Update 25 may 2020
Several measures have been taken by the Czech government in order to mitigate the impact of COVID 19 pandemic so far. These measures include:
Proposals to support employees and employer („Antivirus program“)
Proposals to support employees and employers in which the Government will compensate funds paid out by companies:
- Mode A: Employee in quarantine or operations closed by the government – 60% of salary to be paid to the employee, thereof 100% to be recovered by the government up to limit CZK 39.000,00;
- Mode B: Significant part of employees in quarantine or doing child care – 100% of salary to be paid to the employee, thereof 60% to be recovered by the government up to limit CZK 29.000,00;
- Mode B: Business interruptions due to supply disruption – 80% of salary to be paid to the employee, thereof 60 % to be recovered by the government up to limit CZK 29.000,00;
- Mode B: Business interruptions due to demand drop – 60% of salary to be paid to the employee, thereof 60% to be recovered by the government up to limit CZK 29.000,00;
Government payments cover wage and social security costs.
Government payments for care-givers (eg parents taking care of their children and, thus, being unable to work) have been enlarged.
Relief package I
- The general deadline for filing the 2019 individual income tax return is April 1st, 2020. However, no penalty and late-payment interest will apply, as long as the tax return is filed by July 1st, 2020. This measure will effectively permit taxpayers to defer without sanctions the individual income tax filing and payment deadlines by 3 months. Taxpayers will not be required to demonstrate that the delay was caused by Covid-19.
- In the case of other late tax filings, including the late filing of the control statements, taxpayers will not be subject to penalties, provided that they can demonstrate that the delay was caused by Covid-19 (e.g. illness or quarantine in connection with Covid-19).
- All taxpayers will be exempt from the second penalty of CZK 1,000 for a late filing of the control statement, without the need to demonstrate the connection with Covid-19.
- Although the final stages of the electronic evidence of revenues (EER) will still be introduced from
May 1st, 2020, the tax authorities will be more lenient in cases of non-compliance, where such non-compliance was demonstrably caused by Covid-19.
Relief package II
- Corporate Income Tax advance 2020 due on June 15th has been pardoned.
- EER was suspended during the emergency of state and following 3 months.
- Plan to introduce the possibility of a “loss carry-back” for PIT and CIT. Thus, tax losses incurred in 2020 could be carried back to the two previous taxable periods via filing a supplementary tax return. This measure requires an amendment to the Income Tax Act.
- Interests for late-payment regarding the road tax advance payments due on April 15th and July 15th, 2020 will be waived, if the payments are made by September 15th, 2020 at the latest.
- Remission of the fine for late filing of a real estate acquisition tax („REAT“) return, for a late payment of REAT or an advance on REAT. Without the risk of a imposed penalty, these returns can be filed by 31 August 2020.
Compensation Bonus (self-employed)
Eligible:
- Individuals whose business is their main economic activity as well as those who combine their business;
- Their business was active as at 12 March 2020 or it was temporarily interrupted any time after 31 August 2019 (e.g. seasonal business activities) and
- Their business has been made impossible or has been negatively affected by government anti-pandemic measures.
Support:
- Bonus of CZK 500 per day for period 12 March 2020 – 30 April 2020.
- Maximum CZK 25,000
- The bonus is exempt from tax and social security charges.
- Paid out is based on applications submitted to the Tax authority.
- Deadline for filing applications: 60 days after the expected end of the emergency state (currently 29 June 2020)
Relief of Health Insurance and Social Security Payments (self-employed)
Eligible:
- All self-employed persons who perform their activities as main or supplementary
For advance payments of social security and health insurance during the period from March to August 2020 the following has to be considered:
- The entire advance will be excused for those who are to pay minimum amounts (CZK 2,544 in the case of social insurance, and CZK 2,352 in the case of health insurance).
- Self-employed persons who are to pay a higher advance than the minimum also do not have to pay any advance during this period.
- When filing the social security declaration for 2020 they then back-pay only the difference between the minimum deposit and the true deposit amount which they were to pay between March 2020 and August 2020.
Moratorium proposal on the repayment of loans
- Not approved by the Parliament yet; once in force, it will be binding for all banks and non-banking institutions.
- The bank client has to formally apply for a moratorium and indicate that it is due to COVID-19.
- The bank client has an option to chose between 3 or 6 months deferral only.
- The loan repayment period will then be extended by the period of the interruption of instalments.
- Instalments will be deferred for loans, including mortgages that have been negotiated and utilized before 26 March 2020.
- Not applicable to credit cards, overdrafts, revolving loans, operational leasing or loans related to capital market transactions.
- Instalments cannot be postponed on loans in default for more than 30 days as at 26 March 2020.
- Interruption of the loan repayment will not lead to a negative entry in the debtor registries.
Proposal for postponing of rental payments to landlords
- Not approved by the Parliament yet, if it comes into force, it might be contested at the Constitutional Court.
- The landlord cannot terminate the lease until 31 December 2020 for the sole reason of the delay with the payment of rent in the decisive period.
- Decisive period is:
– 12 March 2020 – 30 June 2020 for commercial premises;
– 12 March 2020 – 31 July 2020 for residential premises. - Tenant must disclose documents proving that delay in payments is caused due to constraints of the extraordinary measures in the event of the epidemic.
- All receivables that arose due during the decisive period must then be settled by 31 December 2020; if not; protection will end, and the landlord has the right to terminate the lease with a special notice period of only five days.
- The landlord’s right to terminate the lease for other reasons or other rights of the landlord arising from the delay are not affected.
Proposed Lex „COVID“ – disarming insolvency and enforcement proceedings
- To be approved by parliament
- An amendment to the Insolvency Act would enable the possibility of an extraordinary moratorium.
- The affected businesses will be able to file a moratorium petition to the court and obtain a protective period of up to three months during which the creditors will not be able to act.
- The declared moratorium will silence the creditors and give the entrepreneur the opportunity regroup his financial powers so that at the end of this period his establishment will remain healthy at least to the extent that the risk of bankruptcy is avoided.
- During the moratorium, the debtor may determine in particular which creditors he considers to be crucial for the maintenance of his business and pay their claims preferentially.
COVID I – Interest-free loans by the Czech-Moravian Guarantee and Development Bank (CMGDB)
- Loans for small movable and immovable property acquisition, for acquisition and financing of stocks and other operational expenses (wages, energy bills, and rent ).
- Loans in the amount CZK 0.5 to 15 mil., up to 90% of eligible project expenditures.
- Due period up to 2 years.
- Instalments postponement up to 12 months.
- The applications admission was stalled on March 20th, 2020.
COVID II – Guarantees from CMGDB for loans drawn from commercial banks
- Loans Guarantees up to CZK 15 million.
- Cover up to 80% of the commercial loan and the applicant will also be able to draw on a contribution up to CZK 1 million to pay interest.
- Maximum term of the guarantee is limited to 3 years.
- The guaranteed commercial loan may only be used to cover operating expenses such as wages, rent, energy, supplier/customer invoices, materials, inventory, and other small assets.
- As this is an EU-funded program, enterprises established in the city of Prague are excluded.
- The first round of applications admission was terminated on 3 April 2020. Next rounds yet to be announced.
On May 4, 2020, the government of the Czech Republic passed an extension of the Antivirus (salary compensation) program to protect employment until May 31, 2020, i.e. employers affected by coronavirus will, by means of the Employment Office, be paid out expenses incurred for compensating the salaries of employees, including obligatory payments, also for the month of May.
Postponement of social insurance payments – the proposal by the Ministry of Labour and Social Affairs has been presented to the government
Recently, the Minister of Labour and Social Affairs presented a new proposal for postponement of employer’s contribution to social insurance. The postponement is to concern only payments of the employer’s contribution (24.8 % of gross salary) for the period from May to July 2020. The employer will be obliged to make payments for employee’s contribution on the standard terms.
Any employer can utilize the postponement. The balance of the owed sum will have to be paid by September 20, 2020 at the latest, including interest. Pursuant to the proposal, the interest will amount to 4 % p.a. of the owed amount. If the stated term is not kept, an increased interest amounting to 18 % p.a. would apply.
Currently, the act is subject to legislation procedure in the Czech parliament.
Deferral of payment of tax deposits from earned income and tax at source
The Directorate General for Finance issued a methodological instruction which enables employment tax payers to request a deferral of advance payments for individual income tax for the period of February to July 2020 in selected cases (e.g. from contracts for work, from non-resident income from self-employment, interest from loans and credits etc.).
Deferral has to be requested separately for each month and the impact of special measures from the coronavirus title has to be proved. Deferral is possible until 30. 9. 2020 at the latest.
An obligation to pay interest from the deferred amount (repo rate CNB + 7 %) arises for the deferral period, the pardoning of which can likewise be requested.
Increase of care-giver’s allowance
Care-giver’s allowance has been increased from 60 % to 80 % of the average contribution basis per calendar day. The increase of the care-giver’s allowance will take place automatically with retroactive effect from April 1, 2020 to June 30, 2020.
Newly, people working on the basis of contracts and work-performance agreements (DPP and DPČ) will also be entitled to a care-givers allowance; it has to apply to unfinished agreements. These people will be able to request the care-giver’s allowance retroactively from the declaration of the state of emergency on March 12, 2020, even if the agreement had been closed prior to that date.
The state contributes to business rents
On May 4, 2020, the government passed the intention of the Ministry of Industry and Trade to contribute, in the form of a subsidy program, to entrepreneurs who have been affected by restrictive preventative government measures, towards payment of rent for business facilities.
Entrepreneurs whose business activities have been affected by coronavirus can receive from the government a contribution towards rent which they have to pay between April 1 and June 30. The approved intention takes into account that the state will contribute to entrepreneurs affected in connection with coronavirus a sum amounting to 50 % of the originally agreed monthly rent under the assumption that the landlord will provide a discount of 30 % from the total rent. The tenant will thus pay the remaining 20 %.
This is the special COVID Nájemné (COVID – Rent) subsidy program. The amount of support per beneficiary would be limited, in accordance with effective European regulations, to a maximum of 20 million Czech crowns.
An amendment to the lease agreement, in which the landlord obliges itself to a discount amounting to 30 % of the monthly rent, has to be part of the request for the state contribution. The applicant will also have to prove, with a bank statement, for instance, the amount of rent which had been paid prior to the coronavirus crisis.
The relief will be related to all firms whose operations had been halted due to the government measures and had to pay commercial rent. This will concern both businesses which remained entirely closed due to government measures and those which sold through a dispensary window or e-shop.
Abolition of real estate transfer tax and effects on income tax of natural persons
The government passed the proposal of an Act by which the legal measure of the Senate No. 340/2013 Coll., on real estate transfer tax, is abolished.
In 2020, acquirers of real estate (especially in the form of natural persons) will be free to choose whether or not to pay voluntary real estate transfer tax on acquisitions. The decision whether or not to pay real estate transfer tax will have a direct impact on the deductibility of loan interest from financing the acquisition of real estate and the subsequent sale of the property (see details below).
The taxpayer’s notification to the tax authority as to whether or not the acquisition transaction is taxable must be made within the deadline for submitting the tax return.
Abolition of the deductibility of loan interest from the financing of real estate acquired for residential purposes
The proposed amendment to the Act abolishes the provisions of Section 15(3) and (4) of the Income Tax Act (EStG), which determine the assumptions for the deductibility of loan interest from the financing of real estate acquired for residential purposes.
However, the proposed amendment to the Act will only apply to taxpayers who conclude their loan agreements starting from 2021. For those credit agreements that were or will be concluded prior to 2021, the provisions of Section 15 (3) and (4) of the Income Tax Act continue to apply with respect to the deductibility of credit interest.
As mentioned in the section entitled “Abolition of real estate transfer tax and effects on the income tax of natural persons”, taxpayers are free to decide for real estate acquired in 2020 whether or not to treat the acquisition of real estate as taxable. The decision to be made by the acquirer has a decisive influence on the continued deductibility of loan interest from the financing of the real estate acquisition. If the acquirer decides not to treat the real estate acquisition as taxable, the interest on loans is not deductible.
Extension of the speculative period for the exemption of income from the sale of real estate
In connection with the abolition of the real estate transfer tax, it was also proposed to extend the speculation period for real estate sales from currently 5 to 10 years. Only those real estates acquired for reasons other than residential purposes should be affected by the change in the law.
Not affected by the proposed extension of the speculation period are real estate sales if the seller had his main residence in the real estate to be sold. Furthermore, real estate acquired prior to the date of entry into force of this Act will not be affected by the amendment.
As mentioned in the section entitled “Abolition of real estate transfer tax and effects on income tax of natural persons“, taxpayers are free to decide whether or not to treat the acquisition of real estate as taxable in 2020. The decision to be made by the acquirer has a decisive influence on the later duration of the speculation period. If the acquirer decides to treat the acquisition of real estate as taxable, the speculative period of only 5 years applies, whereas the speculative period of 10 years applies if the purchase is not treated taxable.
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