News

The deputies have passed neither the cancellation of caps on calculation of insurance premium, nor the “millionaires” tax

After weeks of filibustering, all items on the agenda of the regular January meeting and three extraordinary meetings of the Chamber of Deputies have been eliminated. The deputies parted without passing some of the leftist proposals. Opponents of higher taxation, however, are not home and dry yet, as more extraordinary meetings are planned for end of February. We will keep you informed of further developments. The situation regarding legislative processes in the most important proposed tax changes is summarised below:

Cancellation of maximum assessment bases

The amendments to the General Health Insurance Act (Parliamentary Document No. 793) and the Social Security Insurance Act (Parliamentary Document No. 798) are in their third reading. The subject of the amendments is, above all, the proposal to cancel the caps on calculation of insurance premiums for health insurance as of 1 July 2010, and for social security insurance, as of the beginning of the month following the day of its publication.

Introduction of a new 30% income tax rate for income exceeding CZK 1,2 mil

The discussion concerning the amendment to the Income Tax Act (Parliamentary Document No. 941) was suspended in the first reading. The only topic of the amendment is re-introduction of the progressive taxation of personal income tax. The annual base exceeding CZK 1,200,000 would be taxed at a rate of 30%. For employees whose tax base includes the insurance premium paid by the employer in the amount of 34% of gross salary, an annual gross salary exceeding approx. CZK 895,000 would, in fact, be taxed at a rate of 40.2%.
This amendment is proposed to become effective as of 1 January 2011.

Reduction of the VAT rate for restaurants and cancellation of the arm's length price

The amendment to the VAT Act, consisting of reclassification of some services into the reduced rate, and cancellation of the time limitation for application of the reduced rate for residential housing by 31 December 2010, was rejected last year (Parliamentary Document No. 801).
The deputies have, in fact, submitted an identical proposal; Parliamentary Document No. 989. However, it also contains a suggestion to cancel the provision of Section 36a of the VAT Act - rather troublesome in practice - which introduced the concept of the arm's length price in some transactions between related parties, effective as of 1 January 2010. The proposal is now being discussed in the first reading.

Besides the legislative proposals referred to above, we would like to draw your attention to the following:

Liability to pay advances for income tax in 2010

Based on a decision by the Ministry of Finance, individuals – sole traders and legal entities with no more than five employees - were not liable to pay advances for income tax due in 2009.
However, this decision does not apply to income tax advances due in 2010, and neither does the Ministry of Finance plan to make a similar decision for 2010.
Nevertheless, disregarding the number of employees, taxpayers may apply to a tax authority for reduction of advances or cancellation of the liability to pay advances. The application must include a due justification, referring, for example, to the results of 2009 and the current financial situation.
The tax liability estimates for 2009 are usually known at this time. If March and June advances, based on the prior higher tax liability, are inadequately high now in the light of the estimated results over 2009, filing an application is recommended in order to avoid needlessly having your cash tied up in the tax authority’s account until the summer.
The tax authority may not comply with your application; in justified cases, however, it usually does so. We will be pleased to assist you in preparing your letter of application.

If you are interested in more detailed information, please do not hesitate to contact us.

Jaromír ZBROJ, Senior Manager, TACOMA Tax
Tel: +420 731 411 268
E-mail: jaromir.zbroj@tacoma.eu  
www.tacoma.eu