Novela zakona o danich z prijmu 2021 prosla tretim ctenim

Amendment to the Income Taxes Act 2021 underwent third reading

A tax package of amendments with general effect from 1 January 20211 (more HERE) passed a third reading in the Chamber of Deputies and will go to the Senate (so it may still be subject to changes).   

Below we summarize certain changes that the amendment brings to the area of corporate taxation:

Introduction of meal allowance provided by employer to employee in cash

The new provision introduces an exemption from tax on income of individuals from dependent activities (up to the limit) of allowance for meals provided by employer to employee in cash (alternative to meals allowance in the form of meal vouchers) whilst the value of cash contribution should be regarded as tax deductible expense for employers without limitation.

Changes in taxation of income from bonds

The exemption from taxation of interest income of non-residents arising from bonds issued abroad by taxpayers having their registered seat in the Czech Republic or by the Czech Republic (the so called Eurobonds) is being abolished. In accordance with the new amendment personal income tax taxpayers (both tax residents and non-residents) and also corporate income tax taxpayers who are tax non-residents will generally be subject to a special rate withholding tax on such income (provided they will not be subject to a new type of exemption or transitional provision - see below).

Instead, the amendment contains a provision to exempt from tax income arising from yields on bonds (as defined in the Act on bonds) issued by EU or EEC Member States (irrespective of whether received by a tax resident or non-resident).

The income being the positive difference between the nominal value of the bond paid upon its repayment and the issue price will no longer be a separate tax base for a special tax rate taxation (as it currently is for non-residents and individuals -residents) but the taxpayers shall generally incorporate the difference between the nominal value of the bond upon repayment and its acquisition cost in their tax returns. For taxpayers who are not tax residents of EU or EEC Member States a regime of withholding tax of 1 % made by payer (of the amount paid upon bond maturity) has been set. This is a significant change that will probably bring interpretative ambiguities in the future.

In accordance with transitional provisions the proposed amendment of taxation of income from bonds shall generally be applied on bonds with the issue date on and after the date of effect of this amendment; whilst in accordance with the approved proposed amendment the existing rules are still to be used for the Eurobonds issued by the end of 2021.

Changes to reporting of income paid abroad in compliance with Section 38da of ITA

The notification of income paid abroad in compliance with Section 38da of the Income Taxes Act (ITA) will newly be filed in a double regime depending on whether it is income on which tax is withheld or income which is exempt from tax or is not subject to taxation in the Czech Republic under a relevant double taxation treaty. For income for which tax is withheld the deadline remains the same as to date (i.e. equal to the deadline for the payment of tax which was withheld from the said income). In addition, a special deadline for submitting notification of income that is exempt from or not subject to taxation in the Czech Republic under the relevant double tax treaty has been set. Notification of that income will newly be filed once a year, by the end of January of the following year.

In addition, the amendment also proposes to increase the monthly limit up to which taxpayers are not obliged to file a notification about income paid abroad which is tax exempt or is not subject to taxation in the Czech Republic, from CZK 100,000 to CZK 300,000. It means that taxpayers should assess reaching the CZK 300,000 limit for each calendar month of the respective year and report income for only those months in which the limit was exceeded. 

Also, the range of income released from reporting obligation in compliance with Section 38da of the ITA was extended. Pursuant to Section 38da of the ITA, the payer should not be obliged to report the income that the payer is obliged to report in accordance with Act No. 164/2013 Coll. on International Cooperation in Tax Administration.

In line with the transitional provision the arrangement contained in Section 38da in the current wording should be applied on income on which the taxpayer is obliged to collect or withhold tax before the date the amendment comes into effect or would be obliged to collect or withhold tax if the said income was not exempt from tax and was subject to taxation in the Czech Republic.

Stricter rules for taxation of controlled foreign companies (CFC rules) for entities in a country placed in the list of non-cooperative jurisdictions

Newly a fiction has been introduced that all income from economic activities and disposal of assets of a controlled foreign company that is resident (or a permanent establishment) in a country listed by EU in the list of non-cooperative jurisdictions in taxes shall be considered as income from economic activities and disposal of assets carried out directly by the controlling company on the territory of the Czech Republic (i.e. not only certain categories of income). The rule should be applied in all circumstances, i.e. compliance with the condition of absence of substantial economic activity and 50% tax liability should no longer be required.

Tax deductibility of expenses for free of charge in-kind supplies provided due to COVID-19 outbreak from 1 March 2020 to 31 December 2020

There is an extension of the option to recognize in the tax base expenses incurred for free of charge in-kind supplies provided due to SARS CoV-2 virus for the purposes listed in Section 20, paragraph 8 and Section 15 paragraph 1 of the ITA in the period from 1 March 2020 to 31 December 2020. As per the explanatory memorandum the amendment is aimed at supporting and simplifying administration of the taxpayers who helped addressing the current problems and provided their products or services to the needy free of charge during the state of emergency. 

Abolition of tax amortization for intangible assets 

The abolition of tax amortization for intangible assets is newly introduced. Newly, the expenses related to the acquisition of intangible assets that taxpayers were obliged to amortize for tax purposes, could now be amortized in the same way for tax purposes as for accounting purposes. The new approach should be possible to apply to assets acquired in 2020 already as of 1 January 2020.

Increasing the threshold for classification in the category of tangible assets and their technical improvement to CZK 80 thousand

The threshold is increased for classification in the category of separate movable assets (and other items) for ITA purposes, namely from CZK 40 thousand to CZK 80 thousand. The same threshold is proposed for technical improvements. As a result of this adjustment the set of assets for which tax depreciation differs from accounting depreciation will be reduced. The proposed adjustment will enable taxpayers to claim these expenses faster than it would have been the case if such assets were depreciated for tax purposes. The new approach should be possible to apply to assets acquired and technical appreciation completed in 2020 already starting 1 January 2020.

Extraordinary depreciation of assets in the 1st and 2nd depreciation groups put into use between 1 January 2020 and 31 December 2021

It is proposed to reuse the concept of extraordinary depreciation for tangible assets in the first and second depreciation groups acquired in the period from 1 January 2020 until 31 December 2021. Only the first person using depreciation can apply the extraordinary depreciation concept. Taxpayers will be allowed to depreciate assets classified in the first depreciation group for 12 months and assets in the second depreciation group for 24 months (whilst depreciation up to 60% of input price will be applied during the first 12 months and the rest during the remaining 12 months). In accordance with the general rules taxpayers should depreciate tangible assets classified in the first depreciation group over three years and assets classified in the second depreciation group over five years - i.e. the tax base will be reduced by this expense earlier. The proposed adjustment should be possible to apply to the above already as of 1 January 2020.

In our next alert we will inform you about changes in taxation of individuals. If you have any questions, please contact your favorite tax advisors.

Authors:

Lucie Říhová
+420 731 627 058

Karel Hronek
+420 731 627 065

Hana Cicvárková
+420 603 577 903

References:

[1] Considering uncertainty regarding the timing of further approval process rather more precisely as of the first date of the calendar month following its publication, however, as of 1 January 2021 at the earliest.