The Czech government recently approved a proposal for making significant tax, social security and health insurance reforms. The objective of the reforms is to simplify the tax system (primarily in direct taxation) and to create conditions for establishing the Single Collection Point (a concept where the responsibility for collecting social security and public health insurance payments will pass from the existing institutions, ie social security authorities and health insurers, to tax administration bodies). The key changes listed below are proposed to be effective from 1 January 2013.
Income tax changes.
- Abolishing the “super-gross salary” concept, ie the income tax base and individual insurance bases will be determined by reference to the gross salary;
- Increasing personal income tax from 15% to 19% – however, this will not lead to a significant increase in the tax burden as a result of the abolishment of the super-gross salary concept;
- Introducing tax allowances for employees up to CZK 3,000 per annum, which shall offset the abolishment of certain tax exemptions (for eg meal vouchers, free or discounted tickets, advantageous loans from employers, etc);
- Reducing housing support – the interest deduction will be capped at CZK 80,000;
- Limiting the exemption of non-cash benefits in the form of recreation, healthcare, education, sport and other facilities and contributions to cultural and sport events for employees and their family members to CZK 10,000 per annum;
- Simplifying tax-deductible provisions for receivables – tax-deductible provisions for receivables due by more than 18 months (36 months) can be charged at 50% (100%);
- Decreasing the tax rate for investment, mutual and pension funds from 5% to 0%;
- Extending R&D support in the form of tax relief – advantages for cooperation in R&D among universities, public research institutions and the business sector;
- Introducing a single maximum limit for deducting gifts for charitable purposes of 10%;
- Introducing a “payment from the total of salaries” concept, which should replace the social security, public health and accident insurance paid by the employer. The basis for the payment will be the total of the income of employees from dependent activities and employee benefits, the limit being determined as 48x the average salary and the number of employees. The payment period will be the calendar year and the payment will be made in prepayments;
- Introducing monthly income tax prepayments (payers whose latest income tax payment is CZK 200,000 or lower will not be obliged to make a prepayment);
Social security and public health insurance changes.
- Introducing a single rate of 6.5% for public health insurance and pension insurance paid by the employer. It is proposed to cap the public health insurance and social security at the level of 72x the average salary and 48x the average salary, respectively.
- Harmonizing taxation periods of personal income tax, social security and public health;
- Filing tax and insurance in one form and settlement in one payment;
- Obliging companies having a data deposit box (to deliver documents to and from the financial authorities) and/or with financial statements being subject to an audit to make selected filings (eg tax returns, registration application, etc) solely in electronic form;
- Decreasing the turnover for the obligatory VAT registration from CZK 1,000,000 to CZK 750,000.
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