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 used a concept of the so-called 'super-gross salary' in determining the personal income tax (PIT) base from employment income (that means adding the employer's portion of the social and health insurance to the tax base). As of 1 January 2021, the Czech Republic has abandoned this concept of the super-gross salary. Instead, the tax base from employment is now determined based on the gross income only.
At the same time, this change is associated with the abolition of the 15% flat tax rate and 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, expect for foreign capital income, which is included in a separate tax base [see below]) as follows:
- Basic tax rate of 15% for gross income up to 1.8 million Czech koruna (CZK) (limit applicable for 2022) annually remains.
- Marginal rate of 23% for income over CZK 1.8 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 bonds) from abroad that will be subject to a flat 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 2 million (as of 2023, previously CZK 1 milion) 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.