Overview of legislative changes in 2024
Overview of legislative changes in 2024
Several significant tax changes brought about by the government's consolidation package will take effect from the beginning of 2024.
The government's consolidation package, which aims to reduce the public deficit, will affect the majority of the Czech population. The average impact on taxpayers is expected to be around 2-5% of gross wages. Below is an overview of the most important changes resulting from the government's consolidation package, which will be felt by taxpayers as early as 2024.
For the purposes of the advance tax on income from employment, the threshold for applying the 23% tax rate is reduced from four times the average wage (CZK 161,296 for 2023) to three times the average wage (CZK 131,901 for 2024).
The Child Placement Tax Credit and Student Tax Credit are abolished from 2024.
especially benefits and other compensation beyond remuneration for work. Employers should therefore carefully examine how these are set up.
Although the government has abandoned its original proposal to completely abolish tax advantages for non-cash employee benefits in the form of allowances for culture, sport, recreation, health care, use of preschool childcare facilities or the purchase of books, the consolidation package introduces restrictions on their exemption from employment tax. Starting this year, the non-cash benefits listed above will be subject to a single aggregate annual exemption limit of half of the average wage, which amounts to CZK 21,983 for 2024.
Non-monetary benefits provided to employees up to this limit will be exempt from employment tax. The value of non-monetary benefits exceeding this limit will already be considered taxable income of the employee and subject to social and health insurance contributions. Employees can be expected to be less interested in benefits that will have to be taxed. At the same time, they can also expect employers to restrict benefits.
In view of the fundamental change in employee benefits, the General Financial Directorate has issued a Methodological Information on the taxation of benefits and other compensation provided by employers to employees from 1 January 2024. We examine this information in a separate article.
For shifts longer than 11 hours, the amendment will permit an additional meal allowance with a specified tax exemption scheme. At the same time, the possibility to provide a meal allowance for employees who do not work in shifts (e.g. executives) and work at least three hours per calendar day has been added.
The consolidation package extended the set of transactions outside the subject of the tax, where the income of an employee in the form of small refreshments at the workplace or a working lunch is not subject to taxation. This is because these transactions are deemed to create working conditions in certain circumstances and as such are not subject to taxation.
The above-mentioned Methodological Information of the General Financial Directorate also deals with the taxation rules for employee meals.
The practical impact of this new regulation is a change in the exemption limits for certain types of income.
The amended wording introduces a new aggregate exemption limit for other income of CZK 50,000.
It will be applied individually to each type of income according to the exhaustive list in the Act (e.g. income from casual activities, winnings from gambling except lotteries and raffles, or the residual category of income, which includes, among others, currency exchange rate differences and state aid for building savings).
Income that is subject to withholding tax or that forms part of a separate tax base will then be considered individually for the purposes of the annual limit of CZK 50,000 (e.g. winnings from consumer competitions, lotteries and raffles, share of the liquidation balance, etc.).
pay a new 0.6% sickness insurance contribution in January wages. The sickness insurance assessment base is subject to a maximum assessment base similar to that for pension insurance.
The minimum premium for self-employed people who pay the minimum social security contributions will gradually increase due to the increase in the minimum assessment base. This is set to rise by 5% per year. From the current 25% of the average wage, this will be increased to 30% of the average wage in 2024. The minimum deposit payable in January 2024 will thus amount to CZK 3,852 for the main activity and CZK 1,413 for the secondary activity.
From 2024, self-employed people who pay more than the minimum levy will calculate social security contributions from an assessment base of 55% of the partial tax base for self-employment (previously 50%). This change does not affect health insurance.
The consolidation package also modifies the social security and health insurance contributions on agreements on the performance of work. Here, however, the relevant provisions are only effective from 1 July 2024, and their wording can be expected to be adjusted before they come into force.
From 2024 onwards, only two VAT rates will be applied, the standard 21% and the reduced 12%. This will lead to the reclassification of certain goods and services to a different rate.
Selected goods and services for which the VAT rate will be reduced from 15% to 12%:
Goods and services for which the VAT rate will be reduced from 21% to 12%:
Selected goods and services for which the VAT rate will increase from 10% to 12%:
Selected goods and services for which the VAT rate will increase from 10% or 15% to 21%:
Printed and electronic books will now be exempt from VAT with the right to deduct. Lending and rental of these books will also be subject to this exemption.
The tax increase on electronic cigarettes is to be carried out in accordance with a 2.5 + 5.0 + 7.5 + 10 CZK/1 ml of refill scheme, and on nicotine pouches at 0.4 + 0.8 + 1.2 +1.7 CZK/g. In addition, the proposal includes a 15% increase in the tax on heated tobacco each year from 2024 to 2027.
from property taxes will remain with the municipalities. At the same time, municipalities will be given more power to tax agricultural land. There will also be a new inflation factor that will automatically increase property taxes by the rate of inflation for the previous period.
The tax rate on gambling is increased to 30% (from 23% previously). The tax rate on lotteries and technical games remains at 35%.
The government's consolidation package, which aims to reduce the public deficit, will affect the majority of the Czech population. The average impact on taxpayers is expected to be around 2-5% of gross wages. Below is an overview of the most important changes resulting from the government's consolidation package, which will be felt by taxpayers as early as 2024.
Increase in the corporate income tax rate
The corporate tax rate will increase from the current 19% to 21%. The tax rate increase applies to all tax years beginning after 1 January 2024 inclusive.Personal income tax rates - reduction of the threshold for the higher tax rate
The personal income tax rates in the Czech Republic are 15% and 23%. The higher rate applies if the aggregate tax base exceeds a certain threshold. Until 2023, the threshold was 48 times the average wage (CZK 1,935,552 for 2023). From 2024, the threshold is reduced to 36 times the average wage (CZK 1,582,812 for 2024).For the purposes of the advance tax on income from employment, the threshold for applying the 23% tax rate is reduced from four times the average wage (CZK 161,296 for 2023) to three times the average wage (CZK 131,901 for 2024).
Tightening the criteria for claiming the spouse discount and elimination of selected discounts
Until now, a taxpayer could claim a tax rebate for a spouse with an annual income of less than CZK 68,000 if the spouses lived in a joint household. Under the new legislation in force for 2024 (and thus applicable to tax returns filed in 2025), the tax credit applies only to taxpayers living in a joint household with a dependent child of the taxpayer under three years of age.The Child Placement Tax Credit and Student Tax Credit are abolished from 2024.
"Leisure" employee benefits
Many of the amended provisions in the consolidation package concern the income of employees,especially benefits and other compensation beyond remuneration for work. Employers should therefore carefully examine how these are set up.
Although the government has abandoned its original proposal to completely abolish tax advantages for non-cash employee benefits in the form of allowances for culture, sport, recreation, health care, use of preschool childcare facilities or the purchase of books, the consolidation package introduces restrictions on their exemption from employment tax. Starting this year, the non-cash benefits listed above will be subject to a single aggregate annual exemption limit of half of the average wage, which amounts to CZK 21,983 for 2024.
Non-monetary benefits provided to employees up to this limit will be exempt from employment tax. The value of non-monetary benefits exceeding this limit will already be considered taxable income of the employee and subject to social and health insurance contributions. Employees can be expected to be less interested in benefits that will have to be taxed. At the same time, they can also expect employers to restrict benefits.
In view of the fundamental change in employee benefits, the General Financial Directorate has issued a Methodological Information on the taxation of benefits and other compensation provided by employers to employees from 1 January 2024. We examine this information in a separate article.
Taxation rules for employee meals and refreshments
The exemption for the provision of meals and the non-monetary contribution to meals (meal vouchers) is now limited to a maximum amount identical to the cash contribution to meals. The exemption can be claimed if the employee works at least three hours per shift.For shifts longer than 11 hours, the amendment will permit an additional meal allowance with a specified tax exemption scheme. At the same time, the possibility to provide a meal allowance for employees who do not work in shifts (e.g. executives) and work at least three hours per calendar day has been added.
The consolidation package extended the set of transactions outside the subject of the tax, where the income of an employee in the form of small refreshments at the workplace or a working lunch is not subject to taxation. This is because these transactions are deemed to create working conditions in certain circumstances and as such are not subject to taxation.
The above-mentioned Methodological Information of the General Financial Directorate also deals with the taxation rules for employee meals.
Taxation of other income and exemption of personal income
The consolidation package changes the concept of exemption of certain personal income. Income such as winnings from consumer competitions, state aid for building savings or exchange rate differences on money exchanges will now be exempt under the provisions governing other income.The practical impact of this new regulation is a change in the exemption limits for certain types of income.
The amended wording introduces a new aggregate exemption limit for other income of CZK 50,000.
It will be applied individually to each type of income according to the exhaustive list in the Act (e.g. income from casual activities, winnings from gambling except lotteries and raffles, or the residual category of income, which includes, among others, currency exchange rate differences and state aid for building savings).
Income that is subject to withholding tax or that forms part of a separate tax base will then be considered individually for the purposes of the annual limit of CZK 50,000 (e.g. winnings from consumer competitions, lotteries and raffles, share of the liquidation balance, etc.).
Changes to insurance levies
The consolidation package also introduces changes to insurance levies. Employees will no longerpay a new 0.6% sickness insurance contribution in January wages. The sickness insurance assessment base is subject to a maximum assessment base similar to that for pension insurance.
The minimum premium for self-employed people who pay the minimum social security contributions will gradually increase due to the increase in the minimum assessment base. This is set to rise by 5% per year. From the current 25% of the average wage, this will be increased to 30% of the average wage in 2024. The minimum deposit payable in January 2024 will thus amount to CZK 3,852 for the main activity and CZK 1,413 for the secondary activity.
From 2024, self-employed people who pay more than the minimum levy will calculate social security contributions from an assessment base of 55% of the partial tax base for self-employment (previously 50%). This change does not affect health insurance.
The consolidation package also modifies the social security and health insurance contributions on agreements on the performance of work. Here, however, the relevant provisions are only effective from 1 July 2024, and their wording can be expected to be adjusted before they come into force.
Taxation only of realised exchange rate differences
Starting in 2024, companies may exclude unrealised exchange rate differences from the tax base, a requirement that was previously mandatory. This income will now be deemed tax-ineffective and will only be taxed in the period when the exchange rate difference is realised. This arrangement must be notified to the tax authorities.Use of an emission-free vehicle for private purposes
The tax on the employee's non-cash income for an emission-free passenger car used for both business and private purposes will be 0.25% of the entry price of the car.Limitation of the deductibility of the amount for the acquisition of a passenger car
Starting in 2024, the maximum tax-deductible amount for the acquisition of a passenger car (M1 category) will be limited to CZK 2 million. This will be similar for the purchase of a car on an operating or finance lease.VAT
Regarding the limitation on the deductibility of the amount for car purchases in terms of income tax, the application of the VAT deduction will also be limited. For passenger car purchases, it will be possible to claim a maximum deduction of CZK 420,000. This is the amount of VAT attributable to the purchase of a car for CZK 2,000,000 excluding VAT.From 2024 onwards, only two VAT rates will be applied, the standard 21% and the reduced 12%. This will lead to the reclassification of certain goods and services to a different rate.
Selected goods and services for which the VAT rate will be reduced from 15% to 12%:
- food;
- tap water;
- medical devices;
- child car seats;
- properties for social housing;
- construction work on single family homes and apartment buildings;
- funeral services.
Goods and services for which the VAT rate will be reduced from 21% to 12%:
- occasional (irregular) public bus transport of passengers;
- disposable medical and diagnostic devices and their repairs.
Selected goods and services for which the VAT rate will increase from 10% to 12%:
- accommodation and catering services;
- water and sewerage charges;
- heating and cooling;
- medications;
- newspapers, magazines and their rental or lending;
- tickets for sports and cultural events;
- Turkish and steam baths, saunas and salt caves.
Selected goods and services for which the VAT rate will increase from 10% or 15% to 21%:
- most drinks, including draft beer;
- hairdressing services;
- services of authors and artists;
- collection, transport and disposal of municipal waste;
- repair of footwear, clothing, leather goods and bicycles;
- household cleaning work;
- firewood and cut flowers.
Printed and electronic books will now be exempt from VAT with the right to deduct. Lending and rental of these books will also be subject to this exemption.
Excise duty on alcohol
Excise duties on alcohol will gradually increase over three years, with increases of 10% in 2024, 10% in 2025 and 5% in 2026. There will also be an increase in the security of the alcohol tax for tax warehouse operators.Excise duty on nicotine
According to the proposal, the taxation of tobacco products and alternative products (e.g. electronic cigarettes, nicotine pouches, etc.) should increase over the next four years. Excise duty on cigarettes, smoking tobacco, cigars and cigarillos will increase by 10% in 2024, and by 5% in each of 2025, 2026 and 2027.The tax increase on electronic cigarettes is to be carried out in accordance with a 2.5 + 5.0 + 7.5 + 10 CZK/1 ml of refill scheme, and on nicotine pouches at 0.4 + 0.8 + 1.2 +1.7 CZK/g. In addition, the proposal includes a 15% increase in the tax on heated tobacco each year from 2024 to 2027.
Excise duty on aviation fuel
The exemption for aviation fuel for any domestic transport (including air ambulance services) is removed.Real estate tax
Real estate tax rates will increase to 1.8 times the current rates on average. All incomefrom property taxes will remain with the municipalities. At the same time, municipalities will be given more power to tax agricultural land. There will also be a new inflation factor that will automatically increase property taxes by the rate of inflation for the previous period.
Gambling tax
From 2024, the tax on one gaming machine will increase to CZK 13,400 (from the previous CZK 9,200). The redistribution of the proceeds of this tax will also change. The state will now receive 55% of all revenues and the rest will be distributed to municipalities according to set criteria.The tax rate on gambling is increased to 30% (from 23% previously). The tax rate on lotteries and technical games remains at 35%.