Increase of limit for mandatory VAT registration and flat-rate tax regime

The Government approved a draft law of the Ministry of Finance, which would increase the annual limit for mandatory VAT registration from CZK 1 million to CZK 2 million with effect from 1 January 2023. The annual income limit for entry into the flat-rate tax regime should also be doubled from next year to CZK 2 million. The proposal is currently being discussed by the Parliament.

The amendment to the VAT Act proposes to increase the annual turnover limit for compulsory VAT registration to CZK 2 million. The current limit of CZK 1 million corresponded to the amount of EUR 35,000 that the Czech Republic received when it joined the European Union in 2004, which has not changed in 18 years despite a significant increase in the price level. The increase of the limit up to €85,000 is supported by the EU itself, which will allow member states to implement this increase from 2025. However, the Czech Republic was allowed to increase the VAT limit to CZK 2 million at its request already from next year. So the main novelty should be the possibility to deregister from VAT on annual turnover of up to CZK 2 million.

The condition for using the flat-rate tax, i.e. paying taxes, social and health insurance in one regular monthly amount without tax returns and without insurance reports, should also increase to twice the amount, i.e. CZK 2 million from next year. The Ministry of Finance expects that next year up to 30,000 sole traders could newly register for the flat tax. However, due to the very wide range of income of flat-rate taxpayers, the monthly flat-rate advances will not be the same for all, but 3 bands should be introduced, primarily derived from the amount of income and secondarily from the expenditure lump sum.

We will see whether and in what form this proposal will be approved.

Should you have any questions, please do not hesitate to contact me.

Inspection on Taxation of Cryptocurrency Transactions

Similarly to the centralized audits of airbnb providers, the tax authorities newly concentrate also on taxpayers who had income resulting from transactions with cryptocurrencies.

The tax authority issued several statements how the taxation of cryptocurrencies should be addressed over the past few years so at the moment it is hardly advisable that the related income was not declared within the annual tax returns.

Below I translated the official press release from the tax authority office:

The Tax Control and Analytics Section of the General Financial Directorate has analysed the available data for a group of selected taxpayers conducting transactions with cryptocurrencies for the tax years 2019 and 2020. In processing the data and information obtained in accordance with the applicable legislation, a set of taxpayers was detected that did not properly declare or remit tax on income arising from these transactions.

The difference between the detected income and the data claimed by the taxpayers in the personal or corporate income tax returns of these entities (including cases in which no tax returns were filed at all) amounted to hundreds of millions of CZK in aggregate.

The tax administration proceeded in a way that minimised the burden on tax subjects, allowing them to declare their tax liability additionally. Based on the tax administrator’s requests, some entities also filed tax returns for periods that were not examined at that stage.

In other cases, the findings made by the tax administrator have been the subject of a tax assessment, so far in 80% of the tax entities audited, and have also led to the identification of other entities suspected of not declaring income from cryptocurrency trading. For example, cases of collective investment of individuals in cryptocurrencies were also detected, where the funds were paid to the bank account of the representative of the investing persons, who then transferred them according to the contract to the accounts of individual investors, most of whom did not fulfil their obligation to declare and pay tax.

The area of cryptocurrency transactions will continue to be subject to the tax administrator’s control activities. On the basis of domestic and international cooperation in the field of taxation, information is exchanged, for example, with the authorities supervising the regulation in the field of anti-money laundering or with foreign tax administrations, which in the course of their activities detect entities that receive income in connection with cryptocurrencies and are residents of the Czech Republic. Cryptocurrency exchanges, crypto exchanges, entities operating cryptocurrency mining and providers of selected types of services specifically related to cryptocurrencies are also of interest.

At the same time, the tax administration provides relevant information to the tax public in order to familiarise taxpayers with the issue in the context of related tax obligations. “Our goal is to ensure that taxpayers are able to fulfil their obligations properly and voluntarily without the need for intervention by the control units of the tax authorities,” adds Jan Ronovský, Deputy Director General of the Tax Administration. In the matter of taxation of income from cryptocurrencies, the Financial Administration is also actively creating directly usable materials on its website.

Taxation of employee’s cars

Taxation of employee’s cars

If you are an employee and have a car available from your employer that you can use for both business and private purposes, this “benefit” is considered as taxable income and added to your tax base in your monthly payroll. So far we have had only one rate how this monthly benefit has been calculated – 1% of the acquisition price (incl. VAT).

From 1 July 2022, an amendment to the Income Tax Act came into force. Newly for low-emission vehicles provided to employees by their employer for business and private purposes only 0.5% of the car acquisition price will be subject to tax every month.

A low-emission vehicle means a road vehicle of category M1, M2 or N1 which does not exceed the CO2 emission limit of 50 g/km and 80 % of the emission limits for air pollutants in real operation as laid down in the respective EU regulation.

Other cars that do not meet the above definition of a low-emission vehicle continue to be subject to monthly payroll withholdings from the 1% of the acquisition price.

This change will take place from payroll for July 2022 (calculated in most cases in the beginning of August 2022).

Support for part-time work

Despite the relatively high overall employment rate in the Czech Republic of the population aged 20-64 (Czech Republic – 80.0%, Poland – 75.4%, Hungary – 78.8%, Slovakia – 74.6 %, EU – 73.1 %), there are still quite large groups of people in the Czech Republic with the opposite very low employment rates. These groups include (i) women caring for young children and relatives (ii) young workers, (iii) senior citizens, (iv) people with disabilities.

Based on the Czech goverment, in order to effectively support part-time work, among other measures, it is necessary to take into account given the dominant share of social security contributions in total labour taxation, to reduce social security contributions on the employer’s side. This measure is expected to naturally encourage employers to create and offer more part-time jobs.

The standard employer rate of social security is 24,8 % of the assessment base. It has been proposed to reduce the social security contributions paid by the employer by 5% under the following conditions:

  1. the employee’s agreed weekly working hours are between 8 and 30 hours (part-time).
  2. the employee’s assessment base does not exceed 1.5 times the average salary
  3. the employee belongs to one of the groups for which employment support is needed:
    A. persons aged 55 years and over;
    B. parents of children under 10 years of age or persons replacing parental care on the basis of the decision of the competent authority for children under 10 years of age;
    C. persons caring for a close person who is dependent on the assistance of another person;
    D. persons studying at secondary school or university;
    E. persons with disabilities on the unprotected labour market;
    F. persons in retraining
    G. A reduction in premiums is also proposed for the group of persons under 21 years of age, regardless of the extent of the agreed working time.

The proposal has already been approved by the Senate. Now only the President’s signature is missing.

Tax Return 2021 – Deadlines

What are the deadlines for filing a Personal Income Tax Return Czech Republic for the 2021 tax period?

The 2021 tax return should be filed no later than three months after the end of the tax period. The last day of the deadline for filing a tax return is 1 April 2022.

If the taxpayer submits the tax return electronically they may do so no later than four months after the end of the tax period, i.e. Monday, 2 May 2022. This deadline does not apply to tax advisers representing the taxpayer.

In case of a taxpayer whose tax return is processed and filed by a tax advisor (based on a Power of Attorney), the tax return is filed no later than six months after the end of the tax period, i.e. 1 July 2022

Tax Return 2021 – Deductions

Do you need some information about Tax Return Czech Republic? Such as what deductions you may be eligible to? Then the below article may provide you with some guidance.

Tax base deductions

Providing all legislative conditions are met, it is possible to lower the tax base by so-called tax base deductions. The main tax base deductions are:

  • The total interest on a mortgage or construction saving loan if used to finance personal housing needs
  • Contributions of up to CZK 24,000 made to supplementary pension insurance or life insurance schemes that comply with specific conditions.
  • Gifts made to certain entities for specific purposes (e.g. humanitarian, charity, ecological purposes) if they amount to at least 2% of the tax base or CZK 1,000. The maximum amount that may be deducted is 30% of the tax base.
  • Unpaid blood donation – CZK 3,000 per donation.

Tax discounts

It is possible to lower the tax liability by applying additional tax discounts. The highest and most common applicable discounts are as follows:

  • Taxpayer’s personal tax discount of CZK 27,840.
  • Spousal tax discount of CZK 24,840 if the spouse lives in the same household as the taxpayer and the spouse’s annual income does not exceed CZK 68,000.
  • Tax discount for dependent children; CZK 15,204 for one child, tax discount of CZK 19,404 for the second child, and tax discount of CZK 24,204 for the third and any additional dependent child.
  • Tax discount for kindergarten fees paid, maximum in the amount of CZK 15,200.

I am here to help you with your Tax Return filing, should you wish. Please do not hesitate to contact me.

Annual Tax Reconciliation (Roční zúčtování daně)

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.

Annual Tax Reconciliation Czech Republic

Who Is Eligible to the ATR?

The ATR for 2021 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 15 February 2022 for the ATR, signs “Žádost o roční zúčtování záloh a daňového zvýhodnění” in Czech
Tax Return Czech Republic

Who Is Obliged to File a Tax Return?

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

  • 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, rental, capital income or other income

Following the abolition of the solidarity tax and introduction of the progressive taxation, there is now no limit of employment income that would require the employee to file a tax return as there was in the past. For 2020 this was the amount of CZK 1,672,080.

In general everyone whose annual income exceeded CZK 15,000 should file a personal income tax return, but employees having only one employment income 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 2021, 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 relevant tax deductions or tax base deductions

Health Insurance Prepayments from January 2022

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 prepayments now.

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

Since 1 January 2022, the minimum advance payments of self-employed persons have been increased to CZK 2,627 (instead of the current CZK 2,393). This amount has to be paid as of the advance payment for January (due date till 8 February 2022).

The OBZP insurance premium and the minimum insurance premium for employees also increases – for 2022 to CZK 2,187 (instead of the current CZK 2,052).

Airbnb providers subject to tax audits (again!)

Airbnb providers subject to tax audits (again!)

As previously informed, tax authority has been again checking on taxpayers who provide accommodation services through Airbnb.

The tax office obtains information on the income of taxpayers doing business through electronic platforms (such as Airbnb) and thus has the data to verify whether or not the taxpayer has fulfilled the tax obligations compared to the filed tax return. 

If you are providing accommodation services, be aware of your obligations! Please find below a short summary of them.

In case of any questions or need of assistance, do not hesitate to reach out.

Main tax and related obligations:

  • Trade licence – accommodation services are considered a trade
  • Business income – accommodation services are considered business income and shall be taxed as such. Therefore, they are also subject to social security and health insurance payments
  • VAT registration – commissions to Airbnb are considered payment for services to a company registered in another EU member state, as such at least light VAT registration (as an identified person) is necessary and VAT should be calculated and paid from these commissions in the CR
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.