Tax Reforms 2008 - Personal Income Tax

Part 1 of 3: New legislation came into effect on January 1st that dramatically changes the tax regime governing individuals in the Czech Republic

This article provided by Tax Dimension.

On October 8th, 2007, President Klaus signed an amendment, aimed at stabilizing public finances, that changed many of the country's tax laws. Most of these changes came into effect on January 1st, 2008.

Personal Income Tax | Corporate Income Tax | Other Taxes

PERSONAL INCOME TAX
Flat tax rate, changes in calculation of tax base and tax credits

A 15 percent flat rate has been proposed for individuals for the tax year 2008, dropping to 12.5 percent in tax year 2009.

The calculation of the tax base for employment income will change markedly. Taxation will be now calculated using the "super-gross tax base" -- the gross wage plus any health insurance and social security contributions covered by the employer. Health insurance and social security contributions paid by an employer will no longer be left out of the tax base.

Tax credits for 2008 will be significantly increased. In 2009, however, tax credits are due to be slightly reduced, reflecting the reduction in the tax rate.

The bill also includes an increase in tax credits for the disabled.


Employee Benefits
The tax regime governing the majority of employee benefits remains unchanged.

Expenses relating to non-monetary supplies provided by an employer in the form of access to cultural events or to recreational, health care or educational facilities (except in cases where employees are being retrained or are studying for a qualification) will be considered tax non-deductible expenses on the employer's part.

Employers will no longer have the option of deciding whether such expenses are tax deductible or tax non-deductible and thus determining the taxation of such benefits on the employee side.

The old regulations on the deduction from the tax base of employer-paid supplementary pension fund of government contributions and private life insurance contributions has been cancelled. Instead, up to 24,000 CZK of these types of contributions will be exempt.

The exemption of temporary accommodation, unless it's accommodation on a business trip provided to an employee in connection with business-related tasks somewhere other than the employee's permanent residence, will be limited to a maximum of 3,500 CZK per month.


Exemption of Income From the Sale of Securities
The six-month test for the exemption of income from the sale of securities applies only on income from the sale of investment securities and securities under collective investment schemes.

This means that only securities which can be traded on capital markets will be exempted. Such exemptions apply only to individuals whose direct or indirect capital share does not exceed 5 percent of the company's registered capital for at least 24 months prior to the sale. Income from the sale of securities acquired by the end of 2007 will be treated in accordance with the current legislation.


Joint Taxation of Married Couples
Joint taxation of married couples has been scrapped. As compensation for this, there will be an increase in the tax credit for a spouse with an annual income of up to 38,040 CZK. Tax relief has been increased from 4,800 CZK to 24,840 CZK, dropping to 16,560 CZK as of January 1st, 2009.

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