From the Chamber of Deputies; nes legal regulations

Act on Changes to Tax, Insurance, and Other Acts in Connection with Reducing State Budget Deficits

On 13 July 2012, the Chamber of Deputies of the Czech Republic approved the government’s draft Act on Changes to Tax, Insurance, and Other Acts in Connection with Reducing State Budget Deficits. The bill was then sent to the Senate, which began discussing the bill in mid-August.

It is proposed that the changes, some of which have been proposed as temporary for a period of three years, become effective as of 1 January 2013. The government’s draft includes, among others, the following changes.

• Determination of the maximum amount of expenses incurred by individuals (gainfully self-employed individuals with selected types of income and lessors) who deduct expenses as a percentage of their income.
• Introduction of the so-called 7% solidarity surcharge to personal income tax payable from employment income or from income of gainfully self-employed individuals that exceeds the assessment base cap applicable to social security contributions. 
• Income tax payers receiving old-age pension are not eligible for tax relief.
• Increased withholding income tax for tax residents from non-EU/EEA countries with which the Czech Republic has not concluded a double tax treaty; the cited tax should be increased from 15% to 35%. 
• Increased VAT rates from 14% to 15% and from 20% to 21%. Starting in 2016, the VAT rates should be unified and set at 17.5%; the unified rate was originally planned to take effect in 2013.
• Increased real estate transfer tax rate from 3% to 4%.

New Real Estate Transfer Tax Act 

The Ministry of Finance of the Czech Republic (“MoF CR”) has published information on the amendment to the Act on Real Estate Transfer Tax, which is currently being prepared. The planned amendment, the full contents of which have not yet been disclosed, is expected to become effective on 1 January 2014.

One fundamental change that is planned is a change concerning who is considered the taxpayer. According to the information provided by the MoF CR, principally the acquirer of real estate will become the taxpayer. In connection with this change, the institute of guarantor will be abolished. 

Based on the amendment, spouses would become taxpayers jointly and severally in cases where real estate acquired by the spouses as common property is subject to taxation.

In addition, in efforts to increase tax revenue, a proposal to tax transfers of shares in commercial companies possessing real estate has been made.

In most cases, the amendment removes the obligation to submit an expert opinion to the tax administrator as documentation of the standard price pursuant to valuation regulations. To ascertain the tax base, primarily the price agreed or achieved, for example, in a public auction will be used. Where real estate is contributed, the tax base should be determined on the basis of a real estate valuation performed by an expert for the purposes of the contribution.

Moreover, according to the amendment the tax base would be reduced by the fee and compensation for cash expenses incurred in connection with the expert opinion.

The rules determining local competence are also expected to change. For example, if interest is acquired or participants in a commercial company possessing real estate are changed, the registered office of the company in question will be decisive.

The draft amendment has not yet been sent to the Chamber of Deputies for consideration and it can be assumed that not all changes proposed by the MoF CR will be approved during the legislative process.