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KPMG: Tax reform to be discussed by the Senate

Amendments prepared in connection with the introduction of the Single Collection Point will shortly be discussed by the Senate, after the Chamber of Deputies approved Print No. 473 in the third reading. A motion to postpone the effective date of this Act to 2014, as agreed by the Coalition, was withdrawn during the discussions and, therefore, the Act should come into effect from 2013. However, it is generally expected that this will be postponed to 2014. The Amendment to the Act on Lotteries should apply from 1 January, 2012.

The major changes to be introduced by the amendments are:

  • Full exemption of dividends paid to individuals and legal entities in the Czech Republic and abroad, with certain exceptions.
  • Extension of the time test for holding securities from six months to three years for tax exemption purposes. In addition, an annual limit of CZK 100,000 is to be introduced, up to which income from the sale of securities is fully exempt from tax.
  • Cancellation of the super-gross wage and an increase in the personal income tax rate, to 19%.
  • Cancellation of the preferential tax treatment of certain employee benefits and introduction of an annual tax credit of CZK 3,000 for employees.
  • Preservation of the preferential tax treatment of meal vouchers.
  • Reduction of the maximum deductible limit for mortgage interest to CZK 80,000 per year.
  • Transfer of two percentage points in the rate of health insurance contributions from the employer to the employee (i.e. to 6.5% for employees and 7% for employers).
  • Introduction of a payroll tax, instead of separate social and health insurance contributions by employers (at a rate of 32.4%). A maximum assessment base of 48 times the average national monthly wage will be applied as the sum total for all employees.
  • Preservation of the tax relief relating to investment incentives.
  • Simplified creation of provisions for receivables.
  • Extended opportunities for banks to create tax provisions for receivables from debtors with their registered office outside the EU.
  • Reduction of the tax rate applicable to collective investment funds to zero and the introduction of a special withholding tax of 19% on such funds‟ profits to investors which are legal entities.
  • Reduction of the turnover limit for obligatory VAT registration from CZK 1,000,000 to CZK 750,000.
  • Cancellation of the tax exemption on the transfer of real estate as a contribution to the registered capital of a subsidiary.
  • Introduction of a levy on lotteries and other similar forms of gaming and cancellation of the tax exemption on the income of lottery companies (from 2012).

Ladislav Malůšek, lmalusek@kpmg.cz, tel.: +420 222 123 521
Lenka Fialková, lfialkova@kpmg.cz, tel.: +420 222 123 536

Source: KPMG Česká republika, s.r.o.; Financial Update, December 2011
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