The deadline for filing personal income tax returns is also linked to the reporting obligation for exempt income. Under article 38v of the Income Tax Act (ITA), the obligation applies to all income received from 1 January 2015 which, according to an individual assessment of the amount of each income, exceeds the set limit of CZK 5,000,000 and is exempt under articles 4, 4a, 6 and 10 of the ITA. Exempt income that occurs the most frequently includes gratuitous income (gifts), inheritance, compensation received for property or non-property damage, property insurance benefits, lottery winnings, income from sale of movable property or securities.

The notification obligation does not apply to income, about which the tax administrator can obtain information from registers or records, to which it has access and which it publishes on an official board and in a manner allowing remote access. Such income may be income from the sale of immovable property registered in the Land Register of the Czech Republic.

Submission of notification

Notification of exempt income must be submitted within the same time limit as for filing a tax return, even if the taxpayer is not required to file a return for the given taxable period. Individuals subject to the obligation to report exempt income must submit a notification to the tax authority no later than 3 months after the end of the taxable period, in which the income occurred, i.e. by 3 April 2023 for the year 2022. If filing electronically, the deadline is extended to 2 May 2023, and if filing through a tax adviser, the filing deadline is extended to 3 July 2023. If the taxpayer is not required to file a tax return, the taxpayer is required to make the notification by 3 April 2023.

The notification does not have any prescribed form. The Ministry of Finance has issued a possible optional template that taxpayers can use. The form is published on the website of the tax administration. The notification may be submitted in writing in paper form or electronically, or orally on the record. If the exempt income falls within the community of property, it is sufficient if only one spouse fulfils the notification obligation.

The notification of exempt income must include details of the amount of income received by the individual. Exceeding the limit of CZK 5 million is assessed for each individual income separately. The statutory provision, under which the income was exempt from tax, must also be stated. Other mandatory information includes the circumstances of the acquisition of the income, i.e. the manner of its acquisition and the date, on which the income incurred. In the case of inheritance, the date of entry into force of the court’s decision on the inheritance is stated.

Penalties for failure to notify

In the event of late notification or failure to notify exempt income, the taxpayer is liable to pay a penalty of:

• 1% of the amount of unreported income, if he complies with this obligation without being asked to do so,
• 10 % of the amount of the unreported income, if he or she complies with the obligation after being asked to do so within an alternative period, or
• 15% of the amount of unreported income, if the taxpayer fails to comply with the reporting obligation even within the replacement period.

In the case of reporting an incorrect amount of exempt income, the amount of the penalty is based on the actual valuation of that income that the taxpayer did not report or reported retrospectively. The penalty for failure to report exempt income may be waived in whole or in part by the tax administrator, if the failure to comply with the statutory obligation was due to a reason that can be justified in compliance with articles 259(1) and 259aa(1) of the Tax Code, taking into account the circumstances of the particular situation, upon request.

Author: Roman Burnus, Anna Beránková