Payroll Newsletter - Winter 2017
Tax changes, news, practical information
Increasing the minimum wage from 1 January 2017
The minimum wage will increase by CZK 1,100 to CZK 11 thousand and the minimum hourly wage will increase to CZK 66 with effect from 1 January 2017. The lowest guaranteed wage for individual categories of work will also see an increase to totals ranging from CZK 11 thousand to CZK 22 thousand. The new minimum wage and the lowest guaranteed wage will newly also apply to disability pension recipients (special rates for persons with limited work opportunities have been cancelled).
The maximum assessment base for the payment of the 2017 social security contributions and increasing the limits for solidarity tax payments
The maximum assessment base for the payment of social security contributions will increase from CZK 1,296,288 to CZK 1,355,136 in 2017. Accordingly, the limits for a solidarity tax surcharge will rise and be imposed on a gross monthly income exceeding CZK 112,928 in 2017.
A new assessment base for health insurance in 2017
In relation to a change in the minimum wage from January 2017, the minimum assessment base for health insurance will also increase, including the minimum amount of a monthly premium to be paid by persons without taxable income, which is also paid for the so-called "state insured persons" (students, old age pensioners, women on maternity leave, parental allowance recipients, job applicants registered with the Employment Office etc).
The minimum monthly assessment base for health insurance in 2017 amounts to CZK 11 thousand with the monthly payment of CZK 1,485. Secondary school and university students often rely on schools reporting their studies to the insurance company. Nevertheless, schools are not obliged to (and most of them do not) do so. The obligation to report the commencement, termination or interruption of studies always rests with the insured. Students are therefore exposed to the risk of being categorised as non-payers and subject to a premium insurance claim made by insurance companies. For this reason, we recommend that students always confirm their registration with the insurance company at the beginning of each school or academic year.
Health insurance companies transferring their accounts to the Czech National Bank
Health insurance companies are obliged to transfer their bank accounts to the Czech National Bank and cancel their current accounts at commercial banks by February 2017. Individual insurance companies will notify insurance payers on bank account changes via letters.
Forthcoming change in tax relief for children
The forthcoming amendment to the Income Taxes Act also involves increasing the tax relief for the second, third and any additional child. As opposed to the current situation, the tax relief for the second child shall increase by CZK 200 to CZK 1,617 per month (CZK 19,404 per year), the tax relief for the third and any additional child shall increase by CZK 300 to CZK 2,017 per month (CZK 24,204 per year). The tax relief for the first child will remain unchanged (ie CZK 1,117 per month/CZK 13,404 per year).
It is unlikely that the Parliament will manage to pass the amendment on time; therefore, the amendment will only take effect in the course of 2017. This will resemble this year's situation when the increased monthly rates of tax relief for the second, third and any additional child will apply in the course of 2017 for the first time (with retroactive effect from 1 January 2017) and the months in which the tax relief was utilised in the original amount would be evened up as part of the annual reconciliation of prepayments for 2017 or in the 2017 tax return.
Two-page tax return
Employees with income solely from dependent activities in the Czech Republic will be able to file a personal income tax return via a simplified two-page form already for the 2016 taxation period. The new form is an opportunity, not an obligation. The form is not intended for payers with income from business activity, rental, capital gains or other income (Sections 7-10 of the Income Taxes Act) or for those with income from abroad or filing an additional tax return.
Increasing the limit for income tax exemption and premium with respect to the employer's contributions to supplementary pension insurance products
With effect from 1 January 2017, the annual limit for income tax exemption with respect to the sum of the employer's contributions to supplementary pension insurance, additional pension savings and life insurance will increase from the current amount of CZK 30 thousand to no more than CZK 50 thousand.
Cancelling pension taxation for pensioners with other income
The Constitutional Court cancelled part of the Income Taxes Act regarding the taxation of pension for working pensioners with other income. The Constitutional Court concluded that the act was contrary to the principle of equality and prohibition of discrimination. Newly, the pension of working pensioners with other income exceeding CZK 840 thousand per year will not be subject to tax, starting from the 2016 taxation period. Therefore, taxation will continue to apply to pension exceeding the 36 multiple of the minimum wage on an annual basis.
Reimbursement of Travel Costs Incurred at Business Trips
Starting from 1 January 2017, the rates of reimbursement of travel costs incurred by employees at business trips will be revised. In connection with the use of a private car for business trips, employees are entitled to reimbursement arising from both car wear-and-tear and consumed fuel. The rate for car wear-and-tear is increased by 10 hellers for 2017, resulting in the employee being entitled to CZK 3.90 per kilometre travelled. If employees apply regulated prices to the reimbursement of the costs of consumed fuel in 2017, they may charge CZK 29.40 per 1 litre of consumed petrol or CZK 28.30 per 1 litre of consumed diesel. Naturally, employees are entitled to claim reimbursement of the actual costs as documented by fuel payment receipts instead of applying regulated prices.
In 2017, the rates of local food allowance in individual time zones will be increased by CZK 1-4 year on year. From 2017, employees are thus entitled to food allowance of at least CZK 71 if they are on a business trip from 5 to 12 hours; CZK 108 if a business trip is between 12 and 18 hours; and CZK 170 if a business trip exceeds 18 hours. The principle of food allowance reduction remains unchanged.
Failure to report income exempt from tax
With effect from 1 January 2015, the Income Taxes Act provides for the payer's obligation to notify the tax administrator of any income exempt from tax exceeding CZK 5,000,000 per individual income. The payer must disclose such income in a personal income tax return for the period in which the income was generated by the deadline for filing, ie always by 1 April, or 1 July if the tax return is prepared and filed by a tax advisor. The payer's failure to meet the notification obligation may result in a penalty imposed by the tax administrator of up to 15% of the income exempt from tax which has not been reported. All income exempt from the personal income tax under the Income Taxes Act is subject to the notification obligation, save for the income which the tax administrator may identify from a register or records that are accessible to it and that are published on a public noticeboard in a manner supporting remote access. For example, the notification obligation therefore does not extend to income exempt from tax arising from a family house.
If an employee is obliged to notify the tax administrator of any income exempt from tax, he/she will have to file a tax return and his/her income from dependent activity should not be included in the annual tax reconciliation by the employer. In this situation, the employer relies on the employee's statement in the "Tax Statement" form and is not obliged to verify whether or not the employee's statement is accurate.