Registration of taxable person in Slovakia

In accordance with the proposed amendments to VAT Act of Slovakia, the rules for registration of both Slovakian and foreign taxable persons will undergo significant changes. A Slovakian taxable person will become a taxable person as soon as the prescribed criteria are met and not on the date specified in the tax administrator’s decision. The threshold for income above which a Slovakian taxable person is obliged to submit an application for registration, has been raised from EUR 49,790 to EUR 50,000 or 62,500. The time period for submitting an application for registration is also shortened, i.e. within 5 days from the day a reason for registration arises (i.e. exceeding the prescribed criteria). The tax administrator will issue a registration decision within 10 days.

The conditions for the registration of a foreign taxable person will also change according to the proposed amendments to the VAT Act of Slovakia. Now such a taxable person is obliged to submit an application for VAT registration without delay, and the tax administrator is obliged to register the taxable person immediately after receiving the application.

Financial leasing, reverse-charge on import of goods, late registration

The new rules in the VAT Act of Slovakia will also affect the treatment of financial lease contracts where, at the time of conclusion, the purchase at the end of the contract represents the only economically rational choice for the lessee. Such a transfer will constitute a supply of goods and not a service.

It is also planned to introduce a reverse-charge mechanism for import of goods for domestic taxpayers who have the status of an authorised economic operator in the Slovak Republic. As a further simplification, special taxation scheme for small businesses will be introduced, as well as the possibility to deduct tax on the basis of a document other than an invoice when acquiring goods from another Member State.

Another significant change in the VAT Act of Slovakia is the introduction of some relatively strict rules for late registration as a taxpayer. The new legislation proposes to submit individual monthly tax returns for this period, together with a control statement containing the transactions on which tax liability has arisen. Once the conditions have been met, the deduction of the related input tax will be allowed.

Further changes to the VAT Act of Slovakia

Finally, the amendment would also introduce a number of minor changes, namely:

• The value of the simplified invoice is reduced to EUR 400;
• The obligation to reimburse VAT in the event of theft will be extended to any case of theft or misappropriation;
• It is proposed to change the place of supply of cultural, educational or entertainment services if they are supplied online/virtually to a non-taxable person.

Most important amendments to the Income Tax Act of Slovakia

One significant change that will affect the preparation of the 2023 tax returns in Slovakia is an amendment that will allow the deduction of employers’ expenses for the operation of their own kindergartens and childcare facilities for children up to three years of age. The employer must therefore be the founder of the facilities in question.

At the same time, the concept of ‘sports professional’ is introduced into the Slovakian law. The income of such a sports professional will be subject to withholding tax. As in the case of income from the creation and from the performance of an artistic work, the possibility will be introduced for the taxpayer to agree that no withholding tax will be levied and the sports professional will declare the income in the tax return.

The new rules will also affect the scope of taxation of incomes from non-state bond accruing to taxpayers with limited tax liability. The income in question will not be subject to tax since 2023.

With effect from April 2024, the range of buildings that are not treated as depreciable tangible asset is extended. In accordance with the new wording of the provision in question, small buildings for agricultural, forestry or hunting purposes and simple buildings for these purposes will not be regarded as depreciable tangible assets.

The amendment also introduces an exemption from taxation for in-kind income in the form of acquisition of shares by employees in start-ups.

Further changes to income taxation

Other amendments to the Slovakian Income Tax Act include the following:

• Changes to the taxation of virtual currency;
• Expansion of the range of tax-deductible expenses in the taxation of income from capital property;
• Extension of the exemption to income from the sale of stocks;
• Increase in the exemption limit for income from advertisements for charitable purposes;
• Changes in the tax bonus;
• Increase in the rate for dividends paid to an individual to 10%;
• Introduction of a minimum tax for corporations;
• Increase in the limit for the application of the reduced corporate income tax rate up to EUR 60,000.

If you want to know more about the 2024 changes to Income Tax Act and VAT Act of Slovakia or other tax issues in the country, we recommend you visit the website of Mandat Consulting, k.s. and contact the local WTS experts in Slovakia.

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Safe harbour rule in Slovakia

One of the most important changes to the Income Tax Act of Slovakia is the specification of the determining method of the economic ties between close persons (e.g., husband and wife). The new method has to be applied from 1 January 2023. Furthermore, the legislator clarified the definition of a controlled transaction when a dependent activity is not considered as a controlled transaction.

In this context, following the example from other countries, a safe harbour rule is being introduced in the Income Tax Act of Slovakia. The rule exempts taxpayers from the obligation to document the valuation method and conditions in controlled transactions. The safe harbour includes controlled transactions from which taxable income earned or tax expense deducted is not exceeding EUR 10,000 or EUR 50,000 in the case of the loan principal.

Furthermore, the procedure for calculating the difference by which the prices or conditions in controlled transactions differ from the prices or conditions that would be used between independent persons, is specified. This procedure shall be in accordance with the OECD Transfer Pricing Guidelines.

Changes related to PEs and APAs

From 2023, the rules for determining the tax base in the case of existence of a permanent establishment (PE) in the Slovak Republic have also been clarified, as in the case where a non-resident taxpayer does not have a permanent establishment, but the income earned within the territory of the country is also taxable in the country according to international law. When determining the tax base of a permanent establishment, it is also recommended to respect the procedure in accordance with the OECD Transfer Pricing Guidelines.

At the same time, the tax administrator’s procedure is specified in cases, where the prices in controlled transactions do not correspond to the arm’s length principle. From the new year, the Ministry of Finance of the Slovak Republic can also issue a decision in advance pricing agreement (APA) for more than five tax periods, and at the same time, taxpayers can also submit the transfer pricing documentation in a foreign language.

Other changes to the Income Tax Act of Slovakia

The Income Tax Act of Slovakia will be amended with the possibility of legal write-off of the receivable in the case, if the receivable has ceased to exist as a result of forgiveness during preventive restructuring. Also, the creation of adjustments to receivables against the debtor in preventive restructuring will be a tax-deductible expense.

The last significant change to the Income Tax Act of Slovakia effective from 1 January 2023, is the new procedure of taxpayer’s registration, where the tax administrator will register the taxpayer ex offo on the basis of data from publicly available registers. The tax administrator will announce such fact on the website of the Financial Directorate of the Slovak Republic.

As the result of the transposition of the ATAD directive, a rule is also being introduced to limit the tax deductibility of net interest costs if their amount exceeds EUR 3,000,000. The aforementioned rule will take effect on 1 January 2024, the aim is to prevent the artificial erosion of corporate tax bases through debt financing. The tax base will be increased by interest, that exceeds 30% of the tax EBITDA indicator. At the same time, the tax administrator allows the transfer of unused interest to future tax periods.

If you want to know more about the latest amendments to the Income Tax Act of Slovakia or other tax issues in the country, we recommend you visit the website of Mandat Consulting, k.s. and contact the local WTS experts in Slovakia.

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Withholding tax

According to the above-mentioned amendments to the Romanian Fiscal Code, the tax on dividends paid to non-residents becomes 8% applied to the gross dividend (instead of 5%), starting with dividends distributed after 1 January 2023. Nevertheless, the exemption / reductions based on European directives or double tax treaties can be applied (if the required conditions are fulfilled).

Corporate income tax 

The CIT-related changes of the Romanian Fiscal Code affect from one hand the exemption of reinvested profits. Starting from 1 January 2023, other assets are eligible for the exemption from corporate income tax regarding the reinvested profit. Investments in assets used in the production and processing activity, the assets representing refurbishment will be exempted from corporate income tax (these assets will be established by order of the Minister of Finance).

Another CIT-related change of the Romanian Fiscal Code affects the dividend tax which is computed by applying an 8% tax rate on the gross dividend paid to a Romanian legal entity (instead of the current 5%).

Both of these provisions apply to dividends distributed after 1 January 2023.

Micro-enterprise tax

The amendments to the Romanian Fiscal Code significantly modify the regime of the income tax of micro-enterprises as well.

The conditions that must be met cumulatively by a company in order to be a taxpayer on the tax of micro-enterprises (these must be met on 31 December of the previous fiscal year) are amended as follows:

• revenues must not exceed the RON equivalent of EUR 500,000 (instead of the current EUR 1,000,000);
• its share capital is held by persons other than the state and the administrative-territorial units (condition currently in force);
• it is not in dissolution, followed by liquidation, registered in the trade register or in the courts, according to the law (condition currently in force);
• the company generates revenues, other than those from consulting and / or management, in proportion of over 80% of the total revenues (new condition);
• the company has at least one employee (new condition – respectively, the differentiated tax rate is no longer applied in relation to the existence or not of the employee);
• the company has associates / shareholders who hold over 25% of the value / number of participation titles or voting rights to at most three Romanian legal entities that apply to apply the income tax regime of micro-enterprises, including the analyzed company (if they are more than three Romanian companies, the three legal entities paying the micro-enterprise tax will be established, and the rest of the legal entities will become corporate income tax payers) – new condition.

Given the above conditions, from 2023 the tax rate becomes 1% in all cases. The tax regime becomes optional upon the registration of the company. The option can be exercised after registration if certain conditions are observed.

Micro-enterprises cannot opt ​​for the payment of the corporate income tax during the fiscal year, the option being able to be exercised starting with the following fiscal year, with certain exceptions.

Special rules for leaving the income tax system of micro-enterprises during the year were also established.

Example: If during a fiscal year a micro-enterprise generates revenues higher than EUR 500,000 or the share of revenues from consulting and / or management in total revenues is over 20% inclusive, it owes corporate income tax starting with the quarter in which any of these limits are exceeded, without the possibility to opt to apply the micro-enterprise tax afterwards.

VAT

According to the amendments to the Romanian Fiscal Code, amongst the goods subject to 9% VAT rate, the list of food products / other similar goods, as well as of the products used in agriculture was modified.

The VAT rate increases to 9% (from 5%) for hotel accommodation, restaurant and catering services (with certain exceptions).

The delivery of homes with a VAT rate of 5% to individuals applies to homes with a usable area of up to 120 square metres, excluding household annexes, whose value, including the land on which they are built, does not exceed the amount of RON 600,000, excluding VAT. Any natural person can purchase, starting with 1 January 2023, individually or jointly with another natural person / other natural persons, a single home whose value does not exceed the amount of RON 600,000, excluding VAT, with a reduced rate of 5% (there are transitional measures for 2022).

If you would like to know more about the latest amendments to the Romanian Fiscal Code or if you have any tax related question in Romania, please visit the homepage of Ensight, the exclusive representative of WTS Global in the country.

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Reinvested profit

One of the most important amendment of the Fiscal Code of Romania affects the reinvested profit exempt from CIT. It represents the cumulated gross accounting profit from the beginning of the year obtained until the quarter / year of commissioning of the eligible assets. The CIT exemption related to the performed investments is granted within the limit of the cumulated CIT computed from the beginning of the year until the quarter / year of putting the assets into operation.

Place of effective management

The definition “place of effective management” (POEM) has also been changed in the Fiscal Code of Romania. According to the new definition, a foreign legal entity is considered to have the POEM in Romania if it performs operations that correspond to economic, real and substantial purposes. It also has to meet at least one of the following conditions:

• the economic-strategic decisions necessary for the management of the activity of the foreign legal entity as a whole are taken in Romania by the executive directors / members of the board of directors; or
• at least 50% of the executive directors / members of the board of directors of the foreign legal entity are Romanian residents.

If a foreign legal entity is considered to have the POEM in Romania and is considered Romanian resident, it will have, amongst others, to have accounting records in Romania, to register as a CIT payer and to maintain its residence in Romania for a period of at least one fiscal year.

Non-deductible expenses with entities from non-cooperating states

Expenses incurred as a result of transactions with a person located in a state included in the EU List of non-cooperating jurisdictions for tax purposes (American Samoa, Anguilla, Barbados, Fiji, Guam, Palau, Panama, Samoa, the Seychelles, Trinidad and Tobago, the American Virgin Islands and Vanuatu) are non-deductible in the computation of the CIT.

Fiscal consolidation for CIT purposes

The amendment to the Fiscal Code of Romania introduces the concept and rules for CIT fiscal consolidation. The fiscal group for CIT purposes consists of at least two of the following entities:

• a Romanian legal person / legal person with its registered office in Romania established according to European legislation and one or more Romanian legal persons / legal persons with registered office in Romania established under European legislation in which it holds, directly or indirectly, at least 75% of the value / number of participation titles or their voting rights;
• at least two Romanian legal entities in which a Romanian natural person holds, directly or indirectly, at least 75% of the value / number of participation titles or voting rights;
• at least two Romanian legal persons held, directly or indirectly, in proportion of at least 75% of the value / number of participation titles or voting rights, by a legal / natural person, resident in a state with which Romania has concluded a double tax treaty or in a state with which an agreement on the exchange of information has been concluded;
• at least one Romanian legal person held, directly or indirectly, in proportion of at least 75% of the value / number of participation titles or voting rights, by a legal person resident in a state with which Romania has concluded a double tax treaty or in a state with which an agreement was concluded regarding the exchange of information and the permanent establishment / designated permanent establishment in Romania of this foreign legal entity.

The period of application of the fiscal consolidation system is five fiscal years and starts with the next fiscal year following the submission of the application (hence, it can be applied starting with 2022). The system is optional and is required to be communicated at least 60 days before the start of the period for which the fiscal consolidation is requested.

Certain cumulative conditions must be met, such as the fulfilment of the holding condition for an uninterrupted period of one year, prior to the beginning of the fiscal consolidation period. A legal person will be appointed for computing the consolidated fiscal result of the fiscal group, submitting the CIT return and paying the CIT on behalf of the group.

Each member of the fiscal group determines the fiscal result individually, and the consolidated fiscal result of the fiscal group is determined quarterly / annually by summing the fiscal results determined individually by each member of the fiscal group. The CIT is calculated by applying the rate of 16% on the positive consolidated fiscal result of the group. Each member of the fiscal group has the obligation to prepare the TP documentation which will include both the transactions carried out with the members of the fiscal group, as well as with the affiliated entities outside the fiscal group.

Special rules are provided both for entering / leaving the fiscal group and for cases in which the group no longer meets the mandatory conditions during the five years. 

Changes to VAT in the Fiscal Code of Romania 

The most relevant VAT-related amendments to the Fiscal Code of Romania include the increase of ceiling for VAT-cash accounting system and the VAT exemptions for certain imports.

The ceiling for entities wishing to apply the VAT cash accounting system has increased from RON 2,250,000 (roughly EUR 460,000) to RON 4,500,000 (roughly EUR 920,000).

According to the new rules in the Fiscal Code of Romania amongst others, the VAT is not actually paid to the customs authorities for certain imports of goods subject to simplification measures (for example, imports of cereals), made by entities registered for VAT purposes (if certain conditions are met). The VAT will be paid through the reverse charge mechanism.

If you would like to know more about the latest amendments to the Fiscal Code of Romania or if you have any tax related question in Romania, please visit the homepage of Ensight, the exclusive representative of WTS Global in the country.

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“Look-through” approach

The planned amendments to the Russian Tax Code include a number of significant restrictions on applying the “look-through” approach:

• Dividends received by a company (Russian tax resident) under the “look-through” approach cannot be taxed at the 0% rate – the standard 13% income tax rate will be applied.

• The provision that an indirect participation of one company in another equates to a direct participation for the purpose of applying the “look-through” approach has been deleted. Given that the draft law cancels the possibility of applying a zero rate on dividends for Russian companies, it would seem logical to exclude this provision. However, we should not forget that the “look-through” approach was used not only by Russian but also by foreign holding companies, albeit in very limited cases. The exclusion of the provision on equating indirect participation with direct participation actually introduces additional restrictions on the application of the “look-through” approach by foreign holding companies.

It should be noted that the above rules only apply to the taxation of dividends, and the procedure for applying the “look-through” approach to other types of income (interest, royalties, etc.) remains unchanged.

Application of dividend exemption by foreign companies that are tax residents of the Russian Federation

The amendments to the Russian Tax Code would exclude the rule that – provided some conditions are met (including holding an investment for more than a year and at least 50%) – foreign companies that are tax residents of the Russian Federation can apply the 0% rate to dividends received if they have voluntarily recognised tax residency in the Russian Federation.

Although we can conclude from reading some of the remaining rules that this is technically possible, together with the above-mentioned cancellation of the “look-through” approach, it can be assumed that the intention is to prevent a situation where a Russian company transfers dividends to a foreign company without paying income tax, even if such a foreign company is a tax resident of the Russian Federation. Thus the above change creates serious uncertainty in the taxation of dividend income received by foreign companies that are tax residents of the Russian Federation.

It is important to monitor the further development of the draft law and the appearance of additional explanations.

Elimination of double taxation for individuals in respect of dividends from foreign public companies

According to the planned amendments to the Russian Tax Code an individual who is a tax resident of the Russian Federation can voluntarily recognise their dividend income from a Russian company that is paid through a foreign organisation, as well as reflect them in the personal income tax declaration (subject to a number of conditions).

At the same time, an individual who has reflected such dividends in their income will be able to reduce the amount of personal income tax on these incomes by the amount of tax withheld by a Russian company when transferring dividends to a foreign organisation.

Clarification of the five-year exemption for the sale of shares of Russian organisations

The amendments to the Russian Tax Code would also exclude the condition that the 0% rate could be applied for the sale / disposal of listed shares of Russian organisations if the share of real estate in the territory of the Russian Federation as part of the assets of such companies was less than 50%.

Current status of draft law on amendments to the Russian Tax Code

After the end of the current stage (public discussion), the draft law will be considered by the Government of the Russian Federation. We hope that when formulating the final text of the draft law, the ambiguities and contradictions contained in the current version will be eliminated.

If you would like to know more about the planned amendments to the Russian Tax Code or receive further information about the future status of the draft law, please contact the experts of ALTHAUS Group, the exclusive representative of WTS Global in Russia.

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The Czech tax package 2019 brought significant changes also to the Czech VAT Act and to the Tax Code, but in our present article we only highlight some of the main changes to the Income Tax Act. About other amendments you can either read our earlier summary or the updated, latest newsletter of WTS Alfery, the exclusive representative of WTS Global for the Czech Republic.

In particular, the Czech tax package 2019 shall implement EU Directive 2016/1165 (ATAD) laying down the following five rules against tax avoidance practices:

Limitation on the deductibility of excessive borrowing costs

 Borrowing costs exceeding the associated income of a tax period shall be tax deductible only up to CZK 80 million (roughly EUR 3 million) or up to an amount corresponding to 30% of earnings before interest, taxes, depreciation and amortization (EBITDA), whichever is the greater. Borrowing costs exceeding the above thresholds shall be considered tax non-deductible; however, they may be deducted in the following years.

Unlike thin capitalisation rules, the new rules will also cover loans from unrelated parties. Moreover, the definition of borrowing costs shall be much broader than under the thin capitalisation rules. For example, capitalized interest or exchange differences related to funding shall also be subject to these rules. The thin capitalisation rules shall continue to apply, which means that ATAD introduces yet another rule applying to borrowing costs.

Exit tax in the Czech tax package 2019

With effect from 2020, transfers of assets without changing ownership shall be subject to tax as if they were sales of assets. This applies, for example, to situations in which a Czech company transfers its assets to its permanent establishment abroad or changes its tax residency.

The difference between the market value and the tax value of assets shall serve as the corporate tax base. In certain cases, payments of this tax may be split into several instalments over the following five years.

CFC rules in the Czech tax package 2019

 Starting from this year, a Czech company is obliged to include the revenues of a foreign company in its tax base if the foreign company is considered to be a controlled entity.

A controlled entity shall mean an entity in the capital of which a Czech company has – whether directly or indirectly – a holding exceeding 50% where, at the same time, the foreign entity does not carry out any significant economic activity, its tax liability abroad being less than half the tax liability this company would have had were it taxed under Czech tax law.

A Czech parent company will be allowed to set off any tax the controlled subsidiary has paid on its income abroad against the parent company’s own tax liability.

 Click here if you want to read the full article about further changes of the Czech tax package 2019 on the homepage of WTS Alfery, the exclusive representative for the Czech Republic of WTS Global.

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As we have already covered in an earlier article, in June 2018 the Government of the Czech Republic adopted a set of tax amendments for 2019. The tax package includes significant amendments to the Czech Income Tax Act, the Czech VAT Act and the Tax Code, of which we will now discuss the most important changes to the Czech VAT Act.

The country’s Ministry of Finance prepared an extensive amendment to the Czech VAT Act, which was presented to the Lower House (Chamber of Deputies) in June 2018. As the Lower House of the Czech Parliament has only begun to discuss the draft amendment, it might go through significant changes. However, we would like to point out some of the most important envisaged changes to the Czech VAT Act, that should come into effect (with certain exceptions) in 2019.

Vouchers

One of the most significant changes to the Czech VAT Act will be the implementation of the EU directive governing vouchers. In January 2019, Council Directive (EU) 2016/1065 shall become effective on the basis of which EU Member States are obliged to unify the rules for issuing and using vouchers. Basically, single-purpose and multi-purpose vouchers will be distinguished. Single-purpose vouchers are vouchers for supplies for which there is sufficient advance information (i.e. the tax rate and the place of delivery or performance). The other vouchers are multi-purpose vouchers. The transfer of a single-purpose voucher shall be considered to be a supply of goods or provision of services which is no longer subject to tax at the time the voucher is used. With multi-purpose vouchers, the opposite procedure shall apply.

Ban on the application of VAT to the lease of residential houses

Currently, VAT payers may decide whether or not they will tax the rent for real estate leased to another VAT payer. In future, the taxation of rents will not be possible in the case of buildings intended to serve as a principal residence. As a result, the landlord shall not have the right to claim related VAT deductions. If the right to deduct VAT was already exercised in the past, this will have to be adjusted by repaying its proportional share. However, this change should take effect as late as 2021.

Deduction adjustments in connection with repair of real estate

Adjustments to VAT deductions should be made not only for technical improvements but also in the case of real estate repairs. Taxpayers who carry out real estate repairs to a value exceeding CZK 200,000 (roughly EUR 7,700) excluding VAT shall be obliged to monitor whether the real estate is sold applying tax exemption within a period of 10 years after the repair was carried out. If so, the taxpayer shall repay a part of the originally claimed VAT deduction.

Obligation to make the necessary effort to deliver tax documents

The amendment to the Czech VAT Act shall impose a new obligation on the issuers of tax documents. The taxpayer shall be obliged to make the necessary effort to deliver a tax document within the set time limit. In the case of doubt as to whether the taxpayer has fulfilled this obligation, the tax administration shall be allowed to impose on the taxpayer a special recording obligation.

The above obligation might have positive effects for the issuers of credit notes. According to the draft, credit notes may be included in VAT returns in the period in which the taxpayer sends it to the customer if they make the necessary effort to deliver the credit notes. Currently, taxpayers may reduce output VAT only after the customers have received the credit notes.

Other changes expected to the Czech VAT Act

From 2019 new requirement will be in effect for corrective tax documents (credit and debit notes). It means that both credit and debit notes shall include the date of taxable supply, which should be the date when the correction was performed. Currently, there are frequent discrepancies between how customers and suppliers show credit and debit notes in control statements.

According to the current legislation, persons and entities that have registered for VAT may claim VAT deductions for costs incurred within 12 months prior to registration in their first tax return. According to the amendment, tax deductions may be claimed for long-term investments for a period of 5 years before the registration for VAT was made.

The amendment related to taxation on the supply of goods with assembly by a Czech tax non-resident shall apply to situations where both the supplier and the customer are VAT payers, the supplier being a Czech tax non-resident. Under the current rules, this supply of goods with assembly is subject to self-assessment by the customer. According to the draft amendment, the supplier shall be obliged to issue the invoice for such supply with Czech VAT.

Click here if you want to read the full article about the changes to the Czech VAT Act on the homepage of WTS Alfery, the exclusive representative for the Czech Republic of WTS Global.

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In June 2018 the Government of the Czech Republic adopted a set of tax amendments traditionally referred to as the 2019 tax package for the Czech Republic. This tax package, containing, in particular, amendments to the Income Tax Act, the Value Added Tax Act and the Tax Code, should go through the standard legislative process by the end of 2018.

Amendment to the Income Tax Act in the 2019 tax package for the Czech Republic 

The Income Tax Act has undergone the most significant changes. Several measures are proposed to prevent tax avoidance in connection with the transposition of the EU Anti-Tax Avoidance Directive (ATAD).

The amendment – mainly aimed at major corporations – include the following:

• Limitation on the deductibility of borrowing costs (interest, etc.) from the tax base to a maximum of CZK 80 million (roughly EUR 3 million) or 30% of an entity’s EBITDA, applying both to related and unrelated parties. The traditional thin capitalization rules shall continue to apply.
• Taxation on the relocation of property abroad without change of ownership (exit tax) where the relocation of property connected with a change of tax residency is taxed as if the property were sold.
• Taxation of foreign companies controlled by a Czech entity (CFC rules)
• Anti-abuse rules (rules to prevent abuse of mismatches in Member States’ tax systems).

As the above changes should be implemented into Czech law by the end of 2018, the Chamber of Deputies is expected to make efforts to meet the proposed effective dates.

Additional reporting of exempt income 

The 2019 tax package for the Czech Republic also affects corporations paying dividends, royalties, interest or other income that is subject to withholding tax under Czech law but are exempt from tax, for example, under a bilateral double tax treaty.

Henceforth, these exempt payments shall be reported to the tax administration on a monthly basis if such income paid to one non-resident exceeds CZK 100,000 (roughly EUR 3,800) per month. In certain cases, applications for exemption from this notification obligation may be filed.

Natural persons 

To put you completely in the picture, it should be noted that the originally proposed changes to the taxation of natural persons have not been adopted. Thus, the super-gross salary concept, the uniform tax rate of 15 % and the solidarity tax increase continue to apply.

Amendment to the VAT Act 

The tax package also affects the VAT Act by which the EU directive governing electronic commerce and vouchers and the determination of the tax base for virtual currency payments (such as Bitcoin payments) is being implemented. Moreover, the amendment should lay down more detailed rules for the calculation of the right to partial tax deduction, increase the possibilities for claiming tax deduction upon registration for VAT and govern penalties related to control statements.

Amendment to the Tax Code 

As part of the tax package, the Ministry of Finance proposes that the prohibition of abuse of law is explicitly included in the Tax Code. This principle has so far been applied only on the basis of the Czech courts’ case law since there has been no explicit reference to it in tax legislation.

An abuse of law occurs where there are no proper financial reasons for a transaction since its main purpose or one of its main purposes is to gain a tax or other advantage contrary to the spirit and purpose of the tax legislation. The burden of proof regarding the non-existence of financial reasons for a transaction shall lie with the tax administration. 

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