Amendments in personal taxation as of 2012
The goal of this article is to summarize amendments in employment taxation and taxation of rewards provided to executive representatives and members of statutory body, which should be effective as of 2012. As not all of the proposed amendments have been approved so far, it would be desirable to track further development in this area.
Although the Ministry of Finance has proposed limitation of some employment benefits (e.g. meal vouchers), such amendments have not been approved. Tax regime of meal vouchers, accommodation provided to employees up to CZK 3,500 per month or more advantageous tickets provided to employees of public transport operators will remain in 2012 at the level of previous years. On the other hand, significant amendments in taxation of rewards paid to executive representatives and members of statutory body will be effective as of January 2012.
Rewards of executive representatives and members of statutory body
Following a broadening definition of persons which should pay pension and sickness insurance contributions, rewards paid to executive representatives, members of statutory body (i.e. members of board of directors or supervisory board) and to other selected persons should be subject to the both pension and sickness insurance. Amendments of particular acts should be now approved by the Czech Senate, nevertheless, rejection of the amendments is unlikely.
From the Czech social security legislation perspective, the rewards paid to the executive representatives or members of statutory body will be then treated the same way as salaries paid to employees. This means that the executive representatives and members of statutory body will be obliged to pay social security contributions of 6.5 % (including pension insurance, sickness insurance and contribution to the state policy of employment) and health insurance contributions of 4.5 %. Contribution of a Company providing the rewards will be 25 % for the social security and 9 % for the health insurance. The same treatment will be applicable for partners of limited liability Companies, limited partners of limited partnership Companies or general proxy holders.
In comparison with a current tax treatment, the rewards paid to the executive representatives and members of statutory body will be „more expensive“ for the Company as they will be fully liable to the sickness insurance (executive representatives) and the both pension and sickness insurance (members of statutory body). On the other hand, the amendments mean easier treatment as regard the pension insurance by the executive representatives (testing of current limit which causes their participation in insurance system will be no more necessary).
However, the above mentioned amendments will have positive effects as regard tax deductibility of the rewards paid to the members of statutory body [1]. The rewards as well as the social security and health insurance contributions paid by the Company can be treated as tax deductible expenses in 2012.
Increase of personal tax allowance
Amount of personal tax allowance will be increased again as of January 2012. The amount of personal tax allowance was temporarily decreased by CZK 100 per month in 2011 and in 2012, it returns to the previous level, i.e. to the amount of CZK 24,840 per month. Further, child deduction will be increased by CZK 150 per month per one child, i.e. the total child deduction will amount to CZK 13,404 per year.
Amendments of maximal social security and health insurance assessment base
As of 2012 the maximal assessment base for social security will differ from the maximal assessment base for health insurance. The basic figures decisive for the maximal assessment bases determination are already known for 2012: in 2012, social security contributions will be paid up to CZK 1,206,576 (i.e. up to 48 multiple of average salary); the health insurance contributions will not exceed CZK 1,809,864 (i.e. 72 multiple of the average salary – the same calculation as in the year 2011).
Agreements to perform a job in 2012
Employees working under conditions of agreements to perform a job will also notice significant amendments as of 2012. If remuneration paid based on this agreement exceeds CZK 10,000, it will be subject to the social security and health insurance starting 1 January 2012. For determination of participation in the social security and health insurance system the particular amounts received by the same employer will be counted together.
Also, the substantial amendments of the Labour Act have been approved as of 2012. Among others, number of hours which employee is allowed to work for one employer under conditions of the agreement to perform a job will change (current limit of 150 hours will be increased to 300 hours) .
[1] Currently, rewards paid to executive representatives are tax deductible, rewards paid to members of statutory body are tax non-deductible.
