Tax news and news in related areas

ROAD TAX NEWS

Abolition of road tax on vehicles under 12 tonnes

Act No. 142/2022 Sb., published recently in the Czech Collection of Laws, has significantly amended the Road Tax Act (Act No. 16/1993 Sb.). The main change is the abolition of road tax on passenger cars, buses, and freight vehicles under 12 tonnes. Freight vehicles over 12 tonnes will continue to be subject to road tax, but at lower road tax rates. In addition, taxpayers will no longer have a duty to pay road tax advances, and the total road tax liability will be due by the deadline for submitting a road tax return (by 31 January of the following calendar year). The changes will, among other things, lead to the fact that employers will no longer be road taxpayers concerning vehicles used by employees during business trips. The amendment of law has retroactive effects for 2022, which means that many taxpayers will no longer have the duty to pay road tax since 2022. Under transitional provisions of the amendment of law, the taxpayers will be deregistered automatically, and decisions on cancellations of registrations will not be issued. We recommend that all road taxpayers check their balances at their personal tax accounts, and apply for returns of their possible road tax overpayments, or apply for transfers of their overpaid road tax amounts to cover possible underpayments of other taxes. We will keep you informed about the construction and details of the law introducing changes in road tax in our next newsletter.

INCOME TAX NEWS

Changes in income taxes in connection with helping Ukraine

Act No. 128/2022 Sb., providing for measures in the field of taxes in connection with the armed conflict in Ukraine caused by the invasion of the Russian Federation army, has been published in the Czech Collection of Laws. The law aims to allow natural persons and legal entities to deduct from their income tax bases the gifts they donated in 2022 in connection with the war in Ukraine. The passed law introduces the
following measures in the field of taxes:

• Extended period of application of the increased limit for claiming gifts, that is, 30 % of the tax base also in 2022 (for natural persons), or for the tax period ending from 1 March 2022 to 28 February 2023 (for legal entities). This means that the increased 30% limit, which applied to gift deductions in 2020 and 2021, will be extended by one year. The increased limit does not apply only to gifts for Ukraine, but to all gifts which may be deducted from an income tax base.
• Increased possibilities to claim gifts donated in 2022 in connection with the armed conflict in Ukraine, as follows:
  • The range of gift recipients will also include Ukraine, its territorial governing units, as well as natural persons or legal entities residing at, or having its seat, in the territory of Ukraine.
  • The range of permitted donation purposes will include “support of Ukraine’s defence efforts”. Please note that a gift will only be deductible from your tax base if you comply with the requirements concerning the gift recipient and the gift purpose.
• In 2022, gifts may be deducted from tax bases also by natural persons who are tax residents of Ukraine (normally, this is only allowed to tax residents of EU Member States, or, of the European Economic Area). A tax base may be decreased under the condition that at least 90 % income of the taxpayer arises from sources in the territory of the Czech Republic.
• Non-monetary gifts donated to help Ukraine in 2022 may be regarded as tax deductible expenses (costs). The measure is supposed to simplify the administration procedure (under the old rules, expenses on donated non-monetary gifts had to be excluded from a tax base, and then claimed as a deduction from a tax base). In addition, the change is advantageous for entities with low or zero limits for gift deductions (in particular, taxpayers showing tax losses).
• The law also introduces new tax exemptions of gifts donated in 2022, as follows:
  • Tax exemption of income of an employee in the form of provided accommodation, if an employer provided accommodation both to his employee, and to the employee’s family member residing in the territory of Ukraine, and the family member left Ukraine in connection with the armed conflict.
• Tax exemption of gifts donated for the purposes of defence efforts of Ukraine. As a result of this measure, if gifts are donated by Czech tax residents to Czech tax non-residents (for example, to Ukrainian entities) for the specified purpose, withholding tax does not need to be paid on the donated gifts.

The Coordination Committee (the representatives of the General Financial Directorate and of the Chamber of Tax Advisers of the Czech Republic) is currently discussing other tax effects of the armed conflict in Ukraine, and we will keep you up-to-date about its results.

Changes in income taxes in connection with the partial abolition of road tax

Act No. 142/2022 Sb. has been published in the Czech Collection of Laws, the main part of which abolishes road tax on certain vehicles. However, the law includes also an amendment of the Income Taxes Act, aiming at supporting e-mobility. The following measures have been passed:

• Tax depreciation period of charging stations of e-vehicles was reduced from 10 to 5 years: under the new rules, charging stations are in the 2nd depreciation group. Under the transitory provisions, you can reclassify the charging stations you are already depreciating from the 3rd depreciation group to the 2nd depreciation group, and thus accelerate their depreciation.
• In addition, employees provided free-of-charge with the so-called low-emission motor vehicles (in particular, e-cars or “plug-in hybrids”) for private use will see a decrease in valuation of their non-monetary income at 0.5 % vehicle’s entry price including VAT. As a result of the changes, from 1 July 2022 employees provided free-of-charge with low-emission motor vehicles for private use will see the amount subject to additional tax in their wages halved compared to “standard” vehicles. The change is effective retroactively for the entire year 2022, meaning that employees who were provided with low-emission vehicles in the first half of 2022 will have a tax overpayment at year-end.

Proposed changes in income taxes to come into effect in 2023

The Ministry of Finance has submitted for the so-called “external consultation” several amendments of tax laws, and, among other things, an amendment of the Income Taxes Act. If the proposed legislation is passed, it will lead, in particular, to the following changes:

• From 2023, the range of natural persons – entrepreneurs who may claim flat-rate income tax will be extended. The ceiling of income from independent activity will be raised to CZK 2 million (currently, only taxpayers whose income does not exceed CZK 1 million are allowed to claim flat-rate income tax). Three income bands of flat-rate regime are expected to be introduced, differing based on the total income
  of a taxpayer. Each income band will have its own flat-rate monthly payment: the expected amounts are approx. CZK 6 500, CZK 16 000 and 26 000 per month.
• The application of “extra-ordinary depreciation” will be extended, which allows taxpayers to accelerate depreciation of their new assets in the 1st and 2nd depreciation group (over 12, or 24 months). Extra-ordinary depreciation was applicable to assets acquired in 2020 and 2021, and its period of application is to be extended to newly acquired assets in 2022 and 2023.

The proposed legislation includes also other changes (advantageous for taxpayers), of which we will keep you informed during the final stages of its legislative procedure.

VALUE ADDED TAX NEWS AND EXCISE DUTY NEWS

Temporary decrease in excise duty on fuels

Act No. 131/2022 Sb., amending the Excise Duty Act, has decreased excise duty on diesel oil and unleaded petrol by CZK 1.5 per litre temporarily from 1 June 2022 to 30 September 2022. In connection with decreased excise duty, partial returns of excise duty on diesel oil consumed in primary agricultural production (“green diesel oil”) have also been decreased temporarily.

As a result of the change, the selling price of one litre of fuel is to decrease by approx. CZK 1.80 (incl. VAT).

Review of legality of the decision of the Minister of Finance concerning waiver of VAT on electricity and gas

The Ministry of Finance has commenced its review proceedings the object of which is the decision of the former Minister of Finance concerning waiver of VAT on electricity and gas in November and December 2021. The review is supposed to verify whether she issued the decision in compliance with her statutory powers. Theoretically, the review may lead to the cancellation of the decision. However, the commencement of the review proceedings has no impact on current duties of VAT-payers.

Proposed changes in VAT to come into effect in 2023

The proposed amendments of tax laws submitted by the Ministry of Finance for “external consultation” include an amendment of the VAT Act. If the draft legislation is passed, effective 2023 the threshold for mandatory VAT registration will increase from total turnover of CZK 1 million to CZK 2 million (total turnover is judged based on any period of 12 immediately preceding consecutive calendar months). The Ministry of Finance expects that the change would affect approx. 105 thousand VAT-payers, who would have the opportunity to deregister.

The draft legislation is to introduce also lower sanctions concerning VAT control statements for certain (lower-income) VAT-payers; and, VAT-payers are to have an extended time-limit for reactions if they are called by the tax authority to correct their data in submitted VAT control statements.

PARAMETRIC CHANGES

Increased reimbursement of fuel expenses

Effective 14 May 2022, the official average price of one litre of 95-octane petrol was increased from CZK 37.10 to CZK 44.50. In addition, the official average price of one litre of diesel was increased from CZK 36.10 to CZK 47.10. The official average prices are applied in calculations of reimbursements of travel expenses, if employees use vehicles during business trips, and fail to document the actual prices of fuels by purchase documents. Please note, since 12 March 2022 the official average price of one kilowatt hour of electricity was increased from CZK 4.10 to CZK 6.