Amendments to the Income Tax Act and the Value Added Tax Act

In our September issue of KempHoogstad Tax News, we informed you about the most interesting changes concerning the draft amendments to the Income Tax Act and the Value Added Tax Act.

 

We would like to draw your attention to other interesting amendments to the Income Tax Act approved by Parliament in the third reading on 24 September.

• Limitations on expense allowances for self-employed persons

The draft introduces the maximum amount of expenses that can be deducted from a self-employed person's income to determine the tax base. Only tax payers with annual income below CZK 2 million can deduct the full amount of the lump sum. If the income is higher, the expense allowance does not increase.

• Limitations on the tax advantages of private life insurance

Effective from 2015, the amendment will not allow use of tax advantages for the insurance premiums paid for private life insurance that is designed for investing with profit not guaranteed by the insurance company.

• Limitations on the application of Section 24(2)(zc), which regulates the tax deductibility of non-taxable expenses with existing related profit

The mentioned provision is payer friendly, and it is frequently used for many situations in income tax returns. In simplified terms, it says that an expense that would be tax non-deductible by itself can be considered tax deductible if there is a tax profit directly related to it. From 2015, such provision could be applied only to transfer-invoicing, which means the expenses that will be invoiced to another person. The cases in which the provision can be used will be significantly limited.

 

The third 10% VAT rate was approved in the third reading. It will apply to medications, books and infant formula. The 15% and 21% rates will be retained.

We will keep you updated on further developments relating to the amendment process.