At the beginning of June, the Chamber of Deputies of the Czech Parliament has discussed the amendments proposed by the Government to the Income Tax Act. The reform envisages the introduction of a flat rate of 15% on the income of individuals. The tax base for employees would include the gross salary increased by the employer’s health and social insurance contributions (35% of gross salary) and not be reduced by the employee’s contributions.Considering the present tax base, the flat rate tax would be approximately 23.14%.
The reform also brings changes in the treatment of salaries and benefits by applying the principle in the new Labour Code according to which expenses arising from the rights of employees established in collective agreements, internal regulations, employment or other contracts are tax deductible for employers. Hence, the limits on the deductibility of expenses for transport of employees to work, temporary accommodation, and contributions to supplementary pension insurance and life assurance plans are removed.
Expenses related to staff canteens, meal vouchers, drinks provided for consumption in the workplace and vouchers for cultural programmes, sports events, recreational facilities will not be deductible. At the same time, however, the scope of the exemptions for employees for certain non-monetary benefits has been modified.
In the framework of personal income tax, an increase of the annual tax deduction is proposed. At the same time tax exemptions of the in-kind benefits provided by employers, such as recreational, healthcare and training facilities, pre-school facilities, company libraries, sports facilities, and contributions to cultural programmes and sports events remain unchanged.
The amount of deductible lump-sum expenses for determining personal income tax from entrepreneurial activities and other income from self-employment is not limited. However, if the tax payer uses the percentage deduction method, the costs related constitute all deductible costs, i.e. it will not be possible to deduct social security and health insurance contributions.
Provided that certain conditions are met, employers’ contributions to supplementary pension insurance and life insurance will be tax exempt for the employee up to CZK 24,000 yearly. Several other exemptions applying to employees will also be modified (e.g. temporary accommodation).