What changes does the consolidation package bring for taxpayers?

After the heated process of approving the consolidation package in the Chamber of Deputies, taxpayers finally have certainty about how tax laws will change and thus the tax burden. It should be noted that the vast majority of the changes brought by the consolidation package will come into force as early as 1 January 2024, which does not give taxpayers much time to adapt.
For our clients at ARROWS, we have long been monitoring the development of tax and accounting legislation and helping them to manage the impact of its changes.

The purpose of this article is to briefly summarise the main changes for the general business community. The article therefore does not, for example, deal with the changes to the taxation of alcohol and cigarettes.

Increase in levies for self-employed persons

The long-discussed increase in social security contributions for self-employed persons is becoming a reality. The new assessment base for calculating the insurance contribution will be 55% of the tax base of the self-employed instead of the current 50%.
In addition, the minimum monthly assessment base for self-employed persons will increase from the current 25% of the average wage to at least 30% of the average wage in 2024, 35% of the average wage in 2025 and 40% of the average wage from 2026. This change will of course hit lower-income self-employed persons who have been paying premiums close to the minimum assessment base.

Changes to VAT rates

Currently, the Czech Republic applies three VAT rates of 10%, 15% and 21%. The consolidation package newly introduces only two VAT rates, one reduced rate of 12% and leaves the basic rate at the current 21%.
The change in VAT rates is, of course, accompanied by a shift from the reduced rates to the standard VAT rate or, for goods and services currently classified in the lowest 10% rate, an increase in the tax burden to 12%. This will affect, for example, draught beer, which will now be subject to VAT at 21%.
Changes to corporate income tax and accounting in foreign currencies
For corporations, the big news is that the corporate tax rate will increase from the current 19% to 21%.
Some companies will also be affected by the limitation of the tax deductibility of car acquisition costs to the first CZK 2 million of the car price.
On the other hand, the Accounting Act will finally allow accounting in euros, dollars and British pounds, which will be particularly appreciated by export companies. However, it should be borne in mind that accounting can only be kept in one currency and that it should be the currency most used by the company concerned.
This change will also make way for the establishment of share capital in euro for public limited companies and so-called European companies. Although the Companies Act has already envisaged this possibility since 2014, the impossibility of accounting in euros precluded the determination of share capital in euros.

Real estate tax

Simply put, the property tax rate will increase to 1.8 times the current rates. In this context, municipalities will now have the possibility to set a local coefficient of 0.5 separately for agricultural land in order to reduce the impact of the property tax increase on agricultural output prices, which could be affected by the increase in property tax costs.
Changes to the taxation of employees
Employers should note that a 0.6% sickness insurance rate will also be introduced on the employee side. Currently, only employers pay sickness insurance at 2.1%.
There is also a reduction in tax benefits for employees, with the abolition of the tax credit for school fees, the student allowance or the tax deductible element of union membership fees.

Conclusion

In conclusion, taxpayers should not underestimate the changes introduced by the consolidation package and should pay sufficient attention to them. The tax administration already has the analytical tools at its disposal to detect potential errors in tax returns in most cases.

At ARROWS, we are ready to help you manage the changes that the consolidation package brings