The amendments to tax and health insurance laws, aimed at reducing the public budget deficit, were finally enacted and became effective as from 1 January 2013. A summary of the major changes brought about by the new law can be found below.
- the introduction of a cap on the flat-rate expenses deduction for taxpayers with self employment income from business activity or any other independent gainful activity (CZK 800,000) or rental income (CZK 600,000) where the individual's annual income exceeds CZK 2,000,000. Additionally, under certain circumstances, such taxpayers may lose entitlement to spousal and dependent child relief;
- the introduction of a three-year "solidarity surcharge" of 7% on employment and self employment income in excess of the ceiling on social security contributions (i.e. 48 times the average wage or CZK1,242,432). Individuals who have to pay the solidarity tax will automatically be required to file a personal income tax return;
- the revoking of the basic tax allowance from 2013 to 2015 inclusive (of CZK 24,840) for pensioner taxpayers who are recipients of old-age or disability pension;
- the increase from 15% to 35% of the withholding tax applicable to Czech source income of non-resident taxpayers from outside the EU, EEA and countries with which the Czech Republic has a double tax agreement.
Other major tax related changes:The removal of the ceiling on the taxable base for public health insurance contributions from 2013 to 2015.
The amendment of income tax and health insurance laws mainly affects high earners. Those individuals and their employers should concentrate on accurately calculating the total tax burden in 2013, including payroll tax advances from the beginning of the year, and if possible consider possibilities for tax optimisation by means of other methods of remuneration.
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