Tax Reforms 2008 - Other Taxes

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

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

VALUE ADDED TAX
Change in the reduced tax rate
The lower of the Czech Republic's two VAT rates is increasing from 5 percent to 9 percent. This change will impact taxpayers who sell goods or provide services subject to the reduced VAT rate.

Housing Construction
Finance reform does not reflect the extension of the exemption for all housing construction for the application of reduced VAT rate by the Czech Republic by the end of 2010. The bill introduces the possibility to apply the reduced VAT rate only to construction designed for so-called "social dwelling" (apartments whose total floor area does not exceed 120 square meters and houses whose total floor area does not exceed 350 square meters).

Group VAT Registration
The concept of group registration, enabling persons closely bound by financial, economic or organizational links to register for VAT as a group, has been introduced. Members of such a group will not necessarily have to apply VAT to supplies they provide to other members. A group is registered for the calendar year, beginning on January 1st. Applications for a group VAT registration have to be filed by October 31st of the preceding year, however, so the advantages of group registration will probably only be felt from 2009 onward.

Binding Rulings
It's now also possible to ask the Finance Ministry to issue binding rulings on whether a product or service should be taxed according to the basic VAT rate or the reduced VAT rate. Both the provider and the receiver will have the right to request binding rulings. Applying for a binding ruling is subject to an administrative charge of 10,000 CZK.


INHERITANCE, GIFT AND REAL ESTATE TRANSFER TAXES
Inheritance Tax Relief for the Second Category
Exemption from inheritance tax was included for the second category of taxpayers ("other relatives in the collateral line," as defined by the law).

Gift Tax Relief for the First and Second Category
Exemptions from gift tax were included in the first category for taxpayers (direct relatives and spouses) and the second category of taxpayers ("other relatives in the collateral line").

Establishing Easement for No Consideration
In case a right corresponding to easement is established without consideration (or the right of perpetual performance similar to an easement) upon the acquisition of real estate by the act of donating, the right will newly be subject to gift tax instead of real estate transfer tax.


REAL ESTATE TAX
Selected Agricultural Land Relief
Tax relief on land with respect to plough land, hop gardens, vineyards, orchards and permanent grasslands (if governed by a municipal binding decree) is newly proposed. This change should be applied in 2009 taxable period for the first time.

 
EXCISE DUTIES

• Excise duty on tobacco products has been raised

• Waste oil tax benefits have been repealed

For cigarettes:

• The percentage element of the duty rate increases from 27 percent to 28 percent

• The fixed portion of the duty increases from 0.88 CZK/piece to 1.03 CZK/piece

• The minimum duty rate increases from 1.64 CZK/piece to 1.92 CZK/piece.

Excise duty on cigars and cigarillos will increase from 0.90 CZK/piece to 1.15 CZK/piece and from 905 CZK/kilogram to 1,280 CZK/kilogram for tobacco products.

Excise duty rate on waste oil increases to 660 CZK/1,000 liters.

 
SOCIAL SECURITY AND HEALTH INSURANCE
The new legislation also includes changes to social security and health insurance. The assessment base for contributions is now capped so that the employer withholds social security and health insurance contributions from the employee's salary up to a maximum of 48 times the average salary.

If an employee has more than one employer in a year, the assessment base is determined individually for each employer. When the social security and health insurance paid from the total of all assessment bases exceeds the maximum assessment base, it's possible to apply for a refund from the social security administration. The application has to be submitted within five years of the end of the relevant calendar year.

In the above case, however, the employer isn't entitled to a refund. Every employer keeps track of the maximum assessment base of their employees individually, regardless of the employees' income from other employers. When the combined social security and health insurance paid by several employers exceeds the maximum assessment base, this increases the employee's personal income tax base (calculated from "supergross income") and the employee can end up paying a substantially higher amount of tax if they change employment than if the same income was earned from just one employer.

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