The Coordination Committee of Tax Advisors and the General Financial Directorate ("GFD") discussed the issue of flat-rate tax at their last meeting in post 584/19.05.21. More specifically, it concerned the adjustment of tax base in the taxable period when a personal income tax payer switches from flat-rate tax to flat-rate expenses. If a taxpayer switches from a flat-rate tax to flat-rate expenses, the Income Tax Act ("ITA") requires the taxpayer to adjust the tax base for the value of (certain) receivables, payables and the cost of unconsumed inventory. However, the text of the Act does not specify whether to increase or decrease the tax base by a given value or price.

Switching from flat-rate scheme to flat-rate expenses
The opinion of the GFD states that a taxpayer, who switches from the flat-rate tax regime to flat-rate expenses under article 7 paragraph 7 of the ITA, increases his tax base in the taxable period if he applies flat-rate expenses, by the value of receivables that would be taxable income if paid. In the case of the value of the debts, the taxpayer is entitled to reduce his tax base if, in paying them, the expenditure was incurred in securing, achieving and maintaining income.

Inventory
Given that it is not clear from the text of the Act whether the tax base is to be increased or decreased by the cost of inventory when transferring from flat-rate tax to a flat-rate expenditure, the proposed solution was not to question either of the taxpayer's practices. The opinion of the GFD, however, compares this procedure with the transition from keeping tax records to claiming expenses under article 7 paragraph 7 of the ITA and says that it is necessary to increase the tax base by the cost of unconsumed supplies. When these stocks are resold, only the difference, by which the price, at which the unconsumed stocks were sold, exceeds the price of the unconsumed stocks included in the tax base, is included in the tax base.

These adjustments apply at the time of the transition, i.e. on 1 January of the relevant year, although they are not actually made until the tax return is filed (after the end of the tax year).

Records of income, expenses, receivables, debts, inventories and other facts
If the taxpayer chooses and validly enters the flat-rate tax regime, he is obliged to keep records of his income and records of receivables incurred in connection with this activity, liabilities and inventories. In this case, therefore, these are not tax records under article 7b of the ITA.

Rental and sale of property in the flat-rate tax period
By entering the flat-rate tax regime, the taxpayer ceases to keep tax records in the sense of article 7b of the ITA with all the consequences resulting from article 4 paragraph 4 of the ITA. In this area, the GFD makes it clear that if the taxpayer receives income under this regime from the rental or sale of property that was in the taxpayer's business property before the transition to the flat-rate tax and the total amount of the income exceeds CZK 15,000, it is income under article 9 and article 10 of the ITA and must be reported as such in the tax return. However, the taxpayer remains in the flat-rate scheme.