President Petr Pavel has signed the “Konsolidační balíček” – a package of measures to revitalise the Czech Republic’s economy, which will reduce the budget deficit by CZK 150 billion totally in the next two years. The measures out of 65 amendments to laws will start to take effect on 1 January 2024.
We have selected the main changes that will affect every Czech taxpayer:
1. Profit tax increase for legal entities .
Income tax will change from the current 19 % to 21%. In addition, companies with the majority of their operations in foreign currencies will be able to keep records in these currencies, in particular in Euros, US Dollars or British pounds, from 2024.
2. VAT Changes
Instead of two reduced rates in 10% and 15% there will be a single rate of 12%.
The rate on food, housing and medical goods will be reduced.
Some goods and services, that were previously subjected to the reduced tax rate, now will be moved to the standard rate of 21%. Goods, such as: cut flowers, draught beer, firewood, as well as services of hairdressing, shoe repairing and rubbish collection services fall under this change.
Due to divergent views within the coalition, goods such as sweet mineral water, hygiene products and nappies were not included in the reduced rate category.
Newspapers and magazines will be included in the 12 % tax rate, while books will be completely exempt from value added tax.
3. Income tax for individuals.
There are currently two income tax rates – 15% and 23%. The higher rate applies to income exceeding 4 times the average salary, which is currently CZK 161,300 per month. The new proposal would lower the threshold for applying the higher rate to 3 times the average salary, which corresponds to CZK 121,000 per month. This change will also affect self-employed persons, who will pay a higher tax rate on profits exceeding 36 times the average salary, rather than 48 times as currently.
4. Increasing of Social insurance contributions for the self-employed.
In 2024-2026 the minimum base for social insurance contributions for the self-employed will increase from 25% to 40% of the average wage, i.e. by 5 percentage points per year, which will bring the minimum base for contributions closer to the minimum wage. At the same time, self-employed persons will pay insurance contributions from at least 55% of the tax base instead of the current 50%.
| 2023 | 2024* | 2025* | 2026* | |
| Minimální vyměřovací základ | 25% | 30% | 35% | 40% |
| Vyměřovací základ | 50% | 55% | 55% | 55% |
Employees will start paying sickness insurance contributions again, the rate is – 0.6%.
5. Tax discounts.
The tax credit for placing a child in pre-school and the student discount is completely abolished. The rules for the spouse discount are also changing, now only the spouse caring for a child under the age of 3 will be eligible for the discount.
6.Income from lotteries and gambling.
The income tax exemption limit is reduced from CZK 1 million to CZK 50,000. The fulfilment of this limit is calculated as the difference between the amount of winnings and the amount of deposits during one tax year. If the difference exceeds the limit, income from gambling winnings is taxed in accordance with the treatment of other income (§10 of the Income Tax Act).
7. Property tax.
It will be increased by 80%. Municipalities are given the right to introduce a local coefficient for agricultural land (arable land, vineyards, hops, orchards and gardens) in the amount from 0.5 to 1.5. Thus, municipalities will be given the possibility to introduce a local coefficient ranging from 0.5 to 5.0. At the same time, municipalities retain the right to exempt such land from tax fully.
8.Excise duties.
Excise duty on alcohol will be increased by 10 % in 2024 and 2025 and 5 % in 2026. Wine will remain exempt from excise duty, although there has been some disagreement within the coalition over its taxation, politicians intend to review the issue.
Excise duty on cigarettes, smoking tobacco, cigars and cigarillos is also being increased by +10% in 2024 and +5% in 2025-2027. There is a regular tax increase on heated tobacco by +15% in 2024-2027, as well as a new excise tax on e-cigarettes and its gradual increase of 2.5 Kč/ml refills in each year 2024-2027 and on nicotine sachets a gradual increase of 0.4 Kč/g in each year 2024-2026 to 0.5 Kč/g in 2027.
9. Toll roads will also become more expensive – by CZK 800, from the current CZK 1,500 to CZK 2,300 per annual stamp. Their valorisation is also being introduced.
10. Regulation of the DPP work contract.
There are two new limits for an employee employed under a DPP work contract – these are the limits for social security contributions. The first limit will apply in the case of a single employer and will be 25 per cent of the average wage. The second limit will apply in situations where a person works under more than one DPP for different employers, and this limit will be 40% of the average wage. If the employee exceeds one of these limits, his or her salary will be subjected to social security and medical contributions as a classic salary. In order to control this measure, it will be necessary to keep records of all DPPs and the income from these agreements.
11. Limiting the exemption of non-cash employee benefits.
All previously tax-exempt non-monetary payments provided by an employer to an employee as a salary benefit will be exempt from personal income tax for the relevant tax period on the part of the employee only up to the limit of half of the average salary (currently CZK 21,125 per year). Employees will still be able to receive, for example, benefits for holidays, cultural or sporting events, printed publications, etc. as before. Benefit exemptions will be exempted up to a set limit. Supplementary pension insurance remains exempt without change.
12. Restriction of income exemption from the sale of securities and trading interest.
The limit of exemption from tax on income from the sale of a trading interest in s.r.o. and shares in the amount of CZK 40,000,000 per tax period starting from 1 January 2025 has been set. However, it is possible to reassess the acquisition value of these shares and the share as of 31 December 2024, so that only the increase in value after 1 January 2025 will be taxable.
A significant limitation on the possibility of reducing the tax base of “odčitatelné položky” was also introduced, state support for “stavební spoření” was reduced to CZK 1,000 per year for new and existing contracts, the possibility of a tax deduction for wine as a gift worth up to CZK 500 for promotional purposes was abolished, a limitation of the tax deduction for the purchase of passenger cars for business purposes to the first CZK 2 million of the value of the car was introduced and much more.
In conclusion, the adopted package represents a fundamental change in the economic sphere, the biggest tax increase in the Czech Republic’s modern history. In a series of articles we will go into more detail about all the changes that will affect each of us.
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