Finance expects to launch the first version of the portal in the fourth quarter of 2020.

The amendment should also introduce an extension of one month’s period for filing tax returns due for a period of at least 12 months (e.g. income tax), from three to four months after the end of the calendar year if the tax return is submitted electronically.

Following the Constitutional Court’s judgment, partial refund of excess VAT in the form of advance payments should be possible in certain situations. On the other hand, the tax administration will now have 45 days to refund the excessive VAT. It currently has only one month.

In addition, the time limit for the imposition of the late filing of the tax return should be adjusted. It must now be paid if the delay is longer than five business days. This exemption should now only apply to taxes levied for less than one year. For example, for income tax, the penalty for late tax return filing should be calculated from the first day past the deadline.

Similar changes should also occur for interest on late payment, which should be newly calculated from the day following the original due date of the tax until the date of its settlement. At the moment, interest on late payment runs from the fifth business day following the original due date.

On the other hand, the amount of interest on late payment should now be the same as default interest under the Civil Code, based on which the amount of late payment interest corresponds annually to the repo rate set by the CNB for the first day of the calendar half-year in which the late payment occurred increased by 8 percentage points. The Tax Code now provides for an increase of 14 percentage points.

The expected date of entry into force is 1 May or 1 June 2020 depending on the course of the legislative process. I will keep you informed about further developments.