Next year’s certain (and uncertain) developments in taxes

The Government of the Czech Republic has presented to the Chamber of Deputies a proposed amendment to the Income Taxes Act, which is to be discussed at the 12^th meeting of the Chamber of Deputies from 15 July 2014. The amendment is expected to take effect on 1 January 2015.

Personal income tax – main proposed changes

• Increase in the tax credit for a second child (by CZK 2,400 per year to CZK 15,804) and the following child (by CZK 3,600 per year to CZK 17,004); the maximum amount of the tax bonus remains unchanged;
•  Re-application of the basic tax relief for working pensioners and taxation of pension on income from employment, business and leases exceeding CZK 840,000;
• Restrictions on lump-sum expenses that can be deducted from the tax base by sole traders applicable to all brackets (30%, 40%, 60% and 80%) may only be applied to income up to CZK 2 million; the original restriction only applied to the 30% and 40% income brackets; the rule that the child and the spouse tax credits may not apply if expenses are deducted as a lump sum;
• The obligation to file a tax return due to the solidary tax only applies if the solidary tax increases the tax for the whole year (not only the monthly prepayment, as was the current practice);
• Restriction on deductions of private life insurance on investment-linked policies with the investment risk borne by the policyholder.

Corporate income tax – main proposed changes

• Amendment to the taxation regime governing investment funds, permitted application of a reduced 5% rate to selected types of investment funds only (basic investment funds); other investment funds will be subject to the regular rate.

Tax Code – main proposed changes

• A new fine introduced for a failure to discharge an obligation of an in-kind nature;
• Individual waiver of selected accessories to tax reintroduced.

In addition, the Government has prepared proposed amendments to the Value Added Tax Act, with the first of them currently being discussed in the Parliament. The main proposed VAT related changes include:

• A second reduced VAT rate of 10% introduced for irreplaceable infant formula, medicines and books (not applying to children’s nappies);
• Introduction of a control statement from 1 January 2016 that would be filed along with a VAT return and would contain a detailed overview of domestic taxable supplies effected and received;
• Extension of the reverse charge mechanism to the transfer of selected immovables subject to tax applied under Section 56 (4) of the VAT Act, and the setup of the accelerated introduction of the reverse charge mechanism as part of combatting tax evasion;
• Turnover of CZK 1 million will be maintained for the mandatory registration of a VAT payer (originally a decrease to CZK 750,000 was planned).

Another planned change in VAT is the amendment to the VAT-exemption of transfers and leases of real estate. This change has been subjected to numerous objections. We will inform you whether the changes will be reflected in the original proposal.