The approval of the so-called tax package was preceded by a relatively long process, so it is no wonder that it did not come into effect as of 1 April 2017 as originally planned. The entire legislative process started with the submission of a proposal of the Government to the Chamber of Deputies, which took place on 21 July 2016. Following the Chamber of Deputies’ deliberations, the proposal was referred to the Senate, which tabled the amendments.
On 4 April 2017, the Chamber of Deputies approved the original text of the Act without taking into account the amendments proposed by the Senate, and this version was forwarded to the President of the Czech Republic, who signed it on 28 April. As a result of delays in the legislative process, an interpretation according to which the law will become effective on the 15th day after its publication in the Collection of Laws will be applied in practice; therefore, the tax package will probably be effective as of 1 July 2017 (with publication on 16 June 2017).
The draft law amending certain laws in the field of taxes also brings changes to the Reserve Act in addition to changes to the Income Tax Act.
The major changes in the field of personal income tax relate to the exemption of income from the transfer of a share in a business corporation for a consideration, which is subject to a five-year time test. This period is newly reduced in the case of an acquisition by inheritance by the period during which the share was provably owned by the testator, who was a relative in the direct line or a spouse.
Another novelty is the application of withholding tax on income from agreements to perform work, whose total for the calendar month does not exceed CZK 2,500. The current version of the Income Tax Act established taxation with withholding tax only for agreements to perform work the total income from which does not exceed CZK 10,000 per calendar month. The withholding tax will be paid in both cases only if the taxpayer does not make a tax return for the employer (payer).
Even though the effectiveness of the tax package is expected in the summer of 2017, the above changes will only be effective for taxpayers from 2018. The only exception is the child tax benefit, which will be increased retroactively. Newly, it will be CZK 19,404 for the second child and CZK 24,204 for the third child (and any children after that). In addition to the increase in the tax benefit, legislators have also made changes to employee benefits, in particular tax support for financial security products for old age. In this case, the maximum amount of tax deductions from the tax base has increased from the original CZK 12,000 to CZK 24,000. This change will also apply for the first time for the year 2017.
The amendment to the Income Tax Act will affect entrepreneurs the most. Individuals with income from a self-employed activity will be newly able to claim lump-sum expenses together with the child tax benefit and spouse reduction. As they say, however, nothing is ever free and in this case this is true as well. In connection with this change, taxpayers have to be prepared for reducing the absolute limit for the application of the lump-sum expenses by half, which for example for self-employed persons means lump-sum expenses up to a maximum of CZK 600,000 instead of the original CZK 1,200,000.
Changes also occur in corporate taxation, for example in financial leasing or technical appreciation. In the case of financial leasing, its definition has been clarified, with the consequence that it will only apply to depreciable tangible assets (previously it was possible to acquire intangible assets or assets excluded from depreciation in this way as well). In the case of technical improvement costs, depreciation will also be allowed on the part of the subtenant or new tenant. Currently, this is only allowed to tenants and subtenants.
The amendment will also affect publicly-beneficial taxpayers. The conditions for the possibility to reduce the tax base will be mitigated, but at the same time the time-scale for the use of this tax saving will be harmonised for only one tax period. The current legislation has been considerably more generous to selected publicly-beneficial taxpayers and has enabled the use of this saving in three consecutive tax periods.
Amendments to the Income Tax Act also apply to parent companies. A trust fund or a family fund will be newly considered a parent company if it has at least a 10% share in the registered capital of another business corporation for at least 12 continuous months. As a result, revenue from the profit share received by the trust fund or family fund will be exempt.
Author: Denisa Hlubučková, Accounting and Tax Consultant, e-mail: firstname.lastname@example.org, phone: +420 267 997 713