In the Czech Republic, there have been significant changes in the area of personal taxation recently. Below is a summary of the main affected areas.
The way of determining the Czech employment tax base is changing.
Since 2008, the Czech Republic has used a concept of the so-called 'super-gross salary' in determining the personal income tax (PIT) base from employment income. As of 1 January 2021, the Czech Republic is abandoning this concept of the super-gross salary. Instead, the tax base is now determined based on gross income only.
At the same time, this change is associated with the abolition of 15% flat tax rate, the abolition of the 7% solidarity surcharge for high-income earners, and the reintroduction of progressive taxation with two tax brackets (applicable to all types of income, i.e. including passive income) as follows:
- Basic tax rate of 15% for gross income up to 1.7 million Czech koruna (CZK) annually remains.
- Marginal rate of 23% for income over CZK 1.7 million annually was introduced.
Another change effective as of 1 January 2021 is the introduction of a separate tax base for capital income (dividends and interest income) from abroad that will be subject to a 15% tax rate (without the possibility to use tax allowances or tax-deductible items).
After almost 10 years being stable, the basic annual personal tax deduction will be increased in 2021 and subsequently in 2022 by CZK 3,000 annually.
Additionally, self-employed individuals with annual income below CZK 1 million may voluntarily register for an optional lump sum tax (including social and health insurance charges) that represents an administrative simplification but may not pay off for everyone.
Last but not least, the tax on real estate acquisition was abolished with retroactive effect for real estate registered in the cadastre from December 2019 onwards.
From 2020, a number of other changes are introduced to mitigate the financial effect of COVID-19, among which it is worth mentioning tax loss carryback for two precedent years. For more information on COVID-19 measures and updates, please refer to the PwC Czech Republic COVID-19 site.