New tax package – changes in personal taxation
In June of this year, the government submitted a proposal to the Chamber of Deputies for several fundamental tax changes. Proceedings in the Chamber of Deputies lasted until one in the morning, several amendments were approved (especially from Mikuláš Ferjenčík) and it is still not clear what the final form of the changes will be, which are intended from 1 January 2021.
What changes does the tax package bring:
1. Abolition of super-gross wage and new personal income taxation.
Undoubtedly, the most anticipated part of the tax package is the abolition of the so-called “super-gross wage” and the solidarity tax.
In the case of self-employed persons wage taxation, the change is positive – there is an effective reduction of the tax rate. So far, the basic rate was 15% (effective taxation was around 20%) and when the income for a calendar year exceeded 48 times the average (in 2021: CZK 1,701,168), a solidarity tax of 7% was added. However, the tax base was no longer increased by social insurance (due to reaching the ceiling). Meaning that the effective tax rate was in principle still around 20-22%. With this proposal, it will be a sliding progressive taxation, where persons with income below the previously mentioned rate will have a rate of 15% (meaning tax reduction), higher income will be taxed at a rate of 23% (basically unchanged).
For taxation of income from capital assets, real estate and other income, the change is negative – there is an increase in the tax on higher income from the current 15% to 23% (in the case of income over 1,701,168).
2. Increase of the basic personal tax relief
The tax package also envisages an increase of the basic personal tax relief. The discount, which now amounts to CZK 24,840 per year, would thus increase to CZK 34,125 (determined as the average wage for the previous year). Personally, we consider it appropriate to set the personal tax relief in a way that reflects the ever-increasing wages in the economy and accepts the existence of inflation.
However, the Minister of Finance opposes the adoption of this provision, who considers it a mere alternative to the abolition of the super-gross wage. The president said that he will veto the tax package unless the increase of the basic personal relief will be dropped.
3. Restrictions on exemptions from the transfer of securities for consideration
The current legislation exempts from income tax the transfer for consideration of a security without any limit if there is a period of at least 3 years between the acquisition and the transfer for consideration (5 years for equity). The amendment would set a limit of CZK 20,000,000 for this exemption. However, this provision is confusing as the draft amendment does not clearly define to which cases it would apply (one sale per year or per day, one security or a total of securities).
It is also not explained (this is a parliamentary proposal without an explanatory memorandum and transitional provisions) why, in the case of a limited liability company, the above will apply to equites (which are securities and therefore will be subject to the above restrictions) and will not apply to classical shares in the limited liability companies. Maybe we will face a mass flight from joint stock companies and limited liability companies with issued equities.
4. Meal voucher
The amendment also brings a new alternative to the contribution for meal for employees, which until now was basically either provided in the form of meal vouchers or company cafeteria. A new alternative is the possibility of providing employees with a cash contribution, which will be exempt from income tax and social security and health insurance up to the amount specified by law (in 2020 it was CZK 72.10 per shift).
On 22nd December 2020, the Chamber of Deputies approved the Senate version. Thus, the following additional changes occur: the taxpayer’s discount will be increased by only CZK 3,000 and the following year also by CZK 3,000, the restriction on the exemption from the transfer of securities for consideration was dropped.
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