Amendment to the Czech Income Tax Act: changes from 2025

The fundamental change to the Accounting Act will lead to amendments to a number of accompanying laws. One of them is the Income Tax Act (ITA), which should undergo a complete transformation. Find out how the terminology and tax depreciation rules you have been used to will change.

Planned changes to the Income Tax Act

The amended Income Tax Act is expected to come into force on 1 January 2025, as is the new Accounting Act. However, due to the complexity of the changes and the substantial modifications to the content, a delay of several months to a year in the effective date is not excluded. What should the amendment bring?

New concepts

The forthcoming amendment aims to simplify the understanding of the text and bring the content of the law closer to the modern way of writing legislation. However, some terminology that you have been used to for years will be completely changed. For example:

*In addition to traditional fixed assets, an "asset" will include accounts receivable, inventory, etc. The aim is to align the term with its meaning used in accounting.

Tax period vs. tax return period

The tax period for legal entities (POs) will be linked exclusively to the accounting period. Simply put: the tax period under the amendment to the ITA = the accounting period of your entity.

The term "tax return period", which is now linked to various specific moments during the year, will disappear completely.

For individuals (FOs), there will be no change and the tax period will remain the classic calendar year.

Obligation for FOs to keep accounts

While the consolidation package has already brought about the abolition of income tax registration of self-employed persons in 2024, the amendment to the ITA should go one step further by deleting the general obligation for individuals to keep accounts.

The tax base would now be determined only on the basis of cash flow. The institution of the flat-rate tax as well as the flat-rate expenses calculated as a percentage of income would remain.

Calculation of tax depreciation

The existing procedures and principles for depreciation of assets would disappear completely and be replaced by new rules as follows:

• the new concept of a tax-depreciable asset sets out what all falls into this category and lists exceptions to what is not considered such an asset;
• the threshold for depreciation will move from the current CZK 80 000 to CZK 100 000;
• tax depreciation will start to be calculated monthly (no longer annually) and depreciation will not be interruptible;
• three basic minimum tax depreciation periods will be set instead of depreciation groups: 60 months, 180 months and 360 months*;
• instead of the straight-line and accelerated depreciation methods, only the straight-line method will be introduced - however, compared to the current straight-line method, the depreciation rate will be the same throughout the period from the first calendar month to the end of the period.

*The Act will newly determine the minimum depreciation period for the purposes of determining the income tax base as follows:

• 360 months: for immovable property with a value of over CZK 2,000,000;
• 180 months: for goodwill acquired by purchase (e.g. purchase of a business plant);
• 60 months: for other assets.

Technical/additional appreciation

For the assessment of technical (in the new terminology, additional) appreciation, two materiality thresholds arise :

• an absolute limit of CZK 100,000,
• or a relative limit of 10% of the tax value of the asset.

Appreciation made on a leased asset will be governed by the recording of the transaction in your accounts (i.e. the value of the non-cash income and the time of taxation), the previous rules will disappear completely.

Finance leases

The current rules for finance leases will be abolished. There will be a new asset "right of use" which will be tax deductible if the conditions of the law are met.

Taxation of revenue contract penalties

There will be a change in the point at which this taxation will be accounted for:

• on the income side, taxation will no longer be linked to payment;
• on the other hand, on the expense side, the obligation to pay the penalty to make it a tax deductible expense will remain.

Tax deductibility of social security and health insurance payments

The link between the tax deductibility of social security and health insurance payments and their reimbursement will be abolished - currently there is a limit of one month after the end of the tax year.

IFRS and the income tax base

Entities that keep their accounts in accordance with IFRS could determine the tax base by reference to the profit or loss calculated in accordance with IFRS. In order for such a result to comply with Czech standards, it will need to be adjusted for those items that are not appropriate for the tax base in the Czech Republic (permanent and temporary timing differences).

Accounting and taxes in EUR without translation

While from January 2024 accounting units can already account in a currency other than the Czech koruna and subsequently use this foreign currency for the tax base and tax return, income tax as such will remain exclusively in Czech currency. It was therefore necessary to convert the foreign currency into the Czech koruna before filing the tax return.

The amendment to the ITA should introduce a special regime for taxpayers (individuals and legal entities) who keep their accounts in euros. Thus, all data in the tax return will remain in EUR, including the calculated amount of tax, which taxpayers will now be allowed to pay in EUR without conversion to CZK.

Don't worry about the change in the law any more than necessary

We keep track of any changes to business-related laws. The legislative process is often lengthy and proposed changes can be chaotic. Leave your accounting and tax agenda to us and instead of researching laws, focus on what makes you money in your business.

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