The President signed an Act introducing a windfall tax starting in 2023.
The cited tax is levied on extraordinary profits that have been and will be achieved in selected sectors (energy, petroleum or mining companies, and banks) as a result of external influences, i.e. mainly by reason of the rapid growth of Czech National Bank’s interest rates and the dramatic increase in energy and fuel prices. Income from the windfall tax is intended to cover extraordinary costs that the state will have in connection with capping the energy prices.
The windfall tax will be paid from 2023 to 2025. The tax rate will be 60%. The windfall tax base will be the difference between the compared (current) tax base and the average of adjusted comparative tax bases (in principle, this average means the arithmetic average of the tax bases for the years 2018-2021 increased by 20%).
The tax administrator will be the Specialised Tax Office, and the tax will be declared on a special tax return form for windfall tax. Starting in 2023, taxpayers shall make advance payments for windfall tax. These advances will be based on the amount of windfall tax for the period ended before 1 January 2023, calculated on a fictive basis.
A payer of the windfall tax will be a corporate income taxpayer that has income qualifying for windfall tax, amounting to at least CZK 50,000,000 in the tax period, if:
- it is a bank and had annual net interest income of at least CZK 6 billion for the first accounting period ended on or after 1 January 2021; or
- it is not a bank and has achieved on its own or on behalf of all members of the consolidated group income (annual total net turnover) qualifying for windfall tax, amounting to at least CZK 2 billion for the first accounting period ended on or after 1 January 2021.
Qualifying income means income from activities listed in the NACE classification under the following codes:
05.10 – Extraction and treatment of hard coal;
06 – Extraction of crude petroleum and natural gas;
19.1- Manufacture of coke oven products;
19.2 – Manufacture of refined petroleum products;
35.1 – Electric power generation, transmission, and distribution, with the exception of combined generation of electricity and heat in the ratio of produced electricity and supply of useful heat less than 4.4,
35.2 – Manufacture of gas; distribution of gaseous fuels through mains;
46.71.2 – Wholesale of liquid fuels and related products;
46.71.3 – Wholesale of gaseous fuels and related products;
49.50.1 – Transport via oil pipeline;
49.50.2 – Transport via gas pipeline; and
64 – Financial service activities, save for insurance and pension funding, with the exception of the activity listed in the NACE classification under code 64.11 – Central banking if the taxpayer is a bank.
Support for part-time jobs in the form of a discount on insurance premiums
On 22 July 2022, Act No. 216/2022 Coll., amending amends Act No. 589/1992 Coll., on Social Security Premiums and Contributions to the State Employment Policy, as amended, and other related acts, was promulgated in the Collection of Laws.
The goal of the Act is to effectively support part-time work for specific groups of employees through a 5% reduction in social security premiums payable by the employer. It is assumed that this measure will naturally motivate employers to create and offer more part-time jobs. The Act takes effect on 1 February 2023.
The employer will now be entitled to a discount on the social security premium for an employee who:
a) is older than 55 years;
b) takes care of a child under the age of ten, of whom he/she is a parent, or who he/she has in care in lieu of parents based on the decision of the competent authority;
c) takes care of a close person under the age of ten who is dependent on the help of another person in degree I (mild dependence), or a close person who is dependent on the help of another person in degree II (moderately severe dependence), or degree III (severe dependence), or degree IV (full dependence);
d) at the same time prepares for a future profession by studying;
e) in the period of twelve calendar months before the calendar month for which the discount on the insurance premium is claimed, entered as a job seeker a requalification course in accordance with Section 109 or 109a of the Employment Act;
f) is a person with a disability according to Section 67, Subs. 2 of the Employment Act; or
g) is under 21 years of age.
The discount on the premium is limited by a number of conditions. The main condition for the entitlement to a discount on the insurance premium is that a weekly work period between 8 and 30 hours has been agreed with the employee (this condition does not apply to employees under the age of 21). The sum of the employee’s assessment bases from all jobs performed for the same employer per calendar month may not be higher than 1.5 times the average wage, and the employee’s work period at the same employer may not exceed 138 hours in a calendar month (if the employee started work during a calendar month, the number of hours will be prorated).
The discount on the insurance premium belongs to the employer only if, before applying this discount, it has notified the Czech Social Security Administration of its intention to apply this discount. If more than one employer intends to apply a discount on the insurance premium for the same employee, the discount on the insurance premium for this employee belongs to the employer that notified the Czech Social Security Administration of this intention first.
New reporting obligation of digital platform operators (DAC7)
In November 2022, the President signed an amendment to Act No. 164/2013 Coll., on International Cooperation in Tax Administration, which, among other things, implements Council Directive (EU) No. 2021/514 (so-called DAC7) into Czech legislation. The amendment concerns the expansion of the range of information that is subject to the automatic exchange of information between the financial administrations of the EU member states. Its aim is to level the market conditions among sellers and also to facilitate checks in relation to the tax obligations of tax residents who conduct their activities through digital platforms, especially those established abroad.
From 1 January 2023, the reporting obligation will also apply to platform operators, i.e. legal entities or units without legal personality, which operate software enabling the connection of sellers with another user for the purpose of carrying out a legally defined reportable activity for consideration. The reporting obligation will apply to both platform operators who are tax residents of the Czech Republic, and those who are not residents of any EU member state but facilitate the reportable activity in the Czech Republic on a cross-border basis. Natural persons who operate digital platforms will not be subject to the reporting obligation.
Reportable activities within the meaning of this Act include the following areas of activities:
- provision of real estate (residential real estate, real estate intended for business, parking spaces, etc.);
- provision of means of transport;
- personal service, i.e. the work of a natural person based on a time or task, whereas it does not matter if the service is provided online or in a physical environment (activities of repairmen, craftsmen, cleaning, taxi service, etc.);
- sale of goods on web markets or e-shops intermediating the sale of goods from other sellers.
For the purposes of the automatic exchange of information, a seller means persons (both natural and legal) or entities without legal personality that are users of the platform and perform or intend to perform the reported activity for another user of the platform. The reporting obligation will not apply to
- sellers under public law;
- listed sellers;
- accommodation providers on a large scale (i.e. sellers who, thanks to the platform, have carried out more than 2,000 reportable activities in relation to the offered immovable property in a calendar year, e.g. hotels);
- sellers of goods on a small scale (sellers who carried out less than 30 reported activities in terms of the sale of goods in a calendar year, and at the same time the total amount of consideration did not exceed the amount of EUR 2,000).
Obligations of platform operators
Non-resident platform operators that are subject to the reporting obligation in the Czech Republic and that are not already registered in another EU member state must submit the application for registration as at the date of commencement of any activity in the Czech Republic. Czech platform operators have only the duty to notify the reporting obligation, within 15 days of the day they become the reporting platform operator. A platform operator who becomes a Czech reporting platform operator on or before 16 March 2023 must file the notification by the end of March 2023 at the latest.
Platform operators will be required to report revenue generated through them by sellers. The reports must always be submitted electronically by 31 January of the following calendar year (i.e., for the first time, by 31 January 2024 for the year 2023). In order to correctly identify and verify sellers, the operators will also have to adhere to detailed due diligence procedures, which are listed in Annex No. 4 to the amended Act No. 164/2013 Coll.
All filings (registration, notification, and reporting) can be made electronically via the MY Taxes (“MOJE daně”) portal, where a separate authenticated zone should be established for fulfilling the obligations under DAC7. In addition, an e-mail address DAC7@fs.mfcr.cz will be set up, to which it will be possible to send questions regarding the new created obligations. The Financial Administration should also publish more detailed information for platform operators.
Changes in the flat tax for the year 2023
The main goal of the lump-sum (flat) taxation regime is to simplify the administration associated with the payment of insurance premiums for social and health insurance and income tax for self-employed persons (free-lancers).
Taxation of a natural person’s income using a flat tax is only possible if the following conditions are met:
- the self-employed person is not a VAT payer;
- the self-employed person is not a partner in a general partnership or a general partner in a limited partnership;
- the self-employed person has only 1. income from business not exceeding the limit set out by the law (see the following table); 2. income that is not subject to tax, that is exempt from tax, or that is taxed using withholding tax; and 3. income from capital assets, rent or other income not exceeding in total the limit set out by the law (CZK 15,000 in 2022); and
- the self-employed person notifies entry into the lump-sum regime by 10 January of the calendar year concerned or at the latest when he/she (re)starts the business.
The self-employed person must pay a flat tax advance, together with the advance for pension and health insurance, always by the 20th day of the relevant calendar month (the only exception is the month in which the activity was started, when the flat advance is due together with the payment for the following month). If the conditions for the lump-sum regime are met at the end of a calendar year, the paid flat advances are considered the final tax and there is no need for any extra payment, not even in insurance premiums. Such an entrepreneur does not submit a tax return or reports for social and health insurance for the calendar year concerned.
If a self-employed person ceases to meet the conditions for participation in the lump-sum regime during a year (e.g. becomes a VAT payer or an employee), he/she will have to file a tax return and reports for social and health insurance and to pay calculated tax and insurance premiums after the end of the tax period. In some cases, the lump-sum regime will also be terminated immediately, with the necessity to subsequently pay “usual” advances for tax and insurance premiums.
It is possible to withdraw from the lump-sum regime voluntarily by 10 January of the following year.
With effect from 1 January 2023, the range of self-employed persons who can enter the lump-sum regime is being expanded. This fact is also related to the division of the lump-sum regime into three bands depending on the amount of income of a self-employed person concerned and the type of his/her activity.
The following table provides an overview of the basic information on the lump-sum regime, both valid for 2022 and planned changes from 2023:
|Registration into the lump-sum regime
|only as of the date of (re)starting the activity
|by 10 January 2023 or as of the day of (re)starting the activity
|Maximum amount of income from business
|Maximum amount of income from capital assets, rent, and other income in total
|Amount of a flat advance per month
|CZK 6,208 / CZK 16,000 / CZK 26,000
|– of which the advance on tax is
|CZK 100 / CZK 4,963 / CZK 9,320
Starting in 2023, the amount of the flat advance will depend on the type of activity performed and the share of income from individual activities. The criterion for distinguishing the types of activities will be the percentage of flat-rate expenses that the self-employed person could claim for the given type of activity. By way of example, the following situations can occur:
- a self-employed person with income only from handcrafts not exceeding CZK 2 million, who would be entitled to flat-rate expenses in the amount of 80%, will pay a flat advance in the 1st band, i.e. in the amount of CZK 6,208/month;
- a tradesman entitled to flat-rate expenses in the amount of 60% will pay flat advances in the 1st band (CZK 6,208/month) if his/her income does not exceed CZK 1.5 million, and in the 2nd band (CZK 16,000/month) if his/her income ranges between CZK 1.5 – 2 million.
- a person with income from business under special regulations (e.g. a lawyer) who is entitled to flat-rate expenses in the amount of 40% will pay flat advances in the 1st band (CZK 6,208/month) only if his/her income does not exceed CZK 1 million. If he/she reaches an income of CZK 1 – 1.5 million, he/she will pay flat advances in the 2nd band (CZK 16,000/month), and if his/her income ranges from CZK 1.5 to 2 million, then he/she will pay flat advances in the 3rd band (CZK 26,000/month).
The proposed change in the amount of turnover resulting in mandatory VAT registration is also related to the increase in the income threshold for entry into the lump-sum regime. This should also be increased to the amount of CZK 2,000,000 for the twelve immediately preceding consecutive calendar months.
Shifting the threshold for entry into the lump-sum regime will allow a larger number of entrepreneurs to use the flat tax. At the same time, however, the introduction of three bands will complicate the entire flat tax system.
Judgement of the Supreme Administrative Court: Use of camera records when casting doubts on a driver’s logbook
The tax administration did not grant the right to deduct VAT on the purchase of a vehicle, stating that the vehicle in question was not used as part of the tax subject’s economic activity. The Tax Authority arrived at this conclusion based on a discrepancy between the driver’s logbook provided by the tax subject, and the vehicle movement data obtained from the police.
As part of the examination of the right to deduction declared by the tax subject in its VAT return, the Tax Authority was provided with a driver’s logbook. The fact triggering the Tax Authority’s doubts was apparently a “minor discrepancy” – entries in the logbook had been first made 8 days before the car was handed over to the tax subject (according to the handover certificate). Subsequently, the Tax Authority requested the police to provide information on the movement of the motor vehicle of the selected registration number for the period indicated in the driver’s logbook, which it then compared with the data in the submitted driver’s logbook. Due to the fact that the information from the police and the data in logbook did not correspond to each other (unfortunately, the information on how much they did not correspond is not available), the Tax Authority concluded that the tax subject did not prove the use of the vehicle as part of its economic activity (and therefore is not entitled to a VAT deduction ).
The tax subject objected in the proceedings that the Tax Authority was not entitled to request the records from the police and subsequently use them as evidence questioning the tax subject’s claim (i.e. the driver’s logbook submitted by it). However, the Supreme Administrative Court rejected this argument in its recent judgment 9 Afs 147/2020 and found the procedure of the Tax Authority to be in order (among other things, because the police already had the records at their disposal before the Tax Authority asked for their disclosure, i.e. they did not make them upon the Tax Authority’s request, and thus primarily for the purposes of tax proceedings).
In link with the above-mentioned facts, the Supreme Administrative Court rejected the cassation complaint of the tax subject and confirmed the decision of the tax administration.
In this context, we can only recommend that the driver’s logbook be kept properly. Although the obligation to keep the logbook is not imposed by the law and the use of vehicles for economic activity can be documented in other ways, from a practical point of view it is quite difficult to do it without a driver’s logbook. When keeping the logbook, care must be taken to ensure that the logbook looks credible and is conclusive (it is usually recommended to include data on each trip made by the employee with the company car, on who he/she visited and when, with whom he/she dealt with and about what, etc.; the more specific, the better).
For the sake of completeness, we state that the authority of the financial administration has recently been expanded; the financial administration has now online access to a database collecting data from vehicle technical inspections. From this data, the financial administration can obtain information about when any vehicle underwent a technical inspection (STK) and what the state of the tachometer was at that time.
No revolution in delivering documents under labour law in sight yet
HR workers, and not only them, often face the practical impossibility to deliver to employees the most important documents regarding their employment relationship (especially its coming into existence, change, and termination) and remuneration in electronic form, especially by e-mail. Such a procedure is only possible if the employee gives his/her written consent and subsequently confirms receipt of the relevant document that must be signed with a qualified electronic signature, using this type of signature (confirmation of receipt of the document is not necessary in case of delivery via a data box). Almost the same is required from the employer; the difference is that its consent does not have to be in writing.
Due to the strictly set conditions, the aforementioned method of delivering documents, especially to employees, is used very rarely. The decision of the Supreme Court of the Czech Republic issued this spring (in case 21 Cdo 2061/2021) was welcomed all the more. The decision confirmed the validity of a settlement agreement concluded in electronic form, the content of which was also an agreement to terminate the employment relationship of the employee concerned, without the employee or employer agreeing to this method of delivering documents, and without signing the settlement agreement with a qualified electronic signature of the employee or employer. Thus, the employer and the employee’s representative exchanged “only” a scan of the settlement agreement, signed by the relevant persons, via e-mail, which was found to be sufficient in this particular case.
Some people immediately began to misinterpret the aforementioned decision in such a way that there was a significant loosening of the rules for documents delivery under labour law. But that is not the case. The subject of the court proceedings in question was not the invalidity of (or any other defect in) the termination of the employment relationship, but “merely” the former employee’s lawsuit filed against his former employer, in which he demanded the payment of seven times his average earnings (this right was agreed in the aforementioned settlement agreement). This fact, i.e. the substance of the dispute, was crucial. It cannot be inferred from it that e.g. a notice of termination, a scan of which the employer sent to the employee by e-mail, would be found faultless, even if the employee had read the e-mail concerned and confirmed its receipt. On the contrary, it is very likely that a notice sent in this way would not lead to the termination of the employee’s employment relationship, since non-compliance with the rules for delivery established by the Labour Code has fatal consequences. A document delivered in a wrong manner is considered undelivered, i.e. as if it did not exist, although its addressee – in this case an employee – became familiar with it.
It can be added to the aforementioned case that the settlement agreement does not belong to the documents the delivery of which is subject to the rules laid down in the Labour Code, even if it is concluded between the employee and the employer. For that reason, the courts in question did not assess it from the point of view of the Labour Code, which was also the reason why it was found flawless in the discussed case.
The message of this short post is a recommendation, especially for employers, not to deliver any of the documents mentioned at the beginning of this text to employees electronically, especially by e-mail, because the risks associated with this type of delivery are very high. Although this type of communication is widespread in usual business relationships, it is almost useless in labour law. One can only hope that this will change in the foreseeable future; however, the cited court decision has not yet led to any change.