Employers will have to track the value of non-cash benefits provided to their employees from next year
Although the government has abandoned its original proposal to completely abolish the tax advantage of non-cash employee benefits, the consolidation package introduces restrictions on their exemption from employment tax.
Up to now, the following types of non-monetary benefits for employees:
- goods and services of a medical or therapeutic nature;
- recreation and trips;
- pre-school and sports facilities;
- tickets to cultural or sporting events;
- printed books;
were exempt from employment income tax on the part of the employee, regardless of the amount provided (except for recreation and trips, which were exempt only up to CZK 20,000).
From next year, all types of non-cash benefits will be subject to a single aggregate annual limit for their exemption of half of the average wage, which for 2024 is CZK 21,983. Non-monetary benefits provided to employees up to this limit will be exempt from employment tax, while the value of non-monetary benefits exceeding this limit will be considered taxable income of the employee with the obligation to pay social and health insurance contributions.
The employer will exclude expenses for non-monetary benefits exempt from tax on the part of the employee from tax deductible expenses (the exception is expenses for the operation of the employer's own pre-school, which are always tax deductible). However, if the employee's non-monetary income exceeds the exemption limit, the value of the income in excess of the limit will be a tax-deductible expense on the employer's side (if provided for in the employer's internal regulations, collective or other agreement).
In addition, the consolidation package introduces a new type of exemption for employee income from participation in sporting or cultural events organised by the employer for a limited number of participants. Take, for example, company Christmas parties with a cultural programme or various teambuilding events. These events are treated separately, and their exemption will not be limited in any way. They will therefore not count towards the employee's limit for the exemption of non-monetary benefits.
The exemption of non-cash benefits up to CZK 2,000, which were provided to employees from the cultural and social needs fund (analogously paid from after-tax profits), was completely dropped from the consolidation package.
The wording of the new law also directly implies that small snacks provided by the employer to employees at the workplace (e.g. fruit, sandwiches, etc.) will not be subject to employment tax. On the employer's side, it will be a non-tax expense incurred for representation.
We therefore recommend that all employers prepare for the new regulation and evaluate how they will monitor the value of non-cash benefits.