Major tax and accounting changes effective from 2021
In the following article, we present an overview of the most important tax changes for 2021. We are preparing this article at a time when some provisions of the so-called tax package are still in the legislative process (specifically, the amendment to the Income Tax Act with changes proposed by the Senate was returned to the Chamber of Deputies on 10 December 2020) and the final wording can be different.
Personal income tax
Changes in the approval process:
- Abolition of super-gross wages and solidarity tax (concerns only dependent activities and self-employed persons).
- Introduction of two tax rates for all income declared in the tax return, with the exception of capital income from abroad (e.g. dividends or interest from abroad). The current proposal includes a rate of 15% up to the limit of 48 times the average wage (CZK 1,701,168 in 2021) and 23% above this limit.
- Gradual increase of the basic discount per taxpayer in the next two years.
Changes already approved:
- Extension of the time test for the exemption of income from the sale of real estate from 5 to 10 years, for real estate acquired after 31 December 2020.
- Reduction of the annual limit of deductible interest on mortgages from CZK 300,000 to CZK 150,000 applies to the financing of housing procured after 31 December 2020.
- Flat-rate tax for self-employed persons with income up to CZK 1,000,000; notification of the application of the scheme must be submitted by 10 January 2021.
Corporate income tax
Changes in the approval process:
- The meal voucher package or the company's ability to provide its employees with a cash meal allowance in addition to a paper meal voucher.
- Change in the periodicity of submitting the form for notification of exempt income flowing abroad according to Section 38da of the Income Tax Act, once a year (until the end of January of the following year), and change in the limit for the obligation to report such exempt income from the current CZK 100,000 to CZK 300,000 per calendar month.
- Abolition of the obligation to tax amortisation of intangible assets (long-term intangible assets will be charged directly to expenses).
- Increasing the limit for including the investment among tangible assets for the purposes of ITA and technical improvement to CZK 80,000.
- Shortening the depreciation period, i.e. the introduction of extraordinary depreciation for tangible assets included in the 1st and 2nd depreciation groups and acquired in the period from 1 January 2020 to 31 December 2021.
- As part of the proposed amendment to the Accounting Act, it will be possible to fulfil the obligation to publish financial statements through the income tax administrator. As soon as the income tax return is filed in electronic form, accompanied by the financial statements, the tax administrator will submit the financial statements to the required extent to the Commercial Court. The tax administrator is obliged to submit the financial statements to the Commercial Court in electronic form without undue delay. The obligation to publish financial statements will be fulfilled at the time of submission to the relevant income tax administrator. Communication between public administration systems is being streamlined and the current two operations (filing an income tax return with the tax administrator and sending the financial statements to the Commercial Court) will be replaced by one submission.
In the area of VAT, the year 2021 will be marked mainly by the following changes:
- With effect from 1 January 2021, the possibility of taxing the rent of residential premises (e.g. family houses, flats) will be abolished. The landlords of these properties may have problems with deduction entitlements and may also have to reimburse certain VAT applied in the past to the state. Read more in a special post here.
- With effect from 1 July 2021, the European package in relation to e-commerce will enter into force. There will be new regimes for sending goods to final consumers in the EU. The current Mini-One-Stop-Shop will be expanded and a One-Stop-Shop will be created, which will enable VAT to be declared for the shipment of goods to the EU only in the Czech Republic, i.e. without the need to register in another Member State. In addition to the abolition of the VAT exemption for imports of small consignments (up to EUR 22), new arrangements will be created for the import of small consignments up to EUR 150.
An extensive amendment to the Tax Code came into force on 1 January 2021. The most important points that the amendment brings include:
- Introduction of the MY Tax portal, electronic tax administration
- The intention is to digitise, modernise and facilitate communication with tax administrators. In this context, the use and functionality of the tax information box is also expanding.
- If tax subjects file income tax returns electronically, the deadline for filing them is extended by one month to four months after the end of the tax period. This extension can already be used for returns submitted for 2020.
- Revision of the sanction system
- There is a reduction and unification of the amount of interest incurred by tax subjects, which should also be paid by the tax administrator, by about half compared to the current situation at the CNB repo rate of + 8 percentage points.
- The interest on the tax deduction for late over-deduction by the tax administrator to the tax subject will be halved (CNB repo rate + 4 percentage points).
- The tolerance period for late payment of tax is reduced from four business days to three calendar days, while interest up to CZK 1,000 is not prescribed. The tolerance period for late submission of a tax return remains five business days and the fine will not be prescribed unless it reaches CZK 1,000,
- The possibility of requesting a waiver of a fine for late submission of a tax return has been newly introduced.
- Change of control procedures
- The system of personal discussion of the commencement and termination of a tax audit is changing. The tax administrator can now perform the process of commencing and terminating a tax audit electronically, e.g. by delivering it to the tax entity's data box.
- The tax administrator may at any time switch from the procedure for removing doubts to a tax audit.
- Advance payment for excessive deduction
- The institute of an advance payment for excessive deduction has been introduced, which enables the partial payment of the claimed tax deduction if the amount of the advance reaches at least CZK 50,000. The tax administrator will therefore withhold and verify only the part of the deduction that it will have doubts about.
- The tax administrator will prescribe the advance without undue delay if the conditions for the advance are met and will return the advance within 15 days from the date of its prescription.
- Other changes
- Other changes include, for example, the obligation of the tax administration to set tax forms as a decree or the possibility for natural persons to request the assignment of their own identifier to the main part of the tax identification number (so far it has been a birth registration number).