Legislative Changes in Agreements and Employee Benefits from 2025
An amendment proposal was published at the end of October, introducing the third version of changes in taxation and insurance premium contributions for income from Agreements on Work Performance (hereinafter "AWP") effective from 1 January 1 2025. These changes respond to data collected from the mandatory AWP records at the Czech Social Security Administration (hereinafter "CSSA") since July 2024, which showed that the originally approved amendment to Act No. 163/2024 Coll. and its concept of so-called reported agreements would not bring the expected results. Moreover, it would have meant a significant administrative burden for both employers and social security administration.
New Rules for Agreements on Work Performance
The new amendment proposal therefore cancels the reported agreement regime, about which we informed you HERE and partially returns to similar principles that apply until the end of 2024. The employee's monthly income from AWP will not be subject to social security and health insurance contributions if the total amount from one employer does not reach the decisive amount for participation in sickness insurance. The decisive amount will no longer be a fixed sum of CZK 10,000, but will be set at 25% of the average wage, amounting to CZK 11,500 for 2025.
The same limit will also apply to the possibility of taxation of AWP income through withholding tax, subject to other conditions stipulated by the Income Tax Act. The mandatory registration of agreements with CSSA will continue to apply to employers.
Changes in Withholding Tax Application for other individuals
From 2025, there will also be a change in the application of withholding tax for income from other types of dependent activity relationships than those established by AWP. For the individuals not signing the Taxpayer’s declaration at the particular employer reaching the income limit establishing participation in sickness insurance (CZK 4,000 for 2024, CZK 4,500 for 2025), it will no longer be possible to apply withholding tax. While in 2024, exceeding the limit of CZK 4,000 is decisive for application of withholding tax, from 2025, reaching the threshold of CZK 4,500 will be key. Upon reaching this amount, relevant income from dependent activity will be subject to advance tax.
Changes in Employee Benefits Taxation
As we informed you HERE, the consolidation package introduced from 1 January 2024 a limit for the tax exemption of certain benefits provided to employees up to the amount of half the average wage -- for 2024, therefore, in the amount of CZK 21,983.50.
If the proposed amendment to the Employment Act is approved, the limit will differ according to the nature of the provided benefit as follows:
- For "health benefits" -- i.e., for the purchase of goods or services of health, medical, hygienic, and similar nature from healthcare facilities or the purchase of medical devices on prescription -- a separate limit will apply up to the amount of the average wage, and for 2025, therefore, the value limit of CZK 46,557 will apply for the exemption of these health benefits from taxation.
- For all remaining benefits listed in Section 6(9)(d) of the Income Tax Act -- i.e., for the use of educational or recreational facilities, provision of recreation or trips, use of preschool childcare facilities including kindergartens under the Education Act, employer's libraries or physical education and sports facilities, or provision of contributions to cultural or sports events or contributions to printed books - a second limit will apply up to the amount of half the average wage, and for 2025, therefore, the value limit of CZK 23,278.50 will apply for the exemption of these remaining benefits from taxation.
We will keep you informed about further developments in the legislative process. Should you have any questions regarding the above, please do not hesitate to contact our experts.
Authors:
Gabriela Ivanco, Tax Department Manager
Anna Klímová, Newsletter Editor
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