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| April 23, 2024

Further changes in personal income tax

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Due to the new legal regulation of the Income Tax Act brought about by the consolidation package, a number of interpretative uncertainties and undesirable influences on established practice have arisen, to which the Government is now responding with Parliamentary Print No. 570 discussing an amendment to the Investment Companies Act. The proposed changes concern employee benefits or relaxation of the conditions for exemption of income from the sale of immovable property used for own residential purposes.

Social events organised by the employer

The draft amendment changes the wording of Section 6(9)(g) of the Income Tax Act (ITA) and clarifies the interpretation, where it is clear from the text that non-monetary income in the form of participation of an employee or his/her family member in a social event, including one with a sporting or cultural element, is exempt from tax if the event is organised by the employer in a reasonable form and scope within a limited circle of participants.

According to the General Financial Directorate, it is not obligatory to record the tax-free amounts from these events on the employee’s payroll record.

Exemption of the meal allowance for former employees – pensioners

According to the current legislation, the meal allowance in monetary and non-monetary form is exempt from tax only if the employee works at least 3 hours per shift or calendar day. In view of this, the possibility of exempting the meal allowance for example for former employees (pensioners) who came to the company canteen and were provided lunch at a discounted price, has ceased.

The draft amendment introduces a new provision of Section 6(9)(t) of the ITA, which exempts from tax the meals of former employees who worked for the employer before they retired.

This does not apply to a cash catering allowance or a multi-purpose meal voucher; the new provision only aims to exempt non-monetary supplies for direct consumption at the workplace or for direct consumption in the context of catering provided through another entity.

Valuation of the corporate pre-school facilities benefit

With effect from 1 January 2024, a non-cash benefit to an employee in the form of an employer’s contribution to the use of a pre-school childcare facility is exempt up to the limit of half of the average wage (for 2024 approx. CZK 22,000) under Section 6(9)(d) of the ITA, if the company’s pre-school is provided to employees’ children free of charge.

Under the proposed amendment to the ITA, this benefit will be valued in two ways as follows: 

  • the usual price for the use of a pre-school established by a state, county, municipality or voluntary association of municipalities, or
  • the maximum monthly payment for pre-school education according to the Decree regulating pre-school education (for 2024 it is CZK 1 512 per month).

The method of valuation can be chosen by the employer and should apply for the tax year 2024 already.

Notification of exempt income from the sale of immovable property used for own residential purposes

According to Section 4(1)(a) of the Income Tax Act, income from the sale of a family house or unit may be exempted if the individual uses the proceeds to provide for his or her own housing needs. The tax exemption is subject to the individual’s obligation to submit a Notification of Exempt Income to the Financial Office by the deadline for submitting tax return. If this condition is not met, the income from the sale of the property cannot be exempted.

The current legislation is quite strict in this respect and therefore the proposed amendment to the Act proposes to relax this formal condition. Notification will remain compulsory, but if an individual fails to notify, he or she will not lose the ability to exempt such income from tax, but will only be fined for non-monetary non-compliance. 

We will continue to monitor the situation and keep you informed.