topics related to employment and personal income tax

reduction of the limit for a higher tax rate

The income threshold for applying the 23% personal income tax rate will decrease from 48 times the average salary to 36 times the average salary in 2024. This means that the scope of employees and other individuals subject to higher taxation will expand. Simultaneously, the monthly limit for applying the higher tax rate in the tax advance calculation for employees will decrease from four times the average salary to three times. However, this change does not affect social security, where the maximum assessment base remains at 48 times the average salary.

limitation of exemptions on the sale of companies (a.s./plc and s.r.o./ltd)

The current exemption for income from the transfer of a share in a business corporation and income from securities will be limited to 40 million CZK cumulatively for the tax period, starting from January 1. This limitation includes income from business shares in joint-stock companies, interest income from limited liability companies, income from mutual funds, and other securities.

For income from the sale of securities and business shares acquired before January 1, 2025, exceeding the 40 million CZK exemption limit, the taxpayer can use the market value of the securities and business shares as a tax deduction, determined as of December 31, 2024, instead of their original historical acquisition cost.

employee benefits

Standard non-monetary benefits (typically used within cafeteria systems or benefit cards), such as health and medical services, educational services, admission to sports facilities, entry to cultural events, vacation trips, etc., will now be exempted only up to half of the average salary for the respective year (approximately 20,000 CZK). The value of benefits exceeding this limit will be subject to income tax and mandatory insurance. Non-monetary benefits provided within the limit will remain tax-deductible expenses for employers, but those exceeding the limit will be tax-deductible.

tax regime for meal vouchers and workplace catering

The tax regime for meal vouchers and on-site catering will be unified with the meal voucher flat rate. For exempt income on the employee’s side, it will be necessary to observe the limit of 107 CZK per shift.

abolishment of the child placement allowance (preschool fee) and student discounts

These are completely abolished.

claiming a spouse tax credit

The conditions for claiming a tax credit for a spouse will be stricter. A new condition will be added that the spouse must live in a shared household with the taxpayer’s child under the age of three, in addition to the income condition of the spouse not exceeding 68,000 CZK per tax period.

sickness insurance

Employee insurance premiums are increasing from the current 6.5% to 7.1% of the salary, an increase of 0.6%, representing sickness insurance.

assessment base for self-employed individuals (OSVČ)

The annual assessment base limit for self-employed individuals for pension insurance is increased from the current 50% of the partial base of income tax from self-employment before 2024 to 55% from 2024.

minimum contributions for self-employed individuals (OSVČ)

The minimum monthly assessment base for self-employed individuals is gradually increasing from the current 25% of the average salary (for 2023) by an additional 5% for each subsequent year (i.e., 30% for 2024) until reaching a final 40% of the average salary from 2026.

using an emissions-free car for personal use

For an employee who has access to an emissions-free car for both business and personal use, the non-cash income will be only 0.25% of the car’s initial cost.

agreements for work performance and other changes according to the labour code

new contributions

The rules for exemption from social security contributions for self-employed individuals (DPP) are getting stricter (currently for all DPP up to 10,000 CZK). Starting January 1, 2024, all concluded DPP agreements must be compulsorily registered by employers in a central registry, where their income will be monitored. If the income exceeds the limit, there will be an obligation to contribute to social and health insurance. Employees must notify whether they have a similar agreement with another employer.

new conditions

From October 1, 2023, employers are obligated to schedule the working hours and breaks for employees under a contractual agreement in a written schedule at least three days in advance, unless agreed otherwise.

  • The schedule does not exclude work beyond the schedule.
  • The schedule is designed so that the employee is informed about it (or its changes) at least three calendar days in advance, with the possibility to agree on a shorter notice period.
  • The schedule is also used for substitution during sick leave/quarantine.

Self-employed individuals (DPP and DPČ) are entitled to additional pay for working on holidays, night shifts, and weekends.

  • Additional pay is not considered when assessing whether the compensation from the agreement has reached at least the minimum wage.
  • Deductions from the compensation are governed by the labour code (it is possible to deduct provided advances, compensation for agreement for unused vacation, compensation for agreement for sick leave/quarantine without entitlement).
  • The right to travel allowances is not statutory (but can be arranged/established by internal regulations).
  • The right to allowances for remote work is not statutory (but can be arranged/established by internal regulations).

Starting January 1, 2024, employees working under agreements for work performed outside of an employment relationship (DPP and DPČ) will have the right to paid leave, under the same conditions as employees in an employment relationship. The right to leave arises if the contractor works at least four times the specified weekly working hours, and the agreement lasts for at least 28 consecutive calendar days. The duration of working hours for calculating leave is set at 20 hours per week.

concluding and requirements of agreements for work performance
  • In terms of clarity, it is advisable to define the anticipated scope of work.
  • “The scope of agreed-upon work performed under this agreement must not exceed 300 hours in a calendar year. The employee acknowledges that the employer is not obligated to allocate work to the employee for the entire agreed-upon scope.”
  • Usually, the place of work and compensation from the agreement (§ 138) are also agreed upon.
  • A probationary period can be agreed upon.
concluding and requirements of agreements for work activity
  • Limitation of work scope: The anticipated scope of work averages to half of the specified weekly working hours (40/38.75/37.5/reduced working hours).
  • Substitute times are also counted, i.e., part-time including leave, work obstacles, so-called paid holidays, or substitute days off for holidays.
  • It is assessed for the duration for which the agreement was concluded, or for 52 weeks from its conclusion (and then again).
delivery of documents to employees

To deliver documents electronically (via email, data box), the employer needs written consent from the employee. Another condition is that the employee provides an electronic address for delivery that the employer does not have. Before the employer receives consent for electronic delivery from the employee, they must inform them in writing about the conditions of this delivery method. The employee can revoke their consent for delivery in writing.

Documents that remain in a strict delivery regime (must be signed with a recognized qualified signature or sent via the Data Box):

  • All unilateral termination documents
  • Resignation/revocation from a managerial position
  • Salary/payment specification
  • Reprimand letters (according to § 52/f or §52/g)

Documents that no longer fall into the strict delivery regime:

  • Employment contracts, agreements for work performed, and agreements for work activity (documents related to the establishment of employment relationships)
  • Contract amendments and agreements, i.e., documents related to changes in terms and conditions of employment
  • Agreements for termination of employment relationships
remote work

Working remotely can only be done based on a written agreement with the employee, specifying the location of the work and an agreement on the employee’s entitlement to reimbursement for remote work expenses. A lump sum amount has been set with a limit of 4.60 CZK per hour. Up to this limit, the reimbursement is not subject to deductions and income tax. Employers can only mandate remote work in the event of a declared measure by a state authority.

employer’s information obligation

The amendment to the labour code imposes an obligation on employers to communicate more information to their employees. If the employment contract or an agreement conducted outside of an employment relationship does not contain details about the rights and obligations arising from the employment relationship, employers are required to inform employees about them in writing. Upon request, employers must provide employees with additional information related to their employment relationship within seven days.

changes in corporate income tax and accounting

increase in tax rate

From January 1, 2024, there will be an increase in the corporate income tax rate from the current 19% to 21%. This increase will apply to all tax periods after the enactment of the amendment, i.e., from January 1, 2024.

tax-deductible expenses for acquisition or financial leasing of passenger cars

Tax deductible costs for the acquisition or financial leasing of passenger cars for business purposes will be limited to CZK 2 million. This limitation applies to passenger cars (M1 category) on which tax depreciation can be claimed and which are acquired after the beginning of the new tax period after the amendment takes effect, i.e. probably after 1 January 2024. Any acquisition cost or potential technical appreciation exceeding this limit cannot be considered in tax depreciation.

There is one more change around passenger cars in terms of the rules for extraordinary depreciation. Until the end of 2028, only emission-free vehicles will be able to claim exceptional depreciation. It will also be new that extraordinary depreciation will only be applied to so-called emission-free vehicles (e.g. electric cars) in the period from 1 January 2024 to 31 December 2028, with existing assets depreciated under this regime being “depreciated” according to the existing rules.

introduction of the option to keep accounting in foreign currency

It is not uncommon for our clients’ companies to have most of their economic transactions with foreign entities. Until now, it was not an option to keep accounting records in a currency other than Czech crowns, but from 2024, companies will be able to report their financial results in the so-called functional currency (EUR, USD, and GBP) if it is the “primary economic environment” currency.

It will no longer be possible to provide wine as a tax-deductible advertising or promotional item up to the amount of 500 CZK. Christmas is approaching, so you might have the last chance to gift clients with tax-favoured wine.

possibility of taxing only realized exchange differences

Income taxpayers may have the option to exclude unrealized exchange differences (e.g., exchange differences on unsold assets or uncollected receivables) from the tax base. These differences will only be included when they are realized. Financial authorities must be informed in advance about entering and leaving this tax regime. If a taxpayer opts for this regime, it must be applied to all unrealized exchange differences related to all assets and liabilities, and there is also a minimum stay in this regime for two periods after the end of the period in which the notification was made.

reporting obligation for income to non-resident taxpayers

The consolidation package also adjusts the reporting obligation for income to non-resident taxpayers from sources in the Czech Republic that are exempt or not subject to taxation in the Czech Republic. Only license fees and profit shares (both types of income without a limit) and interest (only above 300,000 CZK per month) will be reported. Incomes subject to withholding tax will be reported as before.

publication of the income tax report and submission of the sustainability report

The proposal postpones the implementation of the European directive regarding the obligation of selected groups to submit sustainability reports to the accounting period commencing from January 1, 2024.

indirect taxes and property tax
  • There will be two VAT rates – a standard rate of 21% and a reduced rate of 12%.
  • For books, the VAT rate will be reduced from 10% to 0%. The rate for food will also be reduced from 15% to 12%. Water, sewerage, and heat supplies will remain at the reduced rate, but since it will increase from 10% to 12%, they will be effectively more heavily taxed. Beer in any form will be taxed at a VAT rate of 21%. The standard rate of 21% will also apply to services such as hairdressing and barber services, shoe repairs, leather goods, and bicycles, cleaning services, and firewood.
  • Limitation of the right to deduct VAT on the acquisition of passenger cars of category M1. The maximum amount of deductible VAT is 420,000 CZK, and any technical appreciation is included in it.
  • The proposal also includes higher excise duty on tobacco products.
  • There is a significant increase in property tax rates, approximately 1.8 times on average.
  • Municipalities gain greater authority to regulate the taxation of agricultural land.
  • A new inflationary coefficient is also introduced.

The above text has been machine translated. No rights can be derived from the above text. If there are any differences with the Czech text, the Czech text prevails.

The changes are many. If you would like to consult your specific situation or you have questions, please contact us.