Tax changes 2016

23. 2. 2016

In 2016, compared to previous years, we will not be surprised by any significant tax changes, apart from the changes relating to the VAT control statement or the frequently mentioned, but not yet unapproved, electronic records of sales.Income tax

Increase in the minimum wage

With effect from 1 January 2016, the minimum monthly wage has been increased to CZK 9,900 and the minimum hourly wage to CZK 58.70 for the stipulated weekly working time of 40 hours. For the physically disabled, the minimum monthly wage is now CZK 9,300 and the minimum hourly wage is CZK 55.10 for the stipulated weekly working time of 40 hours.

The increase in the minimum wage has led to the following:

· the lower income limit has been increased to CZK 59,400 (i.e. six times the amount of the minimum wage) for entitlement to the tax bonus

· the monthly limit has been increased to CZK 4,950 (i.e. half of the minimum wage) for entitlement to the monthly bonus

· the possibility of tax relief in the amount of the documented cost of placement of a dependent child in a pre-school facility has been increased to CZK 9,900 annually for each child

· the aggregate amount of pensions exempt from tax has been increased to CZK 356,400 (i.e. thirty-six times the amount of the minimum wage)

· the limit for calculation of the solidarity tax increase has been increased to CZK 1,296,288 annually; for the monthly calculation of tax prepayment, the limit has been increased to CZK 108,024

Obligation to report income exempt from tax exceeding CZK 5 million

With effect from 1 January 2015, a provision came into force that obliges natural persons to also notify tax authorities of income which is exempt from income tax if it has exceeded 5 million in the taxable period. Such income typically includes large inheritances and gifts, sale of art collections or securities (after three years) and the like. The obligation to report income does not apply to transactions that a tax administrator can verify in the databases to which it has access (e.g. land register). The report is therefore first submitted for the aforementioned income earned in 2015. This obligation must be met by the deadline for filing tax returns for income tax.

Depreciation of incorporation expenses

With effect from 1 January 2016, the Income Tax Act does not define the incorporation expenses as intangible assets and, therefore, they may not be depreciated. Depreciation of incorporation expenses registered by the end of 2015 must be documented under the existing rules.

Reserve for handling electric waste from solar panels launched to the market before 1 January 2013

It is the first tax-deductible reserve which is created independently of accounting and which may be applied for the taxable period commenced in 2015.

Exemptions from tax

The amendment to the Act effective from 1 January 2016 expands income exempt from tax to include the following:

· pensions paid from the supplementary pension savings

· benefits from pension insurance if it has lasted for at least 10 years

· disbursements of retirement savings participants upon termination of retirement savings in the "2nd pillar"

Amendment to the Act with effect from 1 January 2017

· increases employee income exempt from tax on grounds of premiums paid by employers from CZK 30,000 to CZK 50,000

· increases the non-taxable portion of the tax base for the private life insurance, pension insurance and pension insurance with a state contribution from CZK 12,000 to CZK 24,000

Tax benefits for dependent children

The tax relief per child from 2016 will most likely be increased as follows:

1st child in the family – CZK 13,404 per year

2nd child in the family – CZK 17,004 per year

3rd and each additional child in the family – CZK 20,604 per year

The amendment to the Act increasing the tax relief for dependent children has not yet been approved, but its approval and subsequent publication of the relevant amendment to the Income Tax Act in the Collection of Laws can be expected as early as February 2016.

Value added tax

One of the main innovations concerning particularly taxpayers who have filed VAT returns in "paper" form is a new obligation to file tax returns solely in electronic form. All taxpayers must therefore file tax returns for December 2015 or, more precisely, Q4 2015 electronically (e.g. they must send the tax return "without confirmation" from the tax portal and then, within 5 days, confirm it using an "e-form").

Due to the introduction of the VAT control statement, the following will be abolished:

· records for the special scheme for investment gold

· records for reverse charge

Further information about the control statement can be found here.

Supply of immovable property

With effect from 1 January 2016, the definition of the term "building plot" has been introduced, which has a certain impact on the assessment of tax exemption in supply of immovable property. Exempt from tax is supply of a plot which does not constitute a functional unit with a building firmly fixed to the ground and, simultaneously, which is not a building plot. Since 1 January 2016, supply of certain immovable property will be exempt from tax after 5 years from the first occupancy permit or a substantial change to such immovable property.

After 1 January 2016, any taxpayer must use the reverse charge procedure if he/she decides to subject to taxation any supply to a taxpayer of immovable property for which the five-year period for exemption has already expired.

Immovable property tax

The amendment effective from 1 January 2016 specifies certain technical matters and addresses the earlier confusion in terms. In particular, it deals with the following:

· Clarification of which plots are subject to land tax and which are not, e.g. a co‑ownership share in the plot that is part of a unit in a residential building is not subject to land tax but, using the relevant coefficient, it is part of the tax on buildings and units.

· Any part of a building or unit, if completed or used, is now subject to tax on buildings and units. It includes any parts of a building or unit that enable independent use and that meet all requirements stipulated by the building permit.

· Furthermore, definitions of rules on taxation of building plots and paved areas have been further specified, and a new definition of real estate used for business has been introduced.

Tax on acquisition of immovable property

The amendment to the Act has not yet been approved, but according to the plan it should take effect on 1 August 2016. A major change will be the abolition of the choice of whether the taxpayer will be the seller or the buyer, and it will now only be the acquirer of the new property, i.e. the buyer. At the same time, the institute of the guarantor of proper tax payment will cease to exist.

Besides the above changes, the amendment also includes simplification of the determination of the tax base in the event of exchange, expansion of the subject of tax to include cases of contractual extension of the right of construction, and clarification of the regulation relating to underground services; exemption of the first chargeable acquisition of new buildings and units will now only apply to buildings and units completed or used, i.e. not to buildings and units under construction.

Finally, we would like to draw your attention to the changes in the rates of basic compensation for use of road motor vehicles, meal allowances and average fuel prices for the purposes of providing travel expenses during domestic business trips, as well as to the change in the amount of the basic rates of foreign meal allowances for the year 2016. More information on the rates can be found on the following links: domestic meal allowances; foreign meal allowances.

Bc. Pavla Tomášková, DiS.

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