On 13 January 2017, the House of Deputies approved a bill which among other things changes the Income Tax Act, and which is now being read in the Senate. The proposed date on which it comes into force is 1 April 2017, whereas some of the changes will de facto have effect as of 1 January 2017 whereas others will apply to the assessment periods starting 1 April 2017 or later (and thus, if the fiscal year of the given taxpayer is the calendar year, will take effect for the first time for the period of 2018); others still will take effect only as of 1 January 2018. We feel it is important to inform you of the following novelties in particular:
Personal income tax
The tax exemption for income from the sale of shares in a corporation will not extend to income from the transfer of a share for consideration which corresponds to the increase of the share's acquisition price by way of a non-monetary equity-improving performance (i.e., the contribution-in-kind of a real property) within five years prior to the divestment. This change should take effect already for the fiscal year of 2017, whereas the relevant moment for determining whether the time criterion is satisfied is the moment in which the transfer for consideration occurred.
As of 2018, the time period during which the given ownership interest was held by a testator (where the sold ownership interest was acquired by way of inheritance from the testator) will count against the five-year holding period criterion, provided that the testator was a first-degree relative or spouse.
Also in the works is a limitation of the maximum amount which a taxpayer may claim as expenses in the form of a fixed percentage of their income. Specifically, this flat-rate expense can only be invoked for the first million crowns; on the flip side, taxpayers will again be able to apply a personal tax credit and an allowance for one's spouse. For 2017, taxpayers have a choice - either they claim flat-rate expenses applying the previous cap (of 2 million crowns) in which case they cannot use the personal tax credit or the allowance for spouses, or they migrate immediately to the new rule (CZK 1mn cap on flat-rate expenses, but tax credit and allowance).
As of the effective date of the amendment, technical improvements to a property which were paid for by the economic beneficiary (sublessee) may be written off by the owner. (Previously, the tax write-off was available only to the lessee.)
Corporate income tax
As of 1 January 2018, corporate tax payers may ask for a binding review of the manner in which they determine the assessment base of a non-resident for income derived from a permanent establishment.
Also, income from profit shares paid out by a trust fund or family foundation are newly to be tax-exempt; previously, no such exemption could be applied to profit transfers. The background behind the new rule is that the definition of parent company will be broadened to also encompass trust funds and family foundations. This prevents a situation in which (after spinning off one's share in a corporation into the trust fund or family foundation) the income from dividends or profit shares would be taxed both upon the payout by the corporation towards the trust fund and upon the payout of the profit share from the trust fund to the beneficiary.
Finally, a change concerning the issue of refunding advance payments on dividends – the obligation to repay such advance payments will rest with the transferee who newly acquired the share (as opposed to the original shareholder who received the advance payment).
Source: website of the finance administration; explanatory memorandum concerning the amendment bill