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| February 13, 2024

Financial administration clarifies approach to taxation of corporate pre-schools

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In December, the Ministry of Finance (“MoF”) issued a response to articles on news websites commenting on the taxation of employee benefits in the form of company pre-schools, or the valuation of the benefit provided by employers to parents, although no methodology was available at the time.

In order to simplify the orientation in the taxation system, the Ministry of Finance specified in December that the key point would be the method of valuation of company pre-schools. Corporate pre-schools are supposed to be closer to municipally run pre-schools in terms of valuation than to private pre-schools. Although this may seem trivial, it could make a difference of thousands of crowns to the level of benefits and thus affect the level of taxation.

Despite the statement of the Ministry of Finance, however, doubts arose in the approach to the taxation of this non-monetary benefit, which is why a methodology for the taxation of corporate pre-schools was published on the website of the tax administration. It specifies that if the usual cost of a municipal pre-school in the relevant locality and time is CZK 1,500 per month and the employee pays CZK 500, only the difference of CZK 1,000 will be counted towards the benefit exemption limit. On the other hand, if he/she pays CZK 1,500 or more, no amount is included in the limit.

In situations where the benefit in the form of a company pre-school is provided to employees free of charge and the usual cost of municipal pre-schools exceeds the annual limit of approximately CZK 21,000, the excess amounts will have to be taxed with the corresponding income tax and social and health insurance will also have to be deducted from the excess amount.

To maintain legal certainty, the MoF decided to anchor this rule in law. There will be a legislative and technical amendment to the Income Tax Act in this context in the coming months, but this approach is already effective from January 2024.