As the time to submit the 2021 tax return draws near, we would like to bring you an overview of the most significant changes that the year 2021 has brought for individuals.

Super-gross pay and tax rates

A major change in 2021 is the abolition of the super-gross wage under article 6 paragraph 12 of the Income Tax Act (“ITA”) and the solidarity surcharge. At the same time, two progressive tax rates of 15% and 23% were introduced. All this with effect from 1 January 2021. 

In the case of employees, only gross wages are taxed at 15%. However, if the total tax base (regardless of income) exceeds 48 times the average wage (CZK 1,701,168 in 2021), then the progressive rate of 23% applies to this part. As the solidarity tax increase until 31 December 2020 applied only to income from employment or self-employment, the resulting taxation may now have a negative impact on high-income taxpayers.

For the year 2022, the threshold for applying the progressive rate of 23% is changed to CZK 1,867,728 (CZK 155,644 per month).

Discounts and tax benefits

1)    Increase in the discount per taxpayer

-    As of 1 January 2021, under article 35 ba paragraph 1 letter a) of the ITA, the discount per taxpayer increases from CZK 24,840 to CZK 27,840 per year (from CZK 2,070 to CZK 2,320 per month). In 2022, there will be a further increase to CZK 30,840 per year. 

2)    Increase in child tax credit

-    From July 2021, there is an increase in the child tax credit. In the case of an employee, it will not be applied in the monthly calculation of advance payments until January 2022. The higher amounts of tax relief will only be applied retrospectively from 1 January 2021 in the annual tax settlement for 2021 or in the 2021 tax return.

1. The benefit for the first child is fixed at CZK 15,204.
2. The benefit for the second child increases from CZK 19,404 to CZK 22,320.
3. The benefit for the third and each additional child increases from CZK 24,204 to CZK 27,840.

3)    Abolition of the maximum limit for payment of the tax bonus

-    Until 31 December 2020, the taxpayer could claim a tax bonus of up to CZK 60,300 per year (CZK 5,025 per month). The 2021 tax changes include the removal of the annual limit. The abolition of the maximum amount of the monthly bonus also takes effect from 2022.

4)    Increase in the maximum donation deduction 

-    The minimum aggregate amount for the deduction remains CZK 1,000, but the limit of the maximum deduction of gifts for individuals was increased from the original 15% to 30% of the tax base. This increase applies only to the taxable periods of 2020 and 2021.

5)    New discount for stayed foreclosure cases

-    This discount can be used for debts that have not exceeded CZK 1,500 and have been held for more than three years as of 1 January 2021 (they are uncollectable). Creditors whose claims have not been recovered due to a general suspension may apply a discount of 30% of the outstanding claim. The maximum discount for one stayed foreclosure is CZK 450.

Exemption of income from the sale of immovable property

For property acquired from 2021 onwards, the time test has been extended to 10 years (previously 5 years) under article 4 paragraph 1 letter b) of the ITA. In order for the amount of the sale to be exempt from income tax, the property must have been acquired on or after 1 January 2021 and the period between the acquisition of ownership of the property and its sale must exceed 10 years. If real estate acquired before the amendment took effect is sold, the original exemption period applies to the income from the sale. Furthermore, the possibility to exempt income from the sale of immovable property on grounds of using the collected funds for the acquisition of one’s own housing needs has been added to article 4 paragraph 1 letter b) of the ITA.

Interest on a home loan

From 1 January 2021, the limit of interest paid in connection with a housing loan (article 15 paragraph 3 of the Income Tax Act), by which an individual may reduce his tax base, has been reduced from CZK 300,000 to CZK 150,000. According to the provisions of Act No. 386/2020 Coll., the new limit applies to credit financial instruments used to finance housing needs acquired on or after 1 January 2021. The limit of CZK 300 000 continues to apply to interest on credit financial instruments used before 1 January 2021.

Deadlines for filing personal income tax return

The basic deadline for filing income tax returns remains 3 calendar months. The tax declaration is therefore due by 1 April 2022. If the return is not filed by 1 April 2022 and is subsequently filed electronically by the taxpayer, the basic three-month period is extended to four months. The purpose of this change is to support the computerization of tax administration. However, with the extension of the deadline, the due date is also extended and the point in time, at which the refundable overpayment arises, is postponed. In the case of an extension of the time limit, the overpayment is not assessed until the last day of the four-month period, so the point in time, from which the time limit for repayment of the refundable overpayment starts to run, is postponed.

Provided that the tax return has not been filed within the basic time limit but is subsequently filed by a tax adviser, the time limit for filing the return is extended to six months after the end of the taxable period. It is now irrelevant when the power of attorney is exercised with the tax administrator; it can now be exercised even after the expiry of the basic deadline for filing the tax return. In addition, the time limit is extended to six months in the case of an individual (accounting entity) with a statutory audit obligation.

Extension of the deadline for filing the tax return also entails postponement of the moment from which the deadline for determining the tax according to article 148 of the Tax Code starts, or according to article 38r of the Income Tax Act, if a tax loss was incurred in the tax period.

The obligation to file tax returns exclusively electronically from 1 January 2021 applies only to holders of data boxes established by law, taxpayers for whom the tax return is filed by a professional representative (tax consultant or lawyer), who has a data box established by law as a representative, and taxpayers who are required by law to have their financial statements audited by an auditor.

If you have any questions about the above, please do not hesitate to contact us.

Author: Roman Burnus, Valérie Kovářová