Income Taxes: Changes in 2021
In 2020, amendments of the Income Taxes Act were passed. The changes came into effect on 1 January 2021. However, the changes regarding depreciation
of assets may be applied retroactively, in 2020.
For income tax purposes, the threshold for allocation of assets into the category tangible assets has been increased from CZK 40 000 to CZK 80 000. In addition, the category of intangible assets has been repealed, as well as tax depreciation of intangible assets. Taxpayers will now be able to claim as tax deductible expenses their accounting depreciation of intangible assets. The new rules will apply to assets acquired after 1 January 2021. However, taxpayers may also apply the new rules to their assets acquired during 2020.
Taxpayers may apply extra-ordinary depreciation to their tangible assets acquired in the period from 1 January 2020 to 31 December 2021. To be eligible for extra-ordinary depreciation, the taxpayer must be the first person to depreciate the assets, and the assets must be new. In the 1st depreciation category, the period of extra-ordinary depreciation is 12 months, and the write-off will be at 100%. In the 2nd depreciation category, the period of extra-ordinary depreciation is 24 months, where during the first 12 months the write-off will be at 60%, and during the following 12 months the write-off will be at 40%. Extra-ordinary write-offs will be rounded to months. Extra-ordinary write-offs will begin in the month following asset acquisition.
Meal contributions in cash effective January 2021
Employers have a new option: they can contribute to their employees’ meals in cash. For employers, the expense is a tax-deductible cost. For employees, the amount exceeding 70% mandatory meal allowances (provided during 8-12 hour business trips) is object of income tax (in 2021, it will be 70% of CZK 108). No official information has been released yet, whether employees working shifts of more than 11 hours could receive two meal contributions in cash.
To compare meal contributions in cash with meal vouchers, that is, with in-kind contributions: on the employers’ part, 55% value of each meal voucher is tax deductible (the ceiling is 70% mandatory meal allowances during 8-12 hour business trips). On the employee’s part, meal vouchers are not object of income tax. Employees working shifts of more than 11 hours may receive two meal vouchers.
Personal income tax paid by flat rate
Natural persons have a new option to pay their personal income tax by flat rate, provided that they meet certain criteria. If natural persons decide to pay flat-rate income tax, they will pay one amount each month which will cover all mandatory payments (that is, income tax, social security and health insurance). Flat-rate taxpayers will not submit any tax returns, any reports of income and expenses for the purposes of health insurance companies, and any reports of income and expenses for the purposes Czech Social Security Administration. Taxpayers are eligible for flat-rate income tax, if they have income from independent activities, they are not VAT-payers, their income does not exceed CZK 1 million, they have no income from dependent activities, they are not members of unlimited companies (“veřejná obchodní společnost”), they are not members of limited partnership companies (“komanditní společnost”), and they have not filed for insolvency. Flat-rate taxpayers may have income from agreements for work (“dohoda o pracovní činnosti”) not exceeding CZK 3500 per month, as well as income from agreements to perform a job (“dohoda o provedení práce”) not exceeding CZK 10 000 per month.
Other changes in personal income tax
“Super-gross wage” has been repealed. Under the new rules, a personal income tax base will only include income from dependent activity. Under the old rules (the “super-gross wage”), a personal income tax base included income from dependent activity, as well as social security payments, contributions to government employment policy, and health insurance payments paid by employers.
New personal income tax rates are 15% and 23%. In addition, the socalled “solidarity tax” has been repealed. The threshold for the application of the 15% and 23% tax rates is the 48 multiple of the average wage (in 2021, the threshold will be approx. CZK 1.7 million). The part of an income tax base not exceeding the threshold will be taxed at 15%. The part of an income tax base exceeding the threshold will be taxed at 23%. The new tax rates came into effect 1 January 2021.
Tax relief per taxpayer was increased from CZK 24 840 to CZK 27 840. Under the new rules, there is no upper limit for a tax relief per maintained children (under the old rules, the limit was CZK 60 300 per year). The upper limit for tax deduction of mortgage interest (for residential purposes) was decreased from CZK 300 000 to CZK 150 000. The new upper limit will apply to mortgages for residential purposes contracted after 1 January 2021.
Sales of real estates owned by natural persons are exempted from income tax if the sellers owned their real estates for at least 10 years before selling them. (Under the old rules, the sellers had to own their real estates for at least 5 years, and they had to live in the real estates before the sale.) If a seller owned his/her real estate for less than 10 years, the sale may be exempted from income tax if the seller uses the money to acquire his/her own real estate to live in. The new rules will apply to acquisitions of real estates after 1 January 2021.