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.

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.

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

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.

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.