The most significant changes in the area of income taxes, not only for 2017
ANNOUNCEMENT: On Tuesday, April 4, 2017 Members of Parliament rejected the Senate amendments and re-approved the government’s “tax package”. The law now goes to the President for signature and will enter into force 15 days after its publication in the Collection of Laws.
Besides the changes valid from the 1st of January,2017, which are for example:
- increasing the limit for the exemption of the employer’s payment into the employee’s pension insurance and life insurance from the current 30 000 CZK to 50 000 CZK,
- increasing the allowance of pension and life insurance from the tax base of the taxpayer from 12 000 CZK to 24 000 CZK for the year
The Senate of the Czech Republic will discuss the package of tax changes during the fifth meeting that will take place from the 8th of March, 2017.
The law should be valid from the 1st of April, 2017, but according to some of the presented and temporary provisions, some of these changes will be valid for the whole of 2017. According to the provision of the legislation from the 1st of April, 2017, the main issue of the provisions will be their real possible application. Because of the nature of this is problematic, the application will logically move back to 2018.
The main changes predominantly related to the physical person are listed below:
- In the case of a transfer against payment of the shares which were taken possession of inheriting from the deceased, who was a direct family member or was a spouse, there is the possibility to exempt the transfer of the business shares in the business corporation by the period in which the share was provably the asset of the deceased. The same adjustment is proposed in the cases of income from the monetary transfer of paper securities and in the case of income from shares, which belongs to the share certificate by cancelation of a mutual fund.
- A similar tax regime will be used in the case of income from the dependent activity on a small scale. The tax regime will be valid for work agreements. It means, they will be taxed by 15 % withholding tax and not reflected in the general tax base for income tax of the taxpayer . In total, the amount the income must not exceed 2 500 CZK for the calendar month by the same taxpayer.
- Tightening the condition for payments of the tax bonus for the child is proposed so that the income from rent and capital assets will be not counted towards the income limit, which is necessary to gain the bonus.
- The law of building at the physical persons, who do not keep books – “other assets”. Through the so-called “other assets”, the asset will be amortised in a proportional amount similarly to the taxpayers who keep books.
- For enforcing the discount related to the placement of a child into kindergarten, the expenditure at the expenses level is important, which apply to the factual placement of the child into the kindergarten in the relevant tax period and not the time of their payment.
- Declaration by the taxpayer, the taxpayer that makes the declarations form and confirms the statement with a signature will be possible not only in a written format but also by an electronic way.
- Reduction of the maximum limit of income because of applying flat expenses by ½ from 2 000 000 to 1 000 000 CZK.
- The possibility to enforce the discount for a spouse and the tax advantage in the case of using flat expenses.
- Extension of the possibility to enforce the so-called lump-sum tax.
The provision to the exemption of the non-monetary transfer of share in the business corporation has been adjusted. The exemption should correspond with the increased price of the share of a member only through the non-monetary fulfilment in favour of one’s own capital of the business corporation or through the acquisition of the share from another member in case that the monetary transfer occurred within 5 years from time of fulfilment or from the acquisition of the share. Currently, the represented provisions have applied with no reason to cases when it comes to the increased acquired price of the share of a member on the basis of a payment (cases where there is an apparent distortion of the time test). It occurs when increasing the price on the basis of fulfilment in favour of one’s own capital of the business corporation. Other important changes in the tax package are listed below:
- The input price of tangible assets is reduced by the gratuitous income in the form of the specially-proposed monetary gift for arranging the tangible asset or for its technical evaluation.
- It has been newly determined that the tax balance price of the liquidated asset enters into the evaluation of new property except with the account-balanced price of the liquidated building within the construction of the new building. The proposed adjustment will be valid for payers who keep books as well as for the payers who do not.
- The payer will generally have the possibility to amortise the new technical evaluation. The payer who is authorised to the use the property with technical evaluation will have this possibility, it means, for example, the sub-tenant generally, and there will be an agreement between the tenants. It will be valid for the new technical evaluation only.
- The current adjustment of amortisations of intangible asset defines a fixed period of tax amortisation of intangible assets where the payer has no rights for the specified period for these assets. It is now proposed to establish such times as the minimum, they can be extended, but the amortisation cannot be interrupted or the beginning of the amortization cannot be moved. It cannot be used in the case when the amortisation of the intangible asset has begun before the date the law came into force.
- The unification of the ways to amortise the coparcenary share in the tangible asset.
- Newly, the paid advance for the profit share should be returned after the transfer or passing the share on in the business corporation. The right to the return the tax, which was taxed unjustifiably and which is applied to the paid advance for the profit share, belongs to the taxpayer, who is obliged to return the advance for the profit share. Not to the original owner of the share, who the advance was paid to, the taxpayer has to return the advance for the profit share. That´s why the withholding tax has to be returned to the actual partner.
- Should the taxpayer doubt the correctness of the withheld tax, which is taxed by a special tax rate, the taxpayer could ask for an explanation up to 2 years from the date the tax was taxed, after this period the taxpayer can ask for an explanation within 60 days from the date when he learned about the withheld tax.
- In case the taxpayer submits the tax return with the request to refund the returnable overpayment before the period is passed, the request is considered to be submitted on the last day for submitting the tax return.
- The tax efficiency of the execution fees will cease be regulated.
- It is proposed to extend the provision specifying the so-called parent company for the purpose of the law of income taxes by other legal forms.
- Financial leasing has been adjusted to a tangible asset only, which is amortised according to the income tax law. The target is the prevention of acquisition through financial leasing defined for the purpose of the law of income taxes of such an asset, which is not a tangible asset according to the income tax law and is not amortised according to the income tax law.
- There is an adjustment of income in the case of gratuitous transfers of immovable assets, with respect to business companies located in the Czech Republic to tax non-residents.
- The number of cases in which it is now possible to apply the proven fuel expenses consumed by the motor vehicle as expenses for business travel, the use of vehicles used under the loan contract entered into with the lender for a debt secured by a transfer of title to this vehicle (not equal to the basic allowance). It will be mandatory to assess the tax base of tax resident from the activity carried out by the permanent establishment.
- It will be mandatory to assess the tax base of the tax resident based on the activities carried out by the permanent establishment.
- It will be newly confirmed that the term for tax determination shall remain the same, in case of the additional cancellation of the tax loss on the basis of an additional tax return or tax control.
Changes in the tax code are part of the tax package. These include:
- Interest on the tax deduction will newly develop after laps of 4 months from the last day for submitting the right tax affirmation or submitting the additional tax affirmation, possibly from the day of delayed submitting the tax affirmation. It comes to the increasing the repo rate by + 2 %. The 4 months run will be follow:
- 1) call to the removal of the submitted mistakes
- 2) call to the start the tax control
- 3) the decision of the tax administrator shall specify the term through, which the tax subject can comment on the outcome of the tax findings
- Additional information about the obligations that arise via the possibility to pay by cashless transfer, which is confirmed through payment order via a credit card or a similar payment method, and conditions you need to respect – it will be not implemented for all tax administrators, but only for the tax administrator, who will decide to use it.
We will all wait impatiently for the final part of confirmation of the tax package including the President’s signature. We believe that the proposed date for the legislation of the 1st of April, 2017 will be kept.
More posts from Jiří Jandečka