The Chamber of Deputies has approved in the third reading the draft of the recovery package, which aims to reduce budget deficits by CZK 150 billion over the next two years. The proposal will now head to the Senate for consideration so that measures from a total of 63 amendments to the law can come into force as early as 1 January 2024.
Here is an overview of the most important changes affecting personal income taxation:
Changes in progressive taxation
Shift of the 23% personal income tax threshold from four times to three times the average wage.
The government wants to expand the set of high earners who pay the 23% income tax rate. This should be a solidarity move to ensure that high-income workers also contribute more to the consolidation of public finances.
Model example: currently, an employee pays 23% tax on income exceeding CZK 161 300. Up to this amount, they pay 15% tax. The new amount will be roughly CZK 121 000 (the amounts are current for 2023 and are regularly indexed to average wage growth).
Changes in tax credits and tax base deductions
- Parametric reduction of the tax credit for the spouse, which will now be limited exclusively to the spouse caring for a child up to 3 years of age only.
- Abolition of the so-called kindergarten fees or tax rebate for placing a child in pre-school.
- Elimination of the student tax credit.
- Elimination of deduction for union dues and abolition of the deduction of reimbursement for examinations verifying the results of further education.
Changes in tax exempt income of employees
- Limitation of exemption of non-cash benefits to employees. All previously tax-exempt non-monetary benefits provided by the employer to the employee will be exempt from personal income tax for the given tax period on the part of the employee only up to half of the average wage (currently CZK 20,162 per year).
- Repeal of the exemption for over-the-limit meal vouchers.
Changes for OSVČ (self-employed individuals)
- Increase in the levy burden on self-employed persons. Specifically, in 2024-2026, the minimum assessment base for social insurance premiums for self-employed persons will increase from 25% to 40% of the average wage, i.e. by 5 percentage points per year, bringing the minimum assessment base closer to the minimum wage. At the same time, self-employed persons will pay insurance premiums on at least 55% of the tax base instead of the current 50%.
- Limiting tax deductibility for the purchase of passenger cars for business purposes to the first CZK 2 million of the car price.
Limitations to tax relief for work performance agreements (Dohoda o provedení práce – DPP)
- There are two new thresholds for participation in the insurance of an employee working on the basis of DPP (and thus the thresholds for payment of social security contributions): the first limit will be set at 25% of the average wage for single-employer DPP; and a second limit (higher) will be set for the accrual of insurance coverage when multiple DPPs with multiple employers are combined, at 40% of the average wage.
- If the employee exceeds one or the other limit, the insurance premium will also be paid. To ensure that the measure can be monitored, a register will be established of all the DPPs and the income from these agreements.
Changes in VAT
- Reduction in the number of VAT rates to the standard 21% and reduced 12% (instead of the current 15% and 10%). Shifting selected goods and services from the reduced to the standard VAT rate.
Changes in property tax
- Real estate tax rates will increase to approximately 1.8 times, which will increase the collection of this tax by CZK 10 billion. All tax revenue will be retained by the municipalities. In exchange for the increase in the real estate tax, there will be an adequate reduction of CZK 10 billion in the municipalities’ revenue from shared taxes within the framework of tax budgeting, so that the positive impact of the increase in the real estate tax will be reflected exclusively in the state budget. The current share of municipalities in shared taxes is 25.84%.