Employee benefits and changes for individuals

As promised in the previous article of our series dedicated to the Consolidation Package for 2024, we bring you another topic – this time mainly employee benefits and other changes with an impact on personal income taxation.

At the beginning of this topic, we would like to inform you that the Consolidation Package was signed by the President of the Czech Republic on 22 November 2023, and therefore it is already certain that it will be valid from 1 January 2024.

Employee benefits

Many employers use various employee benefits not only to make job offers more attractive but also simply because in some cases it can be a beneficial tax optimization. The ideal setting of employee benefits allows for exempt income on one side of the employee and at the same time the tax deductibility of the purchased benefit for the employer.

Provision of a company vehicle for private purposes

Assuming that the employee is allowed to use the company vehicle free of charge for both business and private purposes, the employer is obliged to include this benefit in the employee's income, i.e., deduct tax and insurance premiums from the entry price of the vehicle. Until now, the law set a value of 0.5% of the entry price for low-emission vehicles and 1% for other vehicles. From 2024, a value of 0.25% is set for emission-free vehicles. Newly, low-emission and zero-emission vehicles will be precisely defined in the law. You can read more detailed information in our previous article.

Meal vouchers / meal allowance in cash / company canteen

There will be a unification of tax regimes for meal vouchers and the meal allowance in cash. For both types of meal allowances, an exemption on the side of the employee will apply up to 70% of the upper limit of the meal allowance for a work trip in the range of 5-12 hours, i.e., as it has been applied so far for the meal voucher flat rate. Exceeding the limit represents non-monetary income on the part of the employee, which will be subject to taxation as well as contributions to social security and health insurance. In any case, it will be a tax-deductible cost for the employer.

Non-monetary benefits with a limit

These are, for example, benefits in the form of goods and services of a health and similar nature (e.g., glasses, contact lenses, etc.), recreation, vacation allowance, as well as the possibility to use the company library, entrances to sports facilities, to cultural and sports events and others.

The total limit for exemption for an employee is newly set at the amount of half of the average salary for the given year. For 2024, the limit will be CZK 21,983. Therefore, if the employer provides an employee with a vacation allowance of CZK 25,000 and theatre tickets of CZK 2,000 in 2024, the employee's income, which will be subject to taxation and contributions to social and health insurance, will amount to CZK 5,017.

For the employer, the exempt benefits will not be tax-deductible, on the contrary, the tax base may be lowered if the limit for the exemption is exceeded. In the example given above, the amount of CZK 21,983 will be a tax non-deductible cost and the amount of CZK 5,017 will then be tax deductible for the employer.

Gifts to employees

The exemption of non-monetary donations of up to CZK 2,000 per year provided under the terms of the Decree on the Cultural and Social Needs Fund is abolished (for example, non-monetary donations in the case of work or life anniversaries). Therefore, if an employer gives an employee a bouquet worth CZK 1,500 on his/her 50th birthday, this amount will represent the employee's taxable income, which is also subject to social security and health insurance contributions.

Events organized by the employer

Income from the participation of an employee or his/her family member in an event organized by the employer will be exempt from taxation on the part of the employee under certain conditions. Such events by the employer may include holding a Christmas party, celebrating the company's anniversary, children's days, etc. However, it is important that the event fulfils the conditions of "non-publicity", i.e., with the participation of employees and their relatives, and the condition of "reasonableness" must also be fulfilled, which means that it is non-usual to organize a party in an exotic area, and it is also supposed to be "occasional" events, which certainly do not include weekly events. The reason for this exemption is, in particular, that the costs of organizing it do not have to be recalculated to individual party participants, and the employee would thus not have to monitor the common limit of CZK 50,000 of the non-monetary benefit provided (see below).

Other changes in the taxation of individuals

In the second part of the article, we also summarize some changes that may have a significant impact on the taxation of individuals in general.

• There is a reduction of the threshold for applying the progressive tax rate (23%) from 48 times to 36 times the average wage. For the year 2024, this is the amount of CZK 1,582,812 per year.
• For gratuitous income (monetary or non-monetary donations), the limit for exemption increases from CZK 15,000 to CZK 50,000.
• A common annual exemption limit of CZK 50,000 is introduced for selected types of other income (e.g., income from casual activities, state contribution for building savings, exchange rate gains from money exchange, prizes from public competitions, etc.).
• The state contribution for building savings will decrease from a maximum of CZK 2,000 to CZK 1,000 for existing and new contracts and will be considered as other income that will have to be taxed. At the same time, the value of this income is included in the limit of CZK 50,000 for exemption, as stated in the previous point.
• Taxation will also affect some exchange rate gains when money is exchanged from an account maintained in a foreign currency if it is not an account included in business assets (generally a business account). The exchange rate loss can be taken into account against the gains. An exception in taxation is the exchange of money from an account that is kept in a foreign currency on a European-regulated market or on a similar foreign-regulated market on which transactions with these currencies take place. At the same time, it is possible to exempt part of the profit within the common limit of CZK 50,000 for exemption.
• From 2025, the exemption of income from the sale of securities or shares will be limited to CZK 40 million.

Tax reliefs

• In addition to the existing income limit of up to CZK 68,000 per year, the spouse discount can be applied if the new condition of caring for a child up to the age of 3 is met.
• The student discount is cancelled.
• The discount for placing a child, the so-called kindergarten fee, is also cancelled.

Non-taxable parts of the tax base

It will no longer be possible to deduct membership fees paid to a trade union by its member from the tax base, nor reimbursements for examinations verifying the results of further education.

Work performance agreement

Until the end of 2023, it was possible to conclude work performance agreements (WPA) of up to CZK 10,000 per month with an individual employer, which did not result in the obligation to pay social security and health insurance premiums, although several WPAs were concluded with different employers. Thus, only exceeding the above-mentioned limit for one employer per month was subject to taxation and levies.

From 2024, the conditions of levies will change, and limits linked to the average monthly salary will be created. What percentage of the limit obligates to the premium payments is determined by whether the WPA is concluded for a given month with only one employer or more. One WPA at one employer sets a limit of 25% of the average wage (CZK 10,500 for 2024). In the case of the conclusion of several WPAs with more employers, this limit is set at 40% of the average wage (CZK 17,500 for 2024).