Czech Republic: Proposed direct and indirect tax changes

The government at the beginning of May announced the following proposed direct and indirect tax changes expected to apply beginning 1 January 2024. 

• Tax rate increase: Two-percentage point increase in the standard corporate income tax rate from 19% to 21%
• Limitation of tax deductibility of certain costs:
  • Introduction of CZK 2 million limit for determining the input price of passenger cars for business purposes (i.e., any depreciation on the input price above CZK 2 million would be tax ineffective)
  • Elimination of tax deductibility of non-sparkling wine as a gift up to CZK 500
  • Elimination of tax deduction of payments for examinations verifying the results of further education

• Extension of progression: Reduction in the threshold for applying the 23% tax rate from four to three times the average wage (on a monthly basis). At the current average wage level, this means that the annual tax base of up to approximately CZK 1,450,000 will be taxed at a 15% tax rate, and the part of the tax base exceeding this value will be taxed at a rate of 23% (the current threshold from which the higher rate applies is approximately CZK 1,935,000).
• Elimination of exemptions for non-monetary benefits: Elimination of the exemption of non-monetary benefits provided by the employer to the employee or their family members would also mean that these non-monetary benefits would now be subject to social insurance and therefore taxed in the same way as wages. This regime should also apply to above-limit meal vouchers.
• Elimination of certain deductions and discounts:
  • Contributions to trade unions
  • Spousal deduction, deduction for a student, deduction for the placement of a child in a pre-school institution
• Restrictions on exemptions for sales of securities and shares: If the established time test for the sale of securities (three years) or shares in companies (five years) is met, only income up to CZK 40 million per taxpayer would be tax exempt.
• Sweepstakes and gambling: The limit for exempting income from sweepstakes and gambling would be reduced from the current CZK 1 million to CZK 50,000.

The second tax rate for selected gambling operators would be increased from the current 23% to 30%.

The basic real estate tax rate would be increased by introducing a state coefficient, and all real estate tax rates would be automatically indexed for inflation from 2023.

The current rates of VAT would be merged into two rates of 12% and 21%. In addition, certain activities that were included in the reduced VAT rate because of the coronavirus (COVID-19) pandemic (e.g., hairdressing services, shoe repairs, collection, transport, and the storage of municipal waste) would be moved to the basic VAT rate. However, a special zero VAT rate would apply to books.

Excise duties on tobacco and alcohol and on gambling would be increased.

Legislative language for the proposals must be published, which would begin the comment procedure. The proposals likely will be discussed in the chamber of deputies in June. In view of the public debate, it can be expected that the proposals will be amended.

Read a May 2023 report prepared by the KPMG member firm in the Czech Republic