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From the Chamber of Deputies

Amendment to the VAT Act; Retirement reform; Health care reform

Amendment to the VAT Act

The amendment to the VAT Act, which was discussed in Tax News No. 9/2011, was approved by the Chamber of Deputies after being rejected by the Senate and has been sent to the president of the Czech Republic for signature. Starting at the beginning of 2012 the reduced tax rate of 14% will become valid and the basic rate of 20% will remain unchanged. Starting in 2013, both rates will be unified in a single rate of 17.5%. Additional future changes, of course, cannot be excluded.

Retirement reform

The Chamber of Deputies passed bills designated as retirement reform which were rejected by the Senate. These bills include the Retirement Savings Act, the Supplementary Pension Savings Act, and the act changing certain acts in connection with the adoption of the Retirement Savings Act and Supplementary Pension Savings Act. The bills, which introduce what is being called the second pillar of retirement reform, are expected to become effective on 1 January 2013.

The retirement savings system complements the mandatory retirement insurance system. Although voluntary, individuals cannot ‘deregister’ once they choose to enter the system. With respect to individuals who participate in a retirement savings scheme with a private pension company, the insurance contributions rate paid by individuals for the mandatory pension insurance will be reduced.

By introducing supplementary pension savings, the existing voluntary pension scheme with a state contribution should be “locked”, which means that no new agreements will be concluded and the existing participants in the pension scheme will be allowed either to remain in what is termed a transformed fund or to pass to the new supplementary pension savings.

A state contribution will be provided to participants in the supplementary pension savings provided certain predetermined conditions are fulfilled. The maximum amount contributed by the state shall be CZK 2,760 per year. State contributions provided to participants in the existing voluntary pension scheme will follow the same rules as in the case of passing to the transformed fund.

In addition to the newly adopted acts mentioned above, the Income Tax Act has also been amended. Performance paid from the above-mentioned savings to individuals will now be exempted from income tax. Moreover, individuals will be allowed to reduce their tax base by making contributions to the supplementary pension savings account. The amendment also regulates the taxation of pension companies, pension company funds, and pension insurance institutions. A tax rate of 5% will newly apply to pension funds, pension company funds, and pension insurance institutions, save for pension companies or similar companies which administer funds similar to pension insurance funds.

Health care reform

The Chamber of Deputies overruled the Senate and approved the Health Care Services Act.

The changes in the Health Care Services Act also relate to VAT, specifically an amendment to the provisions of Section 58 of the VAT Act, which regulates exemptions from health care services and goods without a claim to a tax deduction.

Health care services that are provided pursuant to the Health Care Services Act by a health care services provider and stated in the authorization to provide health care services shall be tax exempt. The goal of such services, however, must be to treat or to protect human health, or a service closely connected therewith. Health care services provided for any other purposes (such as for the Czech Police, courts, or other institutions) cannot be exempt from VAT.

A health care provider is defined as an individual or a legal entity holding an authorization to provide health care services pursuant to the Health Care Services Act.

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