Consolidation Package

The Consolidation Package, which aims to reduce the budget deficit over the next two years, was signed into law by the Czech President, enabling the measures to take effect as early as 1 January 2024. Below we summarize information on selected tax changes.

• Changes to personal income tax
• Social security/sickness insurance
• Corporate income tax
• Accounting
• Value added tax and excise duties
• Changes to gambling tax
• Real estate tax

Changes to personal income tax

Tax rate

For personal income tax, there will be a change in the application of progression. The tax rate for the second progression band of 23% will now be applied from 36 times the average wage (monthly income exceeding approximately CZK 121,000). Until now, this threshold for applying the higher tax rate has been set at 48 times the average wage (monthly income exceeding approximately CZK 161,000). The maximum annual base for social security contributions remains the same, i.e., at 48 times the average wage.

Tax exemptions

Non-monetary benefits
The amendment introduces a limitation on the exemption for non-cash benefits provided to employees—under Section 6(9)(d) of the Income Tax Act—at the level of half of the average wage (for 2023 the limit would be CZK 20,162 per year; for 2024 it changes to CZK 21,984). These benefits consist of, e.g., the possibility to use medical, educational, recreational, sporting and cultural facilities; the purchase of health goods and services; a contribution to cultural and sporting events; printed books; and the provision of recreation.

Tax support for employee meals
From 2024, the amendment should unify the conditions for providing meals to employees. The current limits for the meal allowance (for 2023 totalling CZK 107.10 per day/shift) will also apply to non-monetary meals, such as meal vouchers or company meals.

Sale of securities
The tax exemption on the sale of securities and shares in companies will also be reduced. In addition to the current time test (3/5 years of holding), the amendment introduces a new exemption limit of CZK 40,000,000 per year per taxpayer. In this context, the possibility to “revalue” the acquisition value as an alternative option for determining the deductible expense is newly introduced, namely at the market value according to the Act on Valuation of Property as of 31 December 2024.

Tax credits

A new restriction will apply to the spousal tax credit. Under the amendment, it will be possible to use this tax credit only if the spouse living in a joint household takes care of a child under 3 years of age.

Furthermore, for the 2024 tax year, it will no longer be possible to apply the discount for placing a child in a pre-school (for 2023 totalling CZK 17,300), and the student discount of CZK 4,020 is abolished.

Special limited employment agreements

For an employee who works on the basis of a special limited employment agreement, there are two new limits for participation in sickness insurance, and therefore for social security and health insurance, namely:

1. Limit for special limited employment agreement with one employer of 25% of the average wage;
2. Limit for special limited employment agreement for multiple employers in aggregate of 40% of the average wage.

If the employee exceeds the limit, social security and health insurance will be deducted from the agreement (or from each agreement in the case of multiple agreements).

Social security/sickness insurance

Employees

Under the amendment, sickness insurance for employees will be introduced at the rate of 0.6%. From 2024, social security insurance should therefore increase to 7.1% (the existing 6.5% pension insurance is increased by the sickness insurance).

Self-employed

The amendment also increases the social security base for self-employed persons from 50% of the partial tax base for self-employment to 55% from 2024.

The minimum monthly social security base for self-employed persons will also be increased by 5% each year from the current 25% of the average wage to 40% of the average wage in 2026, i.e., to 30% of the average wage in 2024.

It should be noted that the changes in question concern only social security contributions. Public health insurance is not affected.

Corporate income tax

Tax rate

The corporate tax rate will increase from the current 19% to 21%.

Tax deductibility limit for vehicles (passenger cars)

The amendment further limits the tax deductibility for the purchase of vehicles of category M1 (with certain exceptions) that will be put into use after 1 January 2024 to CZK 2 million of the vehicle price.

Still wine

Still wine up to CZK 500 will no longer be tax deductible as part of entertainment expenses.

Catering

Meal allowances resulting from a collective agreement, internal regulation or contract between the employer and the employee should remain tax deductible under Section 24(2)(j)(5) of the Income Tax Act on the employer’s side. The same applies to meals in kind (meal vouchers, company lunches), which should now be tax deductible without limit.

Non-monetary benefits

Expenses on non-monetary benefits for employees in the form referred to in Section 25(1)(h) of the Income Tax Act will be tax-deductible for the employer if they are also exempt for the employee under Section 6(9)(d) of the Act (see information above).

Option to exclude unrealised exchange differences

It will now be possible to exclude unrealised exchange rate differences from the tax base and include them only in the period when the exchange rate difference is realised. To apply this scheme, it is necessary to submit a notification to the tax authority.

Accounting

Functional currency

The consolidation package also includes the option to keep accounting books in a functional currency, which can be euros, US dollars or British pounds. The functional currency is the currency of the primary economic environment in which the entity operates. The method of determining the functional currency and the transition to another accounting currency should be regulated by an amended decree to the Accounting Act.

Value added tax and excise duties

VAT rate

The amendment reduces the number of VAT rates from the original three (10%, 15% and 21%) to two, namely a reduced tax rate of 12% and the basic tax rate of 21%.

Books meeting the definition of the law will be exempt from output VAT with a right to deduct input VAT.

Because the COVID-19 crisis and the EET obligation have ended, the amendment also moves certain items that were included in the first or second reduced rates to the basic VAT rate. These include, e.g., draught beer, hairdressing and barbering services, and shoe repairs. However, printed newspapers will continue to be subject to the reduced VAT rate of 12%.

Restrictions on the right to deduct for passenger cars

The amendment sets a limit on the amount of input VAT that can be applied to the acquisition of a passenger car that is a fixed asset. The maximum amount of VAT applicable is CZK 420,000.

Excise duties

Under the amendment, the excise duty on tobacco (cigarettes, smoking tobacco, cigars, cigarillos) will increase by 10% in 2024 and 2025, and by 5% in 2026.

Excise duty increases will also affect the tax on alcohol by 10% in 2024 and 2025, and by 5% in 2026.

Changes to gambling tax

The amendment increases the tax rate on live gambling, bingo, betting, betting odds, sweepstakes, raffles and small-scale tournaments from the previous 23% to 30%. The tax rate for other lotteries and technical games remains at 35%.

Real estate tax

From 2024, real estate tax rate is also to be increased to approximately 1.8 times, with the entire revenue from this tax still going exclusively to municipalities. In exchange, the budget allocation for shared taxes will be changed in favour of the state.