Long-term investment account as an alternative to retirement savings

26 May 2020

Monika Lodrová, Senior Manager, Head of Personal Income Tax |

Last year, the Government of the Czech Republic presented the Concept of Development of the Czech Capital Market with the aim of increasing its competitiveness. The intention is to motivate higher use of the capital market in comparison to the money market and to reduce the outflow of investment abroad. The General Directorate of Finance proposed a draft law which is expected to be effective from 1 January 2022. One of the target groups for the concept is households and their long-term savings.

The legislature's intention is to increase household savings, the possibility of a better appreciation of these savings and a partial transfer of funds to the capital market. It is clear from practice that tax benefits for long-term financial products are an important motivation for their use. Therefore, it seems logical for the legislator to presume that extending the relevant tax advantages will lead to the fulfilment of its intentions.

The new tax-supported product should be the so-called long-term investment account. Its purpose is to create retirement savings through investments in stocks, bonds or investment funds. It should be a more dynamic alternative to traditional products, which often do not even cover inflation. The long-term investment account should be in the form of a "personal savings account" widely used in developed capital markets such as the US or the UK.

At the same time, the amendment simplifies the overly complicated construction of tax laws governing this area, in particular by introducing the legislative acronym "tax-supported retirement product" and by providing an overview of the necessary conditions for the tax benefits for products in one place. At the same time, the existing limits for deduction from the tax base to CZK 48,000 per year are merged, which should allow taxpayers greater flexibility in choosing an investment strategy.

Tax benefits

Current status

Draft law

Deduction from personal income tax base

max. CZK 24,000 to pension funds and max. CZK 24,000 to life insurance

max. CZK 48,000,
extension of supported products by long-term investment account

Exemption of employer's contribution from personal income tax

max. CZK 50 000

max. CZK 50,000,
extension of supported products by long-term investment account

Possible tax deductibility of cargo in the form of employer contribution

Without restriction

Without restriction

Contributions in favour of financial products for retirement savings are a popular benefit for employees due to their tax advantages. If you plan to update the company's benefits policy in a forward-looking way, we recommend that you also remember the new long-term investment account. If the relevant institutions offer the long-term investment account product, the draft law might bring a positive impetus to the amount people save and help them achieve greater flexibility in their long-term investment strategy.

We will keep you posted on further developments.