Payroll Newsletter - Autumn 2021

Tax credit for children will increase, the maximum limit for monthly bonus payment is cancelled

At the end of July 2021, the amendment to the Income Taxes Act regarding changes in tax credit for children regulated by Sections 35c and 35d became effective. Both changes are positive for taxpayers in terms of tax burden.

The first change concerns the increase of tax credit for the second child from CZK 19,404 to CZK 22,320 per year (CZK 1,860 per month), in the case of the third and subsequent child from CZK 24,204 to CZK 27,840 per year (CZK 2,320 per month). In respect of the second child, the taxpayer will be able to decrease the tax liability by another CZK 243 per month (CZK 2,916 per year) compared to the current situation, in respect of the third child and subsequent children, there will be a decrease of CZK 303 per month (CZK 3,636 per year). There is no change in the tax credit for the first child, the tax credit amount remains at CZK 15,204 per year (CZK 1,267 per month).

The increase of the tax credit for children is regulated by law for the 2021 taxation period, with new limits being applicable retrospectively after the termination of the 2021 taxation period as follows:

• In the annual tax reconciliation for 2021, or
• In the personal income tax return for 2021.

For taxpayers applying tax credit for two or more children during the year, it will be very important to ask their employers to perform their annual tax reconciliation for 2021 by 15 February 2022, or, alternatively, to file a tax return within the statutory deadline.

Another change to the Income Taxes Act, Section 35d (4), brings the cancellation of the upper limit for the payment of the monthly tax bonus for a child in the amount of CZK 5,025. Unlike the increase in the tax credit, this cancellation will be applicable from the beginning of the 2022 taxation period, i.e. for the calculation of the tax prepayment for January 2022. The provision regarding the monthly tax bonus being payable only if it amounts to at least CZK 50 remains unchanged.  

Foreign nationals and the registration to VZP insurance provider since 2 August 2021

Foreign nationals who are not included in the public health insurance system (or who are subject to another exception) are obligated to conclude travel health insurance covering comprehensive healthcare within 90 days from entering the Czech territory. Such travel insurance contract can newly be concluded only with Pojišťovna VZP, a.s.; the trouble of comparing fees and scope of insurance coverage offered by various insurance companies will therefore be eliminated. Travel insurance contracted prior to 2 August 2021 shall remain effective.

Newly, children born to mothers who are foreign nationals with long-term residence will also be considered public health insurance policy holders. Nevertheless, the child will only remain in the system until the end of the calendar month in which it became 60 days old.

Foreign nationals – other news from the amendment regarding the residence of foreign nationals in the Czech territory

The amendment to Act 326/1999 Coll., on the Residence of Foreign Nationals in the Territory of the Czech Republic and on the Modification to Certain Acts and the Related Regulations brought news regarding foreign nationals’ identity documents. Family members of EU citizens are obligated to exchange the current identity documents for new, biometrical documents. The validity for all non-biometrical identity documents ends on 3 August 2023. The exchange of the current identity documents for biometrical ones is free of charge. The Act on the Residence of Foreign Nationals newly distinguishes between close and remote family members. Pursuant to the act, remote family members include unmarried couples (partners), persons who, for serious health reasons, require personal care provided by the relevant EU citizen, etc. In order to retain their status, remote family members of EU citizens have to exchange their identity documents for biometrical ones by 31 August 2022. Furthermore, the amendment changes the requirements for remote family members. They newly have to prove their income and comprehensive health insurance.

UK citizens who resided in the Czech Republic before Brexit and have temporary or permanent residence in the Czech Republic have to exchange their “foldable booklet” for a biometrical identity document by 31 August 2022. Their family members have to do the same.

For EU citizens, the name of the “confirmation of temporary residence” changes to “registration certificate”. The registration certificate will be issued by an administrative body for 10 years by default, and the format of the document remains unchanged. This act is now subject to an administration fee.

One-off payment of the outstanding amount of the parental allowance

The amendment to Act 117/1995 Coll., on State Social Support, which came into force on 28 July 2021, enables a one-off payment of the outstanding amount of the parental allowance. Families therefore do not necessarily have to lose the unused portion of the parental allowance upon the birth of another child. This means that if the family does not use the entire parental allowance in the amount of CZK 300 thousand (CZK 450 thousand for multiple births), the labour office will make a one-off payment of the outstanding amount of the allowance for the previous child.  The condition is that at least one parent has to work, either as an employee, as a self-employed person, or an employee on the basis of a contract other than the employment contract from whose income insurance is paid, so that the daily assessment base can be determined for the family as of the date of birth of the new child. This amendment will apply to families with their youngest child born no sooner than on 27 July 2021.

Change of forms for the personal income tax return

With effect from 14 September 2021, a change has been made to the personal income tax return forms.

The modification is a reaction to legislative amendments, which have an impact on the changes in the personal income tax return forms for the 2021 taxation period. These predominantly include the cancellation of the super-gross salary, cancellation of the solidarity tax increase and the introduction of a progressive personal income tax rate or the re-introduction of a separate tax base for selected income of individuals generated from foreign sources.

Kurzarbeit

On 1 August 2021, the amendment to the Employment Act became effective, amending so-called kurzarbeit (allowance in a period of partial unemployment), which should be activated for future cases when employees cannot be provided with full-time work. In such cases, the Antivirus programme should no longer apply, but should be replaced by this new institute. 

The payment of an allowance in the period of partial unemployment will be activated by a government decree and may be restricted in terms of territory, industry and sector (individually). The provision of the allowance is limited to 12 months and the allowance itself will amount to 80% of the employee’s salary compensation and the insurance fee payable by the employer from this compensation. Same as in the Antivirus programme, the upper limit will be the 1.5 multiple of the average salary in the national economy for the first three quarters of the calendar year preceding the calendar year in which kurzarbeit was activated by the government.

The allowance will be provided based on a written notification of the employer and a monthly overview of employee salary compensation expenses. The monthly overview of expenses has to be filed with the labour office no later than on the 20^th day of the calendar month for which the contribution is granted (the entitlement expires after this deadline).

Protected account confirmation

As of 1 July 2021, employees with distraints or orders of enforcement of a judgement can open a so-called protected account.  

Unfortunately, it often happened in practice that a distraint was ordered by ordering a receivable to be deducted from an account where funds were deposited which had already been subject to salary deductions based on the distraint. By opening a protected account, employees can deposit their protected income without having to fear that they might be subject to another distraint (i.e. more than once). The funds on this special bank account cannot be subject to distraint. 

What is considered a protected income?

This is an income which is not subject to distraint by law, or from which a distraint deduction has already been made.

How to open a protected account?

First of all, the employee has to file a written request with the employer – the payer of the protected income – for issuing a confirmation for the protected account. The confirmation is issued on a form prescribed by the Ministry of Justice of the Czech Republic, which is available on its website.

The confirmation has to include the identification of the employer (debtor from the protected income) and the employee (the obliged person), as well as the employer’s bank account number from which the employee’s income is paid, and the employee’s bank account number. Subsequently, the employee has to send the confirmation to the enforcement administrator who ordered the distraint by ordering a receivable to be deducted from the account, and ask them to provide the bank with the information necessary for opening the protected account.  

The employee applies for the protected account with their bank where they already have an account that is subject to distraint by ordering a receivable to be deducted from the account. The bank subsequently opens a protected account and informs all enforcement administrators who ordered a distraint by ordering a receivable to be deducted from the account of its existence.

Conditions of the protected account

An employee can only open one protected account regardless of the number of their current bank accounts with various banks. The maintenance of the protected account is free of charge by law. The employer will continue to pay out income to the employee’s bank account. The transfer of the income to the protected account will be arranged by the bank.

Care allowance in the new school year

Since the beginning of the new school year, the provision of a care allowance in the event of incidence of COVID-19 at the school (quarantine ordered to the child or closure of the school) is governed by the Act on Sickness Insurance by default – if an employee takes care of a child younger than 10 years for no more than 9 calendar days (16 days for single parents), the care allowance amounts to 60% of the reduced daily assessment base for the calendar day. The care allowance due to the above reasons has to be requested using the form “Application for care allowance when caring for a child due to the closure of a school facility”.

Care allowance – amendment to the Act on Sickness Insurance

The amendment to Act No. 187/2006 Coll., which should come into effect on 1 January 2022, expands the circle of people who give rise to the entitlement to care allowance. The right to provide care will no longer apply only to those living in the same household but also to persons living at a different address if they are direct relatives: siblings, spouse, registered partner, parents of the spouse or registered partner.

Long-term care allowance

The amendment to the Act on Sickness Insurance also changes the conditions of long-term care allowance. It will be possible to apply for a long-term care allowance already at the time when the sick person has stayed at an in-patient facility for a least four calendar days (the current condition is seven calendar days). In addition, it will be possible to request the issuance of a decision on the origination of the need for long-term care up to 8 days after the end of hospitalisation. Another change concerns the care for persons in an incurable condition (the patient requires palliative care, which may be provided at home), where the amendment eliminates the condition of hospitalisation for the provision of the long-term care allowance.

Paternal leave

The amendment to the Act on Sickness Insurance also brings changes in the provision of paternal leave, which is provided to the father in connection with the care for his new-born child (the father has to be named in the child’s birth certificate) or to an insured person who has taken a child into his care following the decision of a competent authority. The parental leave allowance will newly be provided for two weeks instead of one week.

In addition, the current six-week period after the birth of the child when the allowance may be drawn is extended by the period when the new-born remains hospitalised.