What the “Consolidation Package” Has Brought Us in Terms of Taxes, or Still Wine in Tax-Deductible Expenses for the Last Time

Here is a basic overview of the most important things that the consolidation package brings from 1 January 2024 in terms of taxes. We are thus following up on our payroll updates.

Restrictions on exemptions for sales of securities and transfers of shares

As we advised this spring, the consolidation package introduces taxation of income from the sale of companies above CZK 40 million for individuals, which would otherwise be exempt from tax. The good news for owner-individuals is that this limitation is finally postponed until 1 January 2025. However, if you sell a company now and the repayments exceeding CZK 40 million will continue after 1 January 2025, the amendment should apply to them. For this reason, the issue of the acquisition price is also regulated here so that market price revaluation can be applied in accordance with the Act governing property valuation as of 31 December 2024 or as of the date of the transfer for consideration if the transfer took place before 31 December 2024.

Exemption limits for other personal income

The exemption limits for selected other personal income are increased to CZK 50,000, but at the same time, the exemption limit for gambling is reduced to CZK 50,000 (from the original CZK 1 million).

Tax deductibility of non-monetary benefits

In connection with the exemption limit for “leisure” benefits, the tax deductibility on the employer’s side is also adjusted and will now be linked to whether these benefits are exempt from tax. Meal allowances, whether in monetary or non-monetary form, will be tax-deductible from 1 January 2024 without limitations, which will eliminate the assessment of 55% of the price of a main dish and 70% of the upper meal allowance limit. Social and healthcare expenses referred to in Section 24(2)(j) of the Income Tax Act regulated by a collective agreement or employment contract will also be deductible if these benefits are provided to family members.

Corporate income tax rate

The corporate income tax rate will be increased from 19% to 21% starting from the tax period beginning after 1 January 2024.

Extraordinary depreciation

Extraordinary depreciation where the taxpayer is the first depreciator will be available from 2024 to 2028 only for emission-free vehicles, over 24 months without interruption, under the same conditions as applied from 2020 to 2023 for tangible assets classified in depreciation group 2.

Unrealised exchange rate differences

Taxpayers will now be able to opt to exclude unrealised exchange rate differences from the tax base if they notify the tax administrator within three months from the first day of the tax period. They will be able to opt out no sooner than after two years (including the year of notification, i.e. a minimum of three years).

However, during the realisation period or upon opting out, taxpayers will have to pay tax on the realised exchange rate difference as they normally would, resulting in increased administrative burdens (complex off-accounting records) related to this scheme. Therefore, we recommend giving this scheme due consideration. For the sake of completeness, taxpayers will have to apply the selected scheme to all of their foreign currency liabilities and receivables, i.e. it will not be possible to choose, for example, only one foreign currency liability or loan, etc.

Restrictions on “expensive” cars

The tax-deductible expense in the form of depreciation or leasing will now be available only up to CZK 2 million per vehicle for M1 vehicles (passenger cars).

Reporting of income paid abroad

Income subject to withholding tax, regardless of its amount, as well as income from profit shares and other income from capital assets, royalties and interest income over 300,000 per month, will now be subject to the reporting requirement, even if it is exempt from tax or not taxed in the Czech Republic on the basis of an international agreement.

Other non-taxed or exempt income (such as from services provided in the Czech Republic, etc.) will no longer be reported from 1 January 2024.

Still wine as a Christmas gift?

We would like to mention another small change to conclude – this is probably the last year when still wine will be included in tax-deductible Christmas promotional items, provided it is under CZK 500 and marked with the taxpayer’s logo.