At the end of October 2020, Andrej Babiš‘ government has presented an amendment to the Parliamentary Print 910, which amends the method of income tax calculation in various areas. The main change introduced by the amendment is the repeal of the concept of supergross salary as a method to calculate income tax from gainful employment. Newly, the tax base for calculating income tax shall equal the gross income received. Apart from the repeal of the supergross salary, 7% solidarity tax increase shall be repealed as well. Two individual income tax rates of 15% and 23% shall be introduced as a substitute for the current regime. Taxable income not exceeding 48 times the average salary (CZK 1,701,168 for the year 2021) will be subject to the 15% tax rate and income exceeding 48 times the average salary will be subject to the tax rate of 23%.
Compared to the current law, which imposes the 7% solidary tax increase only on employment income, the second proposed tax rate of 23% will also be applied to all other types of taxable income. In the final effect, the proposed amendment will reduce taxation of employment, but will cause an increase in taxation for all other types of taxable income.
For purposes of taxing certain types of income from capital and other income from abroad, a new type of taxable income shall be introduced, that will be subject to the 15% tax rate. This should be reserved for types of income that are subject to the withholding tax of 15% when paid by the Czech tax residents. These types of income include, for example, interest from accounts maintained abroad, or dividends received from foreign companies.
The proposed amendment to repeal supergross salary also currently includes a proposal to increase the default tax credit per taxpayer from the current CZK 24,840 to CZK 27,000. It is being considered that the proposed changes are only temporary, and will be enacted for the duration of two years. President Miloš Zeman already stated in the past that he would only sign the amendment under the condition that it will be in effect for two years only. However, the current wording of the amendment does not include any such limitation. It remains to be seen in which form the Parliamentary Print No. 910, which includes the proposal to repeal the supergross salary, will be approved. The Parliamentary Print No. 910 currently awaits its third reading in the Parliament. We will keep you posted about the situation regarding the supergross salary.