Legal measures of the Upper House

The Lower House has approved the Upper House’s legal measure whereby income tax will be changed as of 1 January 2014 in connection with the private law recodification (No. 344/2013, Coll.). The legal measure also included a number of other changes proposed in the original bill.

Selected changes

All gratuitous earnings subject to inheritance and gift tax until the end of 2013 will newly be subject to tax. Many, however, will remain tax exempt.

New definitions of tax-related terms and expressions have been added, such as tax resident and tax non-resident, business assets, things, property-related rights, financial lease, basic investment fund and public benefit taxpayer. Moreover, terms and expressions of the new private law will also be used, such as commercial corporation member, credit financial instrument, lending, gratuitous grant, usufructury lease, building right, trust fund.

Corporate income taxpayers newly include mutual funds, pension funds, trust funds and unit funds that are taxpayers pursuant to the law of another state.

The time test for a personal income tax exemption in relation to a sale of securities has been extended from six months to three years.  The time test for tax exempting each share in a commercial company acquired by one member will be assessed individually starting next year.

The limit for applying withholding tax to taxpayers who failed to sign a tax declaration has been increased from CZK 5,000 to CZK 10,000 per month. This applies only to income from service agreements.

Income earned from practical teaching and practical training, i.e. as related to trainees and students, will be tax exempt (and exempt from social security and health insurance contributions).

The amendment does not permit the following:

-  tax credit proposed by the government for childcare services (namely, for placing a preschool-aged child in a childcare facility) has not been approved;

-  preferential treatment of employees introduced by Act No. 458/2011, Coll., has been cancelled;

-  dividends, liquidation balance, settlement shares and similar income that were tax exempt pursuant to Act No. 458/2011, Coll., will be subject to the income tax; and

-  the 5% tax rate has been preserved for investment funds and the 15% withholding tax rate applies to payouts from such funds.

Tax on acquisition of immovable items

The Upper House’s legal measure regarding tax on the acquisition of an immovable item was published in the Collection of Laws under No. 340/2013, Coll.  

As regards purchasing or exchanging immovable items, the tax is to be paid by the transferor, unless the transferor and the transferee agree otherwise. In other cases, the transferee is the taxpayer.

Acquisition of a building right will also be subject to taxation based on the concept of “immovable item” as defined in the new Civil Code.

Acquisition of an immovable item for consideration through usucaption, a trust fund or acquisition of a structure unrightfully built on a third party’s land will also become subject to taxation.

The scope of tax exempt items has also been changed. Contributions of real property to the registered capital of a commercial company will no longer be tax exempt. On the contrary, first transfers of apartments and new family houses for consideration will generally be tax exempt provided the real property is transferred within five years from the date of the occupancy permit.

The new act also limits the obligation to present expert opinions for determining the tax base. Provided certain conditions are fulfilled, expert opinions will no longer be required, for example in the case of a transfer of immovable items used for housing or recreation, garages, etc.

The tax base is defined as the acquisition value, which can be reduced by demonstrable costs incurred for the expert opinion. Depending on the circumstances, the acquisition value is understood as an agreed price, comparative tax value, identified price or special price.

The tax base for most contractual transfers will be determined based on the agreed price, which will mostly be compared with the comparative tax price.   

The deadline for filing a tax assessment and the 4% tax rate have not been changed.