Friday the 13th is known in most countries as a day that brings bad luck and misfortune. From the point of view of persons living or doing business in the Czech Republic, Friday 13 October 2023 is no exception, when the consolidation package was approved, which will mean a significantly higher outflow of funds to the state treasury for the vast majority of these persons. Changes that will affect income on the employee side:

  • the spouse discount will now only be available if the person to whom the discount is applied (not exceeding CZK 68 000 of income per year) is caring for a child under the age of three, 
  •  a compulsory contribution to sickness insurance will be introduced, the amount of which will be 0.6% of gross income,
  • the abolition of the tax rebate in the form of school fees,
  •  limitation of the tax exemption for employee benefits (capped at an annual amount equal to half of the average wage for 2024, approx. 21,000). 

In the case of self-employed persons engaged in main self-employment, the minimum assessment base will be gradually increased from the current 25% to 40% of the average wage, by 5% per year. If the payment of social security contributions is based on the actual assessment base, entrepreneurs must also expect an increase from the current 50% to 55% of the tax base.

The changes affecting both self-employed persons and employees will be felt by persons with higher incomes, as the 23% rate will be applied to the tax base exceeding 36 times the average wage, whereas previously this rate was applied to the tax base exceeding 48 times the average wage.

Another important modification is in the area of work performance agreements, where these will continue to be subject to registration and, if the limits proposed by law are exceeded, to social security contributions.

For legal entities, the tax rate will revert to the original 2008 rate of 21% of the tax base. 

There will also be significant changes in the area of indirect taxes. Real household incomes will also be affected by the introduction of a new 12% VAT rate, which will apply to items currently taxed at 10% and 15%. The higher taxation of socially sensitive items will mainly affect low-income households. At the same time, several items will be moved to the higher VAT rate. 

There will also be an increase in the level of taxation in the case of property tax and excise duties on tobacco, gambling and alcohol, whose higher taxation is intended to regulate the consumption of these commodities, which have a negative impact on the health of individuals and society as a whole.

We are closely monitoring the entire approval process and will continue to keep you informed of any adjustments.

Author: Anna Barešová

Author: Vladimír Chylík - Partner, Tax

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