New tax package – changes to corporate taxation + VAT

In June this year, the government submitted a proposal to the House of Commons for several major tax changes. In the end, MPs’ deliberations dragged on until 1am and it is still unclear what the final shape of the changes, which are intended to take effect from 1 January 2021, will be.

What changes the tax package brings:

Changes to corporate taxation and VAT

Increase in the tax depreciation threshold for tangible assets and technical improvements

The amendment increases the threshold from CZK 40,000 to CZK 80,000 from which tangible assets are considered “tangible property for the purposes of the Act” and must therefore be tax written off. The same increase in the threshold now also applies to technical appreciation. Thus, from January it will be possible to buy a computer for CZK 70,000 and put it into expenses (if it is not written off in the accounts).

Eligibility of expenditure on gratuitous benefits in kind provided from 1 March 2020 to 31 December 2020 in connection with the occurrence of COVID-19

The government’s proposal is aimed at providing tax and administrative relief to taxpayers who provided their services and products to those in need free of charge during the coronavirus pandemic. These benefits and the expenses incurred for them will be tax deductible.

Changes to the notification of foreign income

There will be a new distinction between two types of notifications, namely for income already taxed and income exempt (or not taxed under an international treaty). For the notification of taxed income, the deadline would not change, but for non-taxed income, the notification would be made only once a year.

In addition, the monthly threshold from which the notification is required would be changed. This would increase from 100,000 to 300,000 under the proposal. This limit would be set monthly and notification would only be made for each month in which the limit is exceeded.

Application of VAT on rental property

Another major change for 2021 will be the application of VAT on the rental of real estate between two VAT payers. This has been particularly beneficial for claiming VAT deductions. However, the amendment significantly restricts this possibility. It will no longer be possible to tax the rental of residential premises in this way. This is a lease:

• a family house under the legislation governing the Land Registry,
• residential premises,
• a unit which does not include non-residential space other than a garage, cellar or storage room,
• a building in which at least 60 % of the floor area of the building or part of the building, if that part is rented, consists of living space
• the land of which such a building forms part
• the building right of which such building forms part.

This means that the landlord will not be able to claim a deduction for VAT on the goods and services purchased in connection with the letting. Further and more fundamental will be the need to correct VAT deductions that were made earlier. This will require the landlord to repay a pro rata amount of the original VAT deduction on the property each year until the 10-year period from purchase or technical improvement is met.

It is possible to apply the original VAT system until the end of the year and, if necessary, to adjust the flows between businesses in such a way that the set-up remains tax efficient.