On 4 November 2022, the Chamber of Deputies of the Czech Republic approved in the third reading a draft amendment to Act No. 586/1992 Coll., on Income Taxes, as amended (hereinafter referred to as the “ITA”), registered as Parliamentary Print No. 254. The Senate of the Czech Republic is expected to discuss the amendment to the ITA on 24 November 2022 as Senate Document No. 8.

In the area of corporate income tax, the amendment to the ITA regulates in particular the extension of the period of application of extraordinary tax depreciation of assets and the deduction for the support of vocational training, which we will discuss in more detail below.

Extension of the regime of extraordinary tax depreciation of tangible assets

According to the current wording of article 30a of the ITA, taxpayers have the option to use extraordinary tax depreciation for tangible assets included in depreciation groups 1 and 2, if they are new tangible assets and if they were acquired in the period from 1 January 2020 to 31 December 2021.

The amendment to the ITA also extends the possibility of using extraordinary tax depreciation to new tangible assets that were/will be acquired in the period from 1 January 2022 to 31 December 2023.

The number of months, for which the tax subject has the possibility to tax depreciate tangible assets, in compliance with the provisions of article 30a of the ITA, remains unchanged, i.e:

• tangible assets classified in depreciation group 1 can be depreciated by the taxpayer by means of extraordinary tax depreciation without interruption up to 100% of the input price over a period of 12 months;
• tangible property classified in depreciation group 2 may be depreciated by the taxpayer by means of extraordinary tax depreciation without interruption up to 100% of the input price over a period of 24 months (for the first 12 months, depreciation is applied evenly up to 60% of the input price of the tangible property and for the immediately following 12 months, depreciation is applied evenly up to 40% of the input price of the tangible property).

Extraordinary depreciation is also reflected in the case of finance leases, where for tax purposes a shorter minimum finance lease term applies to these assets, so that in the given period it is possible to enter into a lease agreement with a term of only 1 year (tangible assets classified in the first depreciation group) or 2 years (tangible assets classified in the second depreciation group).

Deduction to support the acquisition of assets for vocational training

Article 34g(1) of the ITA sets out a list of statutory obligations that a taxpayer must fulfil in order to be able to claim a deduction to support the acquisition of assets for vocational training and not to subsequently have to increase its tax base by the previously claimed deduction due to a breach of the condition of the period of use of the property.

In this context, the amendment to the ITA adds a fiction (new provision of article 34g(6) of the ITA) that if the condition of the period of use of property for vocational training in accordance with article 34(1) of the ITA was not fulfilled in the tax period beginning from 1 April 2019 to 30 April 2021, it is deemed to have been fulfilled. At the same time, the amendment to the ITA states that the number of tax periods, for which this “condition of the period of use of property for vocational training” must be met, is extended by the number of tax periods, in which it is (by fiction) deemed to have been met.

In keeping with the Explanatory Memorandum, the provisions of article 34g(6) of the ITA apply both in the case of a deduction for property acquired in a tax period beginning before 1 April 2019 and for property acquired in tax periods beginning from 1 April 2019 to 30 April 2021.

The legislators have responded to the epidemiological situation caused by the spreading of the COVID-19 virus, which has led to a ban on full-time teaching in schools at all levels, including practical teaching in vocational training centres, for some periods in 2020 and 2021. Because of these limitations, taxpayers who invested in the acquisition of assets for vocational training could not prove compliance with the statutory obligations (the time of use of the assets) under article 34g(1) of the ITA.

We continue to monitor the situation in the above areas and will keep you informed of any changes.

If you have any questions about this issue, please do not hesitate to contact us.

Author: Martin Valentovič, Zdeňka Svobodová