The Stabilizing Package Approved by the Lower Chamber of Parliament

On Wednesday 7th November the lower chamber of Parliament approved so called stabilizing bill, i.e. law on the proposed tax, insurance and other measures to lower the public deficit. Most of the changes introduced by this amendment would apply in 2013-2015 (for exceptions see the points below).
The bill is to be submitted to the Senate, the upper chamber of the Parliament. With regard to the views adopted by the opposition, Senators are likely to reject the bill. According to the latest development in the Czech politics, however, we expect Senate´s veto to be overridden by Chamber of Deputies. In such case the bill would be submitted to the President who either signs it into law or returns it to the Deputies who have to vote in favour of the bill by 101 majority. Only then can the package enter into force.

The key changes are the following:

  • Increased VAT at 21% and 15% rate, a unified VAT rate of 17.5% shall apply from 2016 with some items (e.g. diapers) taxed at the basic rate
    • VAT rates will be on agenda again this Friday. Chamber of Deputies will be dealing with so called “technical VAT bill” which was rejected by the Senate and returned to the Deputies with amendments proposing to preserve the current VAT rates at 14% and 20%, with no limits as to the period of validity, and keep the range of items subject to the reduced VAT rate.
  • Income derived by individuals which exceeds the amount of CZK 100,000 monthly would be subject to a 7% solidarity surcharge
  • No more employment tax credits for pensioners
  • Gradual removal of the “green oil” scheme, i.e. no more tax refunds while using the oil for the purposes of primary production in agriculture (from 2014 on)
  • The real estate transfer tax rate would be increased from 3% to 4% (from 2013 on)
  • Lump-sum deductions, which can be claimed by the self-employed instead of actual expenses, would be limited (from 2013 on)
    •  When using 40% lump-sum (lawyers, tax advisors, notaries etc), the amount of expenses would be capped at CZK 800,000; with a lump-sum of 30% (e.g. rentals) the maximum amount would be CZK 600,000, which means an annual gross income of CZK 2,000,000.
    •  Tax payers using the lump-sums will no longer have the opportunity to claim the tax credit on a spouse or child, if the partial tax bases account for more than 50% of the general tax base.
  • Payments derived by the residents of jurisdictions with which the Czech Republic has not concluded a tax information exchange agreement would be subject to a 35% withholding tax rate (from 2013 on)
  • The health insurance will no longer be capped.