Personal income tax

New method of calculating the tax base and tax

The tax base for individuals (employees and the self-employed) will no longer be reduced by their contributions to social and health insurance; also, it will increase by the insurance contributions mandatorily paid by the employer (including mandatory foreign insurance of the same type).

With effect as of 2008 the Amendment repeals ITA provisions on minimum tax base, joint taxation of spouses, taxation of income achieved during several tax periods and taxation of income from abroad in a separate tax base.

The Amendment introduces a single rate of personal income tax at 15 % for 2008 and 12.5 % for 2009 and thereafter. These rates of tax will also apply to withholding tax.

A taxpayer's personal tax relief for 2008 is 24 840 CZK and 16 560 CZK in 2009 and thereafter. The tax relief also applies to old-age pensioners. Tax non-residents can claim the tax relief only if, in the given year, 90% of all their income comes from sources in the Czech Republic. The Amendment also adjusts other tax reliefs and tax benefit for dependant children.

Tax exemption on  sale of securities

The Amendment introduces tighter rules governing tax exemption on sale of securities. Hitherto income from sale of all securities not forming part of the taxpayer's business assets has been exempt from tax, provided that the sale occurred more than 6 months from the date on which the securities were acquired. From now on (i.e. from 2008), only sales of investment securities and collective investment securities will be exempt from tax (e.g. in the case of shares, only income from sale of shares which are publicly tradable on the open market will be exempt). Furthermore, this rule only applies to persons whose overall share in the registered capital and voting rights has not exceeded 5% in the 24 month period prior to the sale. In all other cases, sales of securities will be tax exempt only where a minimum 5 year period passes between acquisition and disposal.

The existing provisions of ITA (tax-exemption after 6 months from date of acquisition) continue to apply for securities acquired until the end of 2007.

Other changes relating to tax exemption

The Amendment repeals tax exemptions granted on loan interest income from mortgage certificates and restricts tax exemptions on the value of temporary (provisional) accommodation provided by the employer to the employee, save as regards accommodation on business trips. The new maximum threshold is 3,500 CZK/month.

Also, calculation of tax-exempt sums in respect of an employee paid by the employer (contributions to the employee's additional old-age pension scheme and private life assurance) has changed. Under the new rules, overall contributions and insurance payments exempt from tax will be a maximum sum of 24,000 CZK p.a.