It appears that lawgivers spared us uncommonly this year and the year 2016 thus will not bring any significant or conceptual changes in the realm of taxes. There will be several changes, however, after all. We will mention them in the following article.

For natural persons, mainly the following changes will occur:

The solidarity tax increase will remain

A solidarity tax increase was introduced by an amendment of the income tax act (“ZDP”) from the year 2013 for a temporary three-year period. Its repeal article has been cancelled, though, by act no. 267/2014, which amended ZDP as of January 1, 2015.

Contracts of services – re-classification of the withholding tax in the tax return form

The inclusion of income from contracts of services into the tax return remains voluntary, but if an employee chooses the so-called re-classification of the withholding tax into regular tax, he must re-classify the income from contracts of services with all employers.

A change of the maximum limits for additional pension insurance and life insurance 

From the year 2016, the limit for exempted contributions from the employer to pension products and life insurance is being raised from CZK 30,000 to CZK 50,000. The possible sum for deduction of contributions paid by the taxpayer from the tax assessment base has also been raised, from CZK 12,000 to CZK 24,000, which will, however, only affect taxpayers, who pay contributions of CZK 2,000 to CZK 3,000 per month. 

Small photovoltaic power plants up to 10 kW

Plants producing electricity with installed output of up to 10 kW will newly not be obliged to have a licence from the Energy Regulation Office, if this electricity is intended for the consumer’s own use. As a result of this:

• this will not be a taxpayer, who has income from other enterprising, for which an entrepreneurial licence is required;
• potential income will be assessed in the regime of other income (the test for exemption reaches CZK 30,000, the effect on the form of taxation – the actual expenditure needs to be applied, flat rate for expenditure cannot be used); 
• the operator will avoid insurance paid by self-employed persons.

Tax advantages for people with children 

Based on a programme solution of the government, the tax advantage for having a second child or for further children should grow every year. From the year 2016, the tax advantage for a second child should increase to CZK 17,004/ year and for the third child and other children it should be CZK 20,604/ year. The respective amendment has not been approved yet, however (it is in the stage of a second reading). 

A discount for placing a child in a childcare facility 

On June 4, 2015, an amendment of the act on child groups came in operation, which introduces the definition of a “preschool facility”. According to this definition, preschool facilities are operated according to the Schools Act, with a trade licence (if the nature of care thus provided is comparable) and according to the act on child groups. Outdoor nurseries, for example, will be outside regulation. This is important for applying “nursery school fees” from the year 2016. 

Cancellation of pension savings 

The 2^nd pillar of the pension system, the so-called pension savings, will be cancelled ultimately. People will be able to choose from several options for transferring the means they have saved up, either by: transferring them to a bank account (free of charge in the Czech Republic), sending a postal order (subject to charges) or transferring the money to the third pillar (free of charge).

In the section relating to legal entities, the following changes are significant:

Investment incentives

In this realm, sanctions in the case of transformations in a company and takeover of the assets of a company are being reduced. From the year 2016, a company that is using investment incentives will be able to participate in a transformation, without having to retrospectively return the already applied part of the investment incentive. In the year of transformation, though, the company will not be able to use the investment incentive anymore. This is an important change in favour of the taxpayers, who had to return the entire part of the already applied tax reduction in the form of an investment incentive, according to the rules until the year 2015. Another novelty regarding investment incentives is the option of giving up investment incentives even at the time when the taxpayer had already used a tax reduction, without having to retrospectively return the applied part.

Treatment of electronic waste

Another change is a reserve for treatment of electronic waste from solar panels, which is deductible from taxes, about which we have informed you earlier. 

Start-up costs 

The last change relates to an amendment of the accounting act, where start-up costs cease to be intangible assets and it is therefore not possible to write them off as intangible assets. Start-up costs included until the year 2015 will continue to use the “old” system.

In case one of the novelties has attracted your attention and you would like to know more, please contact us.