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.

Tax Inspection of Airbnb Providers

Tax Inspection of Airbnb Providers

As part of its audit activities, the financial administration has focused in recent months on individuals and entities providing accommodation services via electronic platforms. Tenants are obliged to pay tax on the income thus obtained. So far, the tax administration employees have examined almost 7,000 tax subjects and claim that they have collected approx. CZK 35 million.

“Financial administration has been reviewing the provision of various services through electronic platforms for a long time. We first went through prevention and developed a methodology describing the tax obligations of accommodation providers through electronic platforms. In addition, we have alerted taxpayers to meet their obligations before they may be asked to pay tax. Many of the taxpayers responded and met their tax obligations,”

said Tatjana Richterová, general manager of the Czech tax administration.

The tax administration obtains information on the income of taxpayers doing business through electronic platforms and thus has the data to verify whether or not the taxpayer has fulfilled the tax obligations compared to the filed tax return. In the event that there are differences between the income and the amounts stated in the tax returns, the tax administration usually addresses these taxpayers by a written appeal to submit ordinary or supplementary tax returns.

Meal Vouchers Lump-sum

Meal Vouchers Lump-sum

The Ministry of Finance is working on an amendment to the Income Tax Act, which is intended to simplify the provision of contributions to meals in preferential tax treatment. The existing law is to be supplemented by a so-called meal voucher lump-sum amount, which will allow the employee to receive money for meals instead of meal vouchers (“stravenky”).

According to the Ministry of Finance, one of the reasons why some employers do not use meal vouchers is too complicated administration. Another should be high fees for meal vouchers companies. At present, about 1 million employees do not receive any meal allowance.

“We want to give a million people the opportunity to benefit from meal allowances. At the same time, I see no reason for our small and medium-sized enterprises to finance the profits of foreign corporations that have their business built on the sale and purchase of a parallel currency. And not to mention the fact that a meal voucher that is unused becomes the net income of such a meal voucher company,”

says Alena Schillerová, Minister of Finance.

The plan will go through the classical legislative process, the proposal is due to be prepared at the beginning of next year at the latest and is planned to become effective from 2021.

Changes in posting of workers

Changes in posting of workers

In June 2018, the EU Council approved the final version of Directive (EU) 2018/957 of the European Parliament and of the Council of 28 June 2018 amending Directive 96/71 / EC concerning the posting of workers in the framework of the provision of services. The aim of the revised Directive is to facilitate the transnational provision of services, while ensuring fair competition and respect for the rights of workers employed in one Member State and posted by their employer to work temporarily in another Member State.

More specifically, the Directive aims to ensure fair wages and a level playing field for both sending and local companies in the host country, while respecting the principle of freedom to provide services.

The Ministry of Labour and Social Affairs has now submitted a draft amendment to the Labour Code and the Employment Act in connection with the transposition of this Directive.

Under the amendment, the employer will be obliged, for example, to provide the posted employee with travel expenses at least in the amount to which employees are entitled under Czech law, with the usual place of work in the Czech Republic being considered as a regular workplace for the travel expense purposes. Of course, as in the case of the other provisions, this provision applies only if these conditions are more favourable to the employees.

It is further proposed that to the seconded employee should, after 12 months, resp. 18 months, fully apply the legislative provisions of the Czech Republic, with the exception of the regulation on the creation, change and termination of employment.

It is also newly proposed that information and registration obligations are transferred to a foreign employer who sends workers to the Czech Republic. Newly, it should be the foreign employer, not the receiving employer, who informs the relevant regional branch of the Labour Office on the day of the posted employee’s commencement of work at the latest. Also the registration obligation, which had to be fulfilled by the receiving employer so far, is transferred to the foreign employer who is further obliged to keep records of these persons at their workplace.

The directive is to be transposed by 30 July 2020. I will keep you informed of further developments.

Residence permit and fraudulent conduct

Residence permit and fraudulent conduct

Based on § 77 para. b) of the Act No. 326/1999 Coll., on the Residence of Aliens “The Ministry shall revoke the residence permit if… (b) the foreigner has been granted permanent residence on the basis of the counterfeit and / or altered information based on which the application subsequently does not correspond to reality…”.

Recently, the Supreme Administrative Court has also interpreted this provision, confirming in its judgment that revocation of the residence permit under that provision is only possible if the fraud aspect is also present. However, this requirement of ‘fraudulent conduct’ does not necessarily mean that the crime of ‘fraud’ meeting the characteristics contained in the Criminal Code has been committed in obtaining permanent residence.

For example, fraudulent conduct may also be the presentation of a certificate of knowledge of the Czech language for the purpose of obtaining a permanent residence permit, which proves the successful passing of the examination, even though the examination was not passed and the foreigner had to be aware that he failed.