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In 2024, there was an obligation to follow only one limit (equal to half of the average wage) for the tax-exemption of benefits, which included both health and leisure benefits. In 2025, this limit was split into two separate categories - leisure and health benefits. This means that employers will be required to track each limit separately.
The limit for leisure activities remains at half the average wage (for 2025 it is CZK 23,278.50). It applies to the use of educational or recreational facilities, the provision of a recreation or trip, the use of pre-school childcare facilities, including kindergartens under the Education Act, the use of the employer's library or physical education and sports facilities, the provision of a contribution to cultural or sporting events and the provision of a contribution to printed books.
The newly introduced limit, in which health benefits are defined separately, is equal to the average wage (for 2025 it is CZK 46,557). This limit includes the purchase of goods or services of a medical, therapeutic, hygienic or similar nature from medical institutions or for the purchase of medical devices on prescription.
Benefits up to these limits are exempt income for the employee, but if the limit is exceeded, they will be subject to income tax as well as insurance contributions. If the employee receives health benefits of CZK 40,000 and other benefits of CZK 25,000, the limit for health benefits has not been exceeded, but the limit for other benefits has been exceeded. Therefore, an amount of CZK 1,721.50 (CZK 25,000 - CZK 23,278.50) is taxable in the month in which the limit was exceeded. From the employer's point of view, the value of benefits up to the limit is considered a tax-deductible cost, and the value above the limits will be a tax-deductible cost.
Employers also deal with the question of VAT deductibility when considering benefits. The Coordination Committee of October 2024 (only in Czech) answers some questions outside the VAT Act. The fact that something is tax deductible in terms of the Income Tax Act does not necessarily mean that it is automatically VAT deductible.
The tax deductibility of costs is determined by different criteria than those established for benefits from a VAT perspective. The prerequisite for a VAT payer to be entitled to a tax deduction depends on the use of the supply for its economic activity. One of the first steps is to find out whether the benefit was provided to the employee against payment or free of charge and what its nature is. Benefits usually provide a benefit for the employee's personal use, which may affect the entitlement to a VAT deduction, regardless of the income tax regime.
In case of the provision of benefits free of charge, there is no entitlement to VAT deduction, especially if the benefits are intended to meet the personal needs of employees. However, if the claim to VAT deduction would arise (for example, if it were not clear that the inputs would not be used for economic activity), the provision of the benefit to the employee is considered a taxable supply, which means that the employer is obliged to pay VAT on the output unless the supply is exempt from VAT.
The entitlement to deduct VAT under the general rules arises if the employee is provided with a gratuitous supply under special rules (for example, the provision of drinks in the so-called hot traffics) or if such supplies were provided solely for business purposes during business meetings, making the personal benefit derived by the employee from the input in question secondary. It would also be possible to deduct VAT on a pro-rata basis, according to the proportion of the use of the input to the economic activity and the personal use.
Where the benefit consists of the provision of a service or good against payment the payment must be regarded as direct consideration for the service provided and not merely as a 'fee'. From the perspective of the VAT Act, this is a standard supply of a service or goods against payment, i.e. a taxable supply (unless it is a VAT-exempt supply). The employer is usually entitled to deduct VAT under the general rules of the VAT Act. The conclusions of the Coordination Committee emphasise that a flat rate threshold (e.g. 10 % of costs) cannot generally be applied as a direct countervalue. The General Financial Directorate also stated that the specific circumstances of each individual case must always be taken into consideration when assessing whether a stipulated payment is a direct countervalue for the supply.
The assessment of the tax implications of employee benefits is not always unambiguous. Should you need to discuss the above topic in more detail, please do not hesitate to contact us.
