On 2 December 2022, a set of tax amendments traditionally referred to as the 2023 tax package for the Czech Republic was published in the Collection of Laws. The 2023 tax package for the Czech Republic includes amendments to the Income Tax Act, the Value Added Tax Act and other related laws. Below is a brief overview of the most important changes.
Windfall tax, i.e. tax on unexpected profits, is introduced into the Czech tax system as a subcategory of corporate income tax for banks and companies in the energy and fossil fuel sectors that generate unexpected profits as a result of energy prices and interest rates increase. It should apply between 2023 and 2025.
Banks in the Czech Republic are subject to windfall the tax for the given tax period, in which they achieve a net interest income of at least CZK 50 million and at the same time, in 2021 they achieved the same income of at least CZK 6 billion.
Non-bank taxpayers in the Czech Republic are subject to the windfall tax for the given tax period in which the total annual net turnover from the following activities amounts to at least CZK 50 million and at the same time, in 2021 they achieved a turnover of at least CZK 2 billion from these activities:
- mining of hard coal, oil and natural gas;
- production of coke oven products and refined petroleum products;
- generation, transmission and distribution of electricity (with certain exceptions) and gas production and distribution;
- wholesale of liquid fuels, gaseous fuels and related products;
- pipeline transport by oil and gas pipeline.
The windfall tax also applies to taxpayers for the given tax period in which the total annual net turnover from the following activities amounts to at least CZK 50 million and at the same time, in 2021 the income from these activities accounted for at least 25% of their turnover:
- mining and treatment of hard coal, oil and natural gas;
- production of coke oven products and refined petroleum products.
The tax base for windfall profits is based on the amount by which the tax base (calculated for corporate income tax purposes) for the given tax period exceeds the comparative tax base plus 20% of its value. The comparative tax base is the arithmetic average of the tax bases for the years 2018 to 2021. A tax rate of 60% applies to the tax base thus calculated.
Windfall tax has to be paid during the tax period similarly to income tax through the payment of advances calculated from the last known tax. The amount of advances paid in 2023 shall be calculated on the basis the notional windfall profits tax amount. This notional tax is determined from the data provided by the company in its 2022 notional tax notice. The notice shall state the details for calculating the windfall profits tax and shall be filed with the Specialised Tax Office of the Czech Republic no later than 3 July 2023. Advances paid during 2023 will then be offset against the actual amount of tax for 2023.
Extraordinary depreciation is a special category of tax depreciation, which is not determined on annual basis, but with accuracy to months. It is applied within 12 months for assets included in the 1st depreciation group, or within 24 months for assets included in the 2nd depreciation group. They cannot be interrupted and their use is voluntary.
The previous Czech regulation allowed extraordinary tax depreciation only for assets acquired in 2020 and 2021. Thanks to an amendment included in the 2023 tax package for the Czech Republic, the extraordinary depreciation regime can also be applied to assets acquired in 2022 and 2023.
Limits for mandatory filing of income tax returns
The 2023 tax package for the Czech Republic increases the income limits decisive for the obligation to file personal income tax returns. Newly, taxpayers will not have to file tax returns in the following cases:
- employees with other income up to CZK 20,000 (the previous limit of CZK 6,000 still applies to the 2022 return),
- persons with total income not exceeding CZK 50,000 (until 2022, the limit was CZK 15,000).
Flat-rate scheme for natural persons
The flat-rate tax was introduced in the Czech Republic for the first time for the 2021 tax year. But due to the strict conditions for its application, very few personal income taxpayers have signed up for it. The 2023 tax package for the Czech Republic also amended this conditions which should therefore extend the use of the flat-rate tax regime and simplify the administrative obligations of small entrepreneurs overall. It is also connected with an increase in the limit for compulsory VAT registration from CZK 1 million to CZK 2 million.
The flat-rate tax allows natural persons / entrepreneurs in the Czech Republic, who are not VAT payers and have no other significant income, to avoid the need to file annual tax returns and reports for the social security administration and the health insurance company and to pay contributions to three different accounts.
In accordance with the provisions of the 2023 tax package for the Czech Republic, from 2023, instead of one lump-sum tax, a three-band taxation is newly introduced, where the amount of the lump-sum tax is graded according to the turnover achieved. For most taxpayers, the following settings apply:
- turnover up to CZK 1 million – flat tax CZK 6 thousand per month
- turnover between CZK 1 million and CZK 1,5 million – flat tax CZK 16 thousand per month
- turnover between CZK 1,5 million and CZK 2 million – flat tax CZK 26 thousand per month.
For 2023, it was possible to enter the flat-rate scheme until 10 January 2023.
From January 2023, the length and starting date of the period for responding to the tax administrator’s request to change, supplement or confirm data in the control report have been changed. Newly, it is necessary to respond within 17 calendar days of the delivery of the notice to the data box instead of 5 working days from the notice.
For selected VAT payers (natural persons, limited liability companies with a sole shareholder – a natural person and quarterly payers), certain fines for breaches of obligations related to the submission of control reports are halved.
All VAT payers are no longer subject to the first fine in a calendar year for submitting a control report within a substitute deadline.
If you have any queries about the 2023 tax package for the Czech Republic or need to adapt to the new rules, the experts of WTS Alfery, the exclusive representative of WTS Global for the Czech Republic will be happy to provide you with professional support.