What the approved tax package really brings
The long-discussed tax package for 2019, which has already undergone a complete legislative process, was announced in the Collection of Laws on 27 March 2019. Most of the changes are effective as of 1 April 2019. We present a selection of the major changes, especially related to income tax and value added tax.
- One of the major changes is the increase of the lump sum expense threshold to twice the current level. This is a “return” to the level last applied for 2017. Entrepreneurs will thus be able to apply higher expenditure lump sums for the first time in 2020, when they file a tax return for the 2019 tax year. The maximum limit for expense lump sums will again be based on income of CZK 2,000,000.
- The tax package also incorporates changes to EU regulations limiting the spill-over of taxable profits to the state with a lower tax burden, so-called aggressive tax planning, by a new reporting obligation on income abroad. There are also new limits on the tax deductibility of excessive borrowing costs from the tax base by a limit of CZK 80 million or 30% EBITDA, taxation on relocation of assets abroad without change of ownership, taxation of controlled foreign companies or rules against misuse of tax system mismatches.
Value added tax
- The scope of VAT changes is extensive. Newly, it is possible to correct the VAT amount for bad debts in insolvency, execution and inheritance proceedings. The VAT Act has adopted an adjustment for vouchers that have not yet been regulated by law. A voucher is defined as a new type of performance where there is a deed bound with an obligation to accept it as a consideration for the delivery of goods or services. The law distinguishes between a single-purpose and multipurpose voucher.
- There are also real estate changes. These include, for example, VAT exemptions for constructions that do not require the approval process, after a period of five years, when the period begins to run from the date when the first use started. Starting in 2021, the lease of buildings for permanent housing will always be compulsorily exempt. The tax deduction is also adjusted for significant repairs over CZK 200,000 in the context of the sale of real estate. When calculating turnover, the sale of fixed assets will also newly be counted if they fall within the payer’s usual activity.
- There is also a change when calculating the tax. The tax base, including VAT, is calculated as the ratio of the total price and 1.21 (or 1.15 or 1.10). This eliminates the coefficients for the top-down tax calculation.
- For detailed information on VAT changes, please visit our website: The 8 Most Significant Changes in VAT for 2019.
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