A Summary of Tax and Accounting News in the First Quarter of 2022
Accounting and Tax News in connection with the War in Ukraine
Employing Ukrainian citizens
The Ukrainian citizens who have received temporary protection in the Czech Republic (that is, special visas) have free access to the Czech labour market under Act No. 66/2022 Sb. They are allowed to be employed without having to receive the so-called “blue cards”, or work permits. The Financial Administration of the Czech Republic has informed that from tax perspective the refugees will mostly be regarded as Ukrainian tax residents, and thus they will not be eligible for the same range of tax credits and tax allowances for maintained children as Czech tax residents.
Proposed income tax changes in connection with helping Ukraine
The Parliament of the Czech Republic has begun to consider a draft legislation providing for tax measures in connection with the war in Ukraine (Parliamentary Press No. 173). If the draft legislation is passed, then individuals and legal entities will be allowed to deduct from their income tax bases all gifts donated in connection with the armed conflict in 2022. The draft legislation also proposes that the limit for deduction of gifts up to 30 % of an income tax base continues to apply in 2022 (the temporary increased 30 % limit applied in 2020 and 2021).
In connection donations to Ukraine, we would like to highlight that any donated items may be subject to payment of value added tax on the supply.
Accounting consequences of the war in Ukraine
All accounting entities should analyse how the armed conflict in Ukraine, as well as the sanctions imposed subsequently against certain countries, may impact information published in their financial statements. The impacts may include, for example, a decrease in the value of their financial and non-financial assets, suspension of business relations, and lack of workforce. When drawing-up financial statements for the reporting period ending before 24 February 2022 – the date Russia invaded Ukraine – from accounting perspective it is the so-called “non-adjusting event after the balance sheet date”, and accounting entities should comment on any negative impacts in their notes to the financial statements. If the existence of an accounting entity is threatened as a result of the armed conflict, then its asset and debt values need to be adjusted in the financial statements.
Changes in road tax and value added tax
The intended abolishing of road tax and a waiver of road tax advances due in 2022
The Government of the Czech Republic has informed about its intention to submit to the legislative procedure a draft amendment of the Road Tax Act, aiming to abolish road tax on vehicles under 12 tons. If the draft amendment is passed, then road tax is to be abolished with retroactive effects from 1 January 2022. This is one of the reasons why the Minister of Finance has issued a decision on the waiver of road tax advances due in 2022. Therefore, no road tax advances are payable in 2022. Taxpayers will pay their road tax amounts due on vehicles over 12 tons in one-time payments when they file their 2022 road tax returns.
Waiver of late payment interest on value added tax amounts of transportation companies
The Minister of Finance has issued a decision on waiving late payment interest on VAT amounts, and interest on deferred VAT amounts, in the period from February to August 2022, to the VAT-payers who generate more than one half of their income in the transport sector. The waiver applies under the condition that the due VAT amounts are paid by the end of October 2022. The waiver of interest will only apply to the VAT-payers who, when filing their VAT returns for the above-mentioned tax periods, inform the tax administrator that they are eligible for the waiver.
New interpretation of the Czech National Accounting Council
The Czech National Accounting Council (“Národní účetní rada”) adopted a new interpretation in its January session, namely I-47: Advance payments accepted in foreign currency. The new interpretation supplements the previously adopted interpretation I-43: Advance payments provided in foreign currency. The core message of both interpretations is that exchange rate differences do not occur when advance payments are received/ provided in foreign currency.
Publishing of financial statements through the tax authority
Most business corporations now have an opportunity to publish their 2021 financial statements through the tax authority. Corporations can apply to the tax authority for publishing of their financial statements by means of their corporate income tax returns. The new way of publishing financial statements is not mandatory, as corporations may continue to deliver their financial statements to the Registration Courts directly (for example, by means of a data box).
Preparation of a new accounting act
Currently, a new accounting act is being prepared. In the first quarter of 2022, the Ministry of Finance received last notes issued by expert and professional organisations. The draft of the new accounting act is to undergo the standard comment procedure soon, and then it is to be submitted to the Government of the Czech Republic (expected date by the end of Q2 2022). If the draft passes all legislative procedures successfully, the new accounting act is to come into effect in 2024. Many changes are expected to be introduced, such as the possibility to keep books in the so-called functional currency (for example, in the euro or in the dollar).
Increased reimbursement per 1 kilowatt hour of electricity
Effective 12 March 2022, the average price of one kilowatt hour of electricity was increased from CZK 4.10 to CZK 6. The average price is used in calculations of travel expense reimbursements of employees who used electric cars on business trips, and who failed to document the actual price by a purchase document. The average prices of other fuels published for 2022 remain unchanged.