Amendment to the Income Tax Act from 1 July 2024

The amendment clarifies some changes that were omitted in the previous amendment. For this reason, the amendment received the attribute "clarifying". It also brings changes that were the target of criticism before they came into effect. You can find which modifications are involved in the text below.

Unification of the regime for stock and option plans

As of 1 January 2024, the moment at which the income that an employee receives by acquiring employee shares or options under favourable conditions is to be taxed has been adjusted. The moment of taxation is postponed to the time when the first of the moments defined in the Income Tax Act occurs, e.g. termination of employment, entry of the employer into liquidation, etc., however no later than 10 years from the date of acquisition of the share or option.

This income is subject not only to income tax but also to social security and health insurance contributions. Unfortunately, with the amendment effective at the beginning of the year, the regulation of postponing the moment when the insurance premium is to be paid was omitted. Further, there may be an inconsistency in that income tax is assessed on a different basis than insurance contributions.

The amendment to the act effective from 1 July 2024 unifies the moment of taxation and levies of insurance contributions, i.e. both will be postponed until the moment specified in the act and at the same time, the assessment base for the levy of insurance contributions will be unified with the tax base.

Regime of exclusion of exchange rate differences

We have already informed you about the possibility of non-taxation of unrealized exchange rate differences. It is newly added to the act that the taxpayer ceases to be a taxpayer in the exchange rate exclusion regime before the accounting currency is changed. In such a case, the excluded exchange rate differences will therefore have to be taxed. 

Company kindergarten as a non-monetary benefit and the method of its evaluation

In case an employee uses the preschool childcare facility for free or at an advantageous price, a non-monetary benefit is obtained. But how to determine what amount is adequate for calculating such a benefit?

This evaluation is based on the price of a regular kindergarten established by the state, region, municipality or voluntary association of municipalities, or the highest monthly payment for preschool education according to the decree that regulates preschool education. The employer decides which valuation method will be applied. If the employee contributes a proportional part, the non-monetary benefit is reduced by this amount. For example, if the employee pays CZK 500 per month and the usual price is set at CZK 1,500, the employee obtains a non-monetary benefit of CZK 1,000. This methodology will be applied retrospectively by the Tax Administration from January 2024.

Company meals for former employees

An amendment to the act from 1 January 2024 saw the abolition of exempt income in the case of former employees working for the employer until retirement, old-age or disabled in the third degree, who use company meals subsidized by the former employer. In certain cases, it is also necessary to pay the insurance contributions.

From 1 July 2024, the amendment exempts the non-monetary income in the form of this so-called company meals up to 70% of the upper limit of the meal allowance, i.e. for the year 2024 up to the amount of CZK 116.20 per day.

Facilities to meet the needs of employees

The employer may decide to provide its employees with services exceeding mandatory care, e.g. in the form of the use of recreational facilities, cultural facilities, etc. In general, costs that exceed the income in these facilities are considered to be non-deductible for tax purposes. A new wording has been added that says that this calculation does not take into account costs that are excluded from the tax base according to other provisions of the act.

Social events held by the employer

The amendment from 1 July 2024 regulates Section 6 paragraph 9 letter g) as follows: "Non-monetary income resulting from the participation of an employee or his family member in a social event, including one with a cultural or sports element, organized by the employer for a limited group of participants, if due to its nature, the organization of such an event is usual for the employer and its form and scope are reasonable.”

The area of events is therefore being expanded to include social ones, previously they were listed only as sports or cultural. Section 25 paragraph 1 letter h) is also amended analogously.

Easing the conditions for exemption of income for housing needs

The change also affected the exemption regime in connection with the acquisition of housing needs. Until now, it has been the case that if the taxpayer did not notify the tax administrator that he had obtained funds for the use of housing needs by the end of the deadline for submitting the tax return, the claim for exemption could not be applied.

New rules state that if this notification is not submitted on time, it should not be an obstacle for applying the exemption of income that is used for housing needs at the earliest in the previous year or, conversely, at the latest in the following year when the income was obtained. However, the application of sanctions by the tax administrator for failure to submit this notification cannot be excluded.

Additional adjustments to the regime of work performance agreements

Our sister company Contract Administration has prepared an article on this long discussed and criticized topic by the public. Feel free to read it. 

At the same time, we would also like to draw your attention to the fact that concerning the draft of the new Act on Accounting, the area of income taxes should be amended again, with planned effect from 1 January 2025. We will inform you about the details in the following articles.

If you would like to discuss the above topics in more detail, please do not hesitate to contact us.