From 1 January 2025, a number of important legislative changes came into effect that will have an impact on employees and employers in the Czech Republic. Below, we present an overview of the key changes, which include the increase in the maximum annual assessment base and threshold for applying progressive tax, the rise in the minimum wage, and changes to travel allowances and employee meal allowances.
WHY THIS MATTERS
- The increase in the maximum annual assessment base for social security contributions means that once employees reach this threshold, neither they nor their employers will pay additional contributions.
- The higher threshold for the 23-percent tax rate allows more income to be taxed at the lower 15-percent rate, which potentially lowers the income tax burden for some taxpayers.
- The minimum wage increase raises the minimum assessment base for health insurance, affecting payroll calculations.
- The introduction of a discount on social security premiums for working pensioners provides financial relief for this group.
- A positive change for 2025 is the introduction of a new limit for employees' in-kind benefits. Health-related benefits are now exempt from tax, social security, and health contributions up to the average wage, set at CZK 46,557 for 2025.
Overall, these changes require employers to adjust payroll systems and financial planning to align with the new regulations.
More Details
Increases in Maximum Annual Assessment Base and Threshold for Applying Progressive Tax
For 2025, the maximum annual assessment base for social security contributions has been increased to CZK 2,234,736 (up by CZK 124,320 over the previous year). Once the income threshold is reached, no further social security contributions shall be paid by the employee nor the employer.
At the same time, the threshold for the application of the 23-percent tax rate has been increased to an annual income of CZK 1,676,052, which corresponds to a monthly income above CZK 139,671. Income below this threshold will continue to be subject to income tax at a 15-percent rate.
Minimum Wage Increase
From January 2025, the minimum wage has been increased from CZK 18,900 to CZK 20,800 for a fixed weekly working time of 40 hours; the hourly minimum wage is CZK 124.40.1
As a result, the minimum monthly assessment base for the health insurance of employees has also increased.
Changes to Exemption of Non-Financial Benefits
At the end of last year, an amendment to the Income Tax Act was approved2 singling out health-related benefits from employee non-cash benefits and setting a new limit up to which they are exempt from tax and social security and health contributions, at the amount of the average wage, i.e., CZK 46,557 for 2025.
The exemption limit for the remaining leisure-related non-financial benefits remains at 50 percent of the average wage, i.e., CZK 23,278.50 for 2025.
Benefits above these limits will be subject to taxation, social security, and health insurance contributions.
Changes in Domestic and Foreign Travel Allowances
Decree No. 475/20243 as of 1 January 2025, increased the minimum basic compensation for the use of a passenger motor vehicle on a business trip from CZK 5.60 to CZK 5.80 per km.
Meal allowances for domestic business trips have also risen.
Provisions in Decree No. 373/20244 Coll. increased foreign meal allowances for some countries.
Lump-Sum Compensation for Remote Work
The lump-sum compensation for expenses related to remote work (home office), which employers can provide under the Labour Code, has been increased from CZK 4.50 to CZK 4.80 per hour.
Employee Meal Allowances
Both financial and non-financial allowances are exempt up to an aggregate of 70 percent of the upper limit of the meal allowance that can be provided to salaried employees for domestic business trips of 5 to 12 hours. For 2025, an allowance of CZK 123.90 is thus exempt.
The meal allowance exemption is nonetheless conditional upon the employee having worked at least three hours per shift; employees without a set shift (e.g., employees of statutory bodies) must work at least three hours per calendar day. At the same time, employees must not be entitled to a meal allowance as part of a travel allowance.
Employees will be entitled to an additional exempt allowance (in the same amount) if the total shift including breaks exceeds 11 hours (employees without a set shift must work at least 11 hours per calendar day).
Planned Introduction of a Notified Agreement Regime for Agreements on Work Performed Outside Employment Has Been Abolished
Employers remain obliged to report on a monthly basis all employees working under such agreements to the Czech Social Security Administration. The limit for social security and health insurance contributions has been changed, as has the taxation of income from such agreements.5
From 1 January 2025, the limit for social security and health insurance contributions for employees working under agreements to perform work has been set at 25 percent of the average wage, i.e., for 2025 at CZK 11,500. This limit also has an impact on withholding tax on the agreements: it will only apply if the income from the agreement does not reach this threshold and the employee does not sign a taxpayer’s statement.
Discount on Social Security Premiums for Working Pensioners
From 2025, a discount on the social security premium at 6.5 percent of the employee's assessment base has been introduced for working pensioners receiving an old-age pension.6 Instead of the current rate of 7.1 percent, employers will only deduct 0.6 percent. The discount is intended to compensate working pensioners for the abolition of the possibility to increase their pension by the years worked after they began to draw their retirement pension. However, employers will continue to pay the employer's portion of social security contributions at the full rate of 24.8 percent of the working pensioner's assessment base.
Other
Certain other changes to employee taxation expected in 2025 (e.g., changes to employee stock option plans) are pending in the Senate.
KPMG INSIGHTS
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Footnotes:
1 Ministerstvo práce a sociálních věcí, “Minimální mzda“ (in Czech).
2 Zákon č. 470/2024 Sb. (“Act No. 470/2024 which changes Act on Employment and Income Tax Act”) at: 470/2024 Sb., 27. 12. 2024, vyhlášené znění, informativní znění systému e-Sbírka (in Czech).
3 Vyhláška č. 373/2024 Sb. (“Decree No. 373/2024 regarding the foreign travel allowances”) at: 373/2024 Sb., 1. 1. 2025, aktuální znění, informativní znění systému e-Sbírka (in Czech).
4 Vyhláška č. 475/2024 Sb. (“Decree No. 475/2024 Coll. Regarding the employee’s business trips allowances”) at: 475/2024 Sb., 27. 12. 2024, vyhlášené znění, informativní znění systému e-Sbírka (in Czech).
5 See footnote 2.
6 Zákon č. 417/2024 Sb. (“Amendment of the Act on Social Security Contributions No. 589/1992 Coll.”) at: 417/2024 Sb., 1. 1. 2025, aktuální znění, informativní znění systému e-Sbírka (in Czech).
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CZK 1 = EUR 0.039
CZK 1 = GBP 0.033
CZK 1 = USD 0.04
CZK 1 = CHF 0.037
Source: www.xe.com
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