Amendments under Discussion27/04/09 / cata_tax-news

Amendment to the Income Tax Act; yet Another Scheduled Amendment to the Income Tax Act; another amendments of the Tax Acts

  • Amendment to the Income Tax Act

In addition to the changes outlined in our Tax News No. 3, the Lower House, during the third reading of the government draft bill to amend the Value Added Tax Act (House’s Printout No. 605), approved new terms and conditions for the tax deductibility of rent payments under financial leases of assets. The minimum term of the lease for the assets within the first, second and third depreciation classes was determined to be 36, 54 and 114 months respectively. The new provisions will be subject to transitory provisions: tangible assets acquired under a financial (hire-purchase) lease with a subsequent purchase of the leased assets entered into prior to the effective date of the amendment shall be subject to the Income Tax Act, as amended, until the end of the financial (hire-purchase) lease.

  • Yet Another Scheduled Amendment to the Income Tax Act

The government submitted to the Lower House for discussion a draft amendment to the Income Tax Act (MP Printout No. 768/0) which would reduce the term of depreciation of newly acquired class 1 and 2 assets. The draft is aimed to stimulate tax payers to acquire tangible assets and constitutes a part of the anti-crisis measures. It has been suggested that the new asset depreciation rules apply to assets acquired between 1 January 2009 and 30 June 2010. The legislative process is difficult to predict since the draft was not put on the agenda of the March session. The first reading will take place during the special session of the Lower House scheduled for 3 April 2009.

Under the current rules, 1st depreciation class tangible assets are depreciated for 3 years while the new rules would reduce such term to 12 months and the 2nd depreciation class tangible assets (current depreciation term – 5 years) would be depreciated for a mere 24 months. If businesses wish to depreciate assets during such reduced terms, they must commence depreciation in the month following the day on which all conditions for depreciation are met.

Assets in the second depreciation class shall be depreciated as follows: the payer will be able to depreciate 60% of the asset value during the first 12 months and the remaining 40% shall be depreciated in the following 12 months.

Rather than increasing the input price of the assets subject to (at the taxpayer’s discretion) the reduced depreciation term, the technical improvement (modernisation) of these assets shall be deemed to constitute a separate tangible asset. Such technical improvement shall be included in a depreciation group depending on the nature of the assets which were technically improved and shall be depreciated under the currently applicable rules.

The minimum required term of hire-purchase leases should similarly be reduced for assets depreciated in the first or second depreciation groups, i.e. the minimum term of 12 months should be prescribed for assets within the 1st group while the second group of assets should be depreciated for 24 months. These new requirements cannot be applied to agreements entered into prior to the date of the amendment.

  • Another amendments of the Tax Acts

In the first reading that took place on 31 March 2009, the Lower House discussed a bill to support economic growth and social stability (MP Printout No. 743/0).

The bill, among other things, amends the Income Tax Act, VAT Act, Bank Act, Waste Act, etc. The tax-related amendments include, without limitation, an increased personal income tax rate from 15 to 30 percent for each tax base exceeding CZK 1,200,000 and corporate income tax rate from 19 to 21 percent, both to applying to the tax period commencing in 2010. At the same time, the amended Income Tax Act imposes new rules on the depreciation of class 1 and 2 assets (rules similar to the draft amendment in the MP Printout No. 768/0).

The VAT Act amendment suggests reducing the reduced VAT rate from 9 to 6 percent.

The amendment to the Waste Act is intended to introduce a state-provided cash incentive to be paid for each car wreck properly disposed of (the so called “scrap incentive”) in the amount of CZK 25,000 provided that the applicant buys a new car worth up to CZK 1,500,000 and CZK 50,000 if the applicant buys a new electric car (the draft act contains a new definition of an electric car).

The amendment to the Bank Act introduces a new amount for bank deposits to be guaranteed by the state. A guarantee of up to EUR 100,000 has been proposed.

These as well as other changes are to be discussed by the committees for the economic, budget and state policies and the deadline for discussion was reduced from the standard 60 to 20 days.