Czech Republic: Proposed Income Tax Changes

The Czech government has adopted a preliminary plan for making further tax changes to be effective from 2013. Given that the principles of the approved changes are becoming clearer, we have summarized information on the most important changes in the area of income tax.

Solidarity surcharge.
For the transitory period of 2013-2015, the introduction of a solidarity surcharge in the amount of 7% of the annual tax base exceeding 48-times the average salary for social security purposes (currently CZK 1,206,576, i.e. approx. EUR 48,000) is being proposed with regard to personal income tax from dependent activities and entrepreneurial activity of individuals.
 
20% Personal income tax rate.
With effect from 1 January 2014, a 20% personal income tax rate should be introduced, which should be calculated from the gross salary instead of the super-gross salary which has been applied so far.

Increase of withholding tax rate for non-residents.
Pursuant to the current wording of the Income Tax Act, a 15% withholding tax applies to selected income realized by foreign tax residents in the Czech Republic. An increase in this tax rate to 35% is being proposed. However, this rate will only apply to residents of those states with which the Czech Republic has not concluded a double taxation treaty.
 
Cancellation of the basic deduction for working pensioners.
The cancellation of the basic deduction in the form of a tax relief amounting to CZK 24,840 (approx. EUR 1,000) annually for working pensioners (old-age pensioners and 3rd degree disability pensioners) is being proposed for the period from 2013 to 2015.

Tomas Seidl       
tseidl@deloittece.com

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