Consolidation package: corporate income tax

Tax rate increase

Amendment to the Act on Income Taxes increases the corporate income tax rate from 19% to 21%.

Limitation of tax deductibility for vehicles

There is introduced a restriction on the deductibility of tax expenses for passenger cars in the form of the acquisition price limitation for M1 category vehicles to CZK 2 million. The limitation will apply on an acquisition price, an increased acquisition price (i.e. after technical improvement), and also on a changed acquisition price (i.e. an increase or decrease in the acquisition price of an already depreciated vehicle for reasons other than technical improvement). Tax depreciation exceeding the total sum of CZK 2 million per one M1 category vehicle will not be possible to deduct.

Please pay attention also to the disposal of the vehicle. In this case, the tax residual price will be determined as if the vehicle had been depreciated from the acquisition price without limitation. The legislator wants to prevent the deduction of the non-taxable part of depreciation when disposing of a vehicle in the form of a higher residual value. At the same time, it will not be possible to use the rule that income related to non-taxable expenses is not subject to tax when selling a vehicle.

For completeness, the definition of vehicle category M1 for income tax purposes is based on EU legislation. These are motor vehicles designed and manufactured primarily for the transport of persons and their luggage with a maximum of eight seats in addition to the driver's seat and no space for standing passengers.

Extension of extraordinary depreciation

The use of the possibility to apply extraordinary tax depreciation of fixed assets will be extended. This will only apply to emission-free vehicles purchased between 1/1/2024 and 31/12/2028. A zero-emission vehicle is defined as a vehicle that uses only electricity or hydrogen as fuel or another means of propulsion that produces no CO2 emissions.

Donations

The validity of the rules for applying the value of donations as an item decreasing the tax base (including the possibility of deducting donations for Ukraine) is extended also for the year 2023, under the current conditions.

Furthermore, it will no longer be possible to deduct gifts in the form of still wine as a promotional item up to CZK 500.

Possibility of non-taxation of exchange rate differences

It will now be possible to exclude unrealized exchange rate differences from the tax base in the period of their creation (accounting) and to include them in the tax base only in the period when the exchange rate difference is realized.

This option will be available to a taxpayer who:

• is an accounting unit and maintains double-entry bookkeeping,
• is not a debtor against whom insolvency proceedings have been initiated,
• is not in liquidation, and
• submits a notification to the tax administrator about entering into this regime.

Notification of entry into the regime must be submitted to the tax administrator within 3 months from the first day of the tax period. Termination of this regime can be both voluntary and forced by the facts specified in the law. In case of voluntary termination, the taxpayer ceases to be a taxpayer in the exchange rate exclusion regime at the end of the second tax period following the tax period in which the tax authorities were informed about withdrawal from the exchange rate exclusion regime.

Announcement on income paid abroad

In general, the reporting obligation on income paid abroad from Czech sources applies to income subject to withholding tax. This also applies in cases when such income paid abroad is tax exempt or not taxed due to the application of relevant international treaty and at the same time refers only to the following passive income:

• license fees;
• profit shares; and
• interest.

Employee benefits

We will deal with this issue in one of our next newsletters, both from the point of view of the employer and from the point of view of the employee.