The Czech government announced a recovery package in May 2023 that would substantially amend various provisions of the tax law as from 1 January 2024. Changes are proposed to the corporate and personal income tax, social security, real estate tax, VAT and excise duties. This article focuses on the proposals affecting corporate income tax and VAT.
Corporate income tax
- The tax rate would increase from 19% to 21% for taxable periods beginning after 1 January 2024.
- Non-sparkling wine would no longer be deductible as an advertising or promotional expense up to an amount of CZK 500.
- The maximum tax-deductible amount for the acquisition of passenger vehicles would be limited to CZK 2 million.
- During the four-year period 1 January 2024 to 31 December 2028, extraordinary depreciation would be available only for electric cars. Other assets depreciated under this regime would be depreciated based on the standard rules.
- Despite the abolition of the personal income tax exemption for a range of non-cash employee benefits, the related expenses incurred by the employer company would be deductible in certain circumstances.
- Payments of dividends and royalties (regardless of the amount) to nonresidents that are exempt from, or not subject to, tax in the Czech Republic would have to be reported on the “Notification of Income Paid Abroad” form. The notification would apply only to income for which an obligation to withhold tax arises after the effective date of the measure.
- The preferential tax regime for donations to Ukraine would be extended for 2023.
VAT
The Czech VAT system currently includes three rates: a standard rate of 21% and two reduced rates of 15% and 10%. While the standard VAT rate would remain unchanged, the government has proposed to consolidate the two reduced rates into a single reduced rate of 12%. In addition, a new zero VAT rate would be introduced but only for books, including e-books. These proposals would result in certain goods and services being reclassified and subject to a different rate. The new 12% rate would apply to a range of supplies of essential products (e.g., food, pharmaceuticals and medical devices, heating, etc.). Several supplies that currently are subject to the 10% or 15% tax rate would be reclassified as supplies subject to the standard rate, including services rendered by artists and authors and newspapers.
Comments
The bill is in the early stages of the legislative process and may still be revised, but the final contours of the proposed changes are expected to be known by late summer.
Zenon Folwarczny
Petr Linx
BDO in Czech Republic
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