On 1 July 2020 an anti-crisis tax package came into force in the Czech Republic to mitigate the adverse economic impacts of the coronavirus pandemic on entrepreneurs and companies. The anti-crisis tax package was approved by the Czech Chamber of Deputies on 16 June and published in the Collection of Laws of the Czech Republic on 30 June. In our article we summarise the main tax relief measures introduced by the anti-crisis tax package.
The main element of the anti-crisis tax package: loss carry-back
A significant part of the Czech anti-crisis tax package deals with the long-discussed introduction of “loss carry-backs” in the field of income tax. The concept of a tax loss carry-back was brought about Liberating Package II in March 2020, and enables both natural and legal persons to retroactively apply their 2020 tax losses to their 2018 and 2019 tax returns. In other words, both individuals and legal entities are free to amortise their losses incurred in the two previous tax years.
Taxable persons and entities can apply loss carry-backs in their additional tax returns by setting off the 2020 loss against the positive tax bases of 2018 and 2019. The tax authority will refund the excess income tax.
This measure can be applied after the 2020 tax return with a tax loss is filed, i.e. not before the beginning of 2021.
Please note that the deadline for tax assessment for the tax years in which the tax base was reduced by the tax loss shall be extended in the case of a loss carry-back.
Application of reduced VAT rate to selected services
According to the anti-crisis tax package, selected services subject to the first reduced VAT rate (15%) shall be shifted to the second reduced VAT rate (10%). These include:
- provision of accommodation services;
- admissions to sports and cultural events, museums, botanical gardens and zoos, natural reserves and national parks;
- use of sports facilities for sporting purposes;
- hammam and sauna services and similar selected facilities;
- passenger transport by ski lifts.
The second reduced VAT rate has been applicable in the cases listed above since 1 July 2020.
Another important element of the Czech anti-crisis tax package is the reduction of road tax on trucks. The road tax for trucks with a maximum permissible weight exceeding 3.5 tonnes shall be reduced by 25% with retroactive effect from the beginning of 2020. This measure will manifest itself in a retroactive reduction of advance tax payments to be paid in 2020.
If taxpayers did not take advantage of the “general pardon” to defer the obligation to pay road tax advances, and paid the advance in the original amount, the difference between the old and new amount shall be used to pay the remaining advances in 2020.
Extension of exemption from real estate tax
Until now, municipalities in the Czech Republic were only able to exempt real estate from real estate tax that was affected by natural disasters (such as flooding, storms, extreme droughts). Henceforth, this exemption is also allowed in the event of a pandemic, an emergency measure under the Crisis Act, or industrial accidents.
This exemption can also be applied with retroactive effect. In fact, municipalities have to define the exempt real estate in generally binding ordinances effective until 31 March of the year following the tax year in which the emergency occurred. The exemption shall be applied in the form of an ordinary or additional tax return.
Should you have any questions or require any further assistance regarding the application of the Czech anti-crisis tax package, please feel free to contact WTS Alfery, the exclusive representative of WTS Global for the Czech Republic.