Czech Republic: Amendments to income tax provisions in consolidation package approved by lower house of Parliament

During the discussion of an amendment to the Act on Investment Companies (Print 570), the Chamber of Deputies approved technical amendments to certain income tax provisions in the 2023 consolidation package. The amendments are expected to be approved by the Senate and signed by the president. 

Individual (personal) income tax

• Events organized by employers: Tax-exempt cultural and sports events organized by employers for employees and their family members would be redefined as employer-organized social events, including those having cultural or sporting elements. 
• Determining the amount of non-financial income related to pre-school facilities: A special method to determine the amount of non-financial income of an employee using facilities caring for pre-school children would be introduced.
• Meals for former employees: The range of employees for whom it will be possible to exempt from tax up to the statutory limit the non-financial benefits in the form of meals for direct consumption at the workplace or for direct consumption at a catering facility operated by another entity would be expanded.
• Less strict condition for exempting income if used for one’s own housing needs: The notification condition for the exemption of income from the sale of real estate in which the taxpayer has resided for less than two years or has owned for less than 10 years if the taxpayer uses the funds to provide for their own housing needs would be changed.
• Statutory insurance premium payments for employee stock option plans: Insurance regulations with the already valid tax regulations concerning the acquisition of shares in a business corporation or (transferable) options to acquire such shares by an employee under employee stock option plans would be synchronized.
• Income tax and statutory insurance payments for concurring agreements to perform work (outside employment): The problematic changes resulting from the consolidation package concerning agreements to perform work outside employment, which were due to come into force on 1 July 2024, would be abolished. A special “notified agreement” scheme would be introduced effective 1 January 2025. For employees under the notified agreement scheme, the obligation to participate in sickness and health insurance would only arise in the relevant month once the threshold of 25% of the average wage (CZK 10,500 per month if this were 2024) is reached. 

Corporate income tax

• Exclusion of unrealized FX differences from income tax base and transition to functional currency: The consolidation package introduced the possibility for taxpayers to apply the regime of exclusion of unrealized FX differences for corporate income tax purposes. The range of cases in which this regime automatically ceases, by operation of law, would be extended to situations involving a transition to a functional currency in accordance with the Accounting Act.
• Functional currency and foreign currency translation for the purpose of income tax return preparation: Taxpayers who use their functional currency in their accounting must still file their income tax returns in Czech crowns. Their fixed assets, debts, provisions created for tax purposes, and other items whose method of creation or application is regulated by the law governing income taxes are then recorded in the accounting currency. The FX rates to be used to translate fixed assets, debts, provisions created for income tax purposes, and other items measured in the accounting currency that arose in a currency different from the accounting currency would be specified.
• Non-deductible expenses related to employee benefits: The employer's expenses for social events, including those with cultural or sporting elements, would be added to the list of expenses non-deductible on the employer’s part so that the wording matches the one for the purposes of exemption of such expenses on the employee's part.

Most provisions on corporate income tax are proposed to take effect on 1 July 2024, or their effective date has been linked to their publication in the Collection of Laws.

Read an April 2024 report prepared by the KPMG member firm in the Czech Republic