Technical Amendment to the Consolidation Package

On the 7th of June, the president signed the amendment to the Act on Investment Companies, which includes amendments to the Income Tax Act (hereinafter “ITA”). The aim of this amendment is to clarify disputable matters arising from the adoption of the so-called consolidation package. Below, we summarize changes in the area of personal income tax.

Events Organised by Employers

The amendment modifies the wording of Section 6, paragraph 9, letter g) of the ITA regarding the exemption of cultural and sporting events organized by the employer. These events are now redefined as social events organized by the employer, including those with cultural and sporting elements. The aim is to include also other events organized by the employer than those purely of cultural or sport character under this section (e.g., Christmas party, company anniversary celebration, sports day, etc.).

Determining the Amount of Non-monetary Income Related to Pre-school Facilities

The amendment establishes a special method to determine the amount of non-monetary income of an employee allowed by his/her employer to use facilities caring for pre-school children. The value ofsuch usage of the facilities will be either equal to the price commonly charged at the same place and in the same time for a pre-school facility established by a public entity (e.g. a state) or to the highest monthly payment for pre-school education according to the Decree on Pre-School Education (i.e. a maximum of 8 % of the minimum monthly wage applicable in a given month). The employee’s non-monetary income will then be the difference between the amount determined as described above and any payment made by the employee to the employer. This provision is applied retroactively from 1 January 2024.

Catering for Former Employees

Another new area is the expansion of the range of employees for whom the employer can exempt non-monetary benefits in the form of catering. This exemption now applies to employees who worked for the employer immediately before retirement in connection with reaching the retirement age or in connection with the disability. The exemption will cover an amount up to 70% of the upper limit of meal allowances applicable for business journeys on the Czech territory lasting between 5 and 12 hours (i.e. the same limit as stipulated for the employees in general), without the requirement of working at least 3 hours per shift/calendar day. This provision will apply to income provided from 1 January 2024.

Relief in Conditional Income Exemption from the Sale of Real Estate

The amendment changes 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 which he/she has owned for less than 10 years if the taxpayer uses the funds to provide for his/her own housing needs. Currently, failure to meet the notification requirement leads to the loss of the exemption right. The exemption will no longer be tied to the submission of the notification. Nevertheless, the taxpayer will still be obliged to submit the notification to the tax authority by the end of the deadline for filing the tax return for the tax period in which the funds were received and failure to do so will be penalized with a fine for breach of a duty of a non-monetary nature. According to the transitional provision, this change will apply retroactively as of the tax year 2023.

Insurance Contributions for Employee Stock and Option Plans

The moment of income accounting for insurance purposes will be tied to the moment of income accounting for tax purposes (for more information available HERE). If the employer reduces this income due to a decrease in the market price of the share according to the ITA, the reduced income will be considered the accounted income for insurance contributions purposes, too. This provision should apply from the first day of the calendar month following the day the law comes into effect, which is from July 1, 2024.

Income Tax and Insurance Contributions for Concurrent Agreements on Work Performance

The changes to the rules for insurance participation in the case of concurrent agreements on work performance with multiple employers, which were due to come into effect on 1 July 2024, under the consolidation package, are to be abolished. The amendment introduces a new system and establishes a special ‘notified agreement’ scheme, which should enter into effect on 1 January 2025. For employees under the notified agreement scheme, the obligation to participate in sickness and health insurance will only arise in the relevant month once their remuneration from the relevant agreement(s) reaches the threshold of 25% of the average wage (currently CZK 10,500). If an employee’s income from all agreements to perform work with an employer who has used the notified agreement scheme does not reach this threshold, the obligation to participate in the insurance scheme shall not arise and the employer will be able to apply withholding tax on such income if the employee has not signed his/her payroll tax statements. Income from agreements to perform work generated with other employers will be subject to sickness insurance payments and thus also to statutory social and health insurance if remuneration of at least CZK 4,000 per month has been agreed on or if the relevant income in a given month is at least CZK 4,000.

If you have any questions regarding the above updates, please do not hesitate to contact our specialists.

Authors:

Gabriela Ivanco, Manažerka daňového oddělení
Anna Klímová, Editorka newsletteru