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Czech Senate Approves Increased VAT Registration Threshold, Windfall Tax, and Other Measures — Orbitax Tax News & Alerts

The Czech Ministry of Finance announced on 24 November 2022 that the Czech Senate (upper house of parliament) has approved the law providing for an increase in the annual limit for mandatory VAT registration from CZK 1 million to CZK 2 million with effect from 1 January 2023. In addition to the increase in the VAT registration threshold, the annual income limit for entering the flat tax regime for self-employed persons will also be increased to CZK 2 million from 2023, along with the introduction of three different flat tax bands that determine the amount of the monthly flat tax advances.

Another important measure is the extension of the accelerated depreciation for tangible assets in the first and second depreciation groups that was provided in response to the COVID-19 pandemic. This includes that assets in the first group may be depreciated in 12 months instead of 3 years, and assets in the second group may be depreciated in 24 months instead of 5 years, with 60% depreciation allowed in the first 12 months for the second group. This was originally provided in respect of assets acquired in 2020 and 2021 and is now being extended to include assets acquired in 2022 and 2023.

The Ministry of Finance has also announced that the Senate has approved the introduction of a temporary windfall tax on exceptionally profitable companies in the sectors of energy production and trading, banking, fossil fuel extraction, and production and distribution of petroleum and coking products for a period of three years beginning 1 January 2023 (i.e., 2023 to 2025). The tax will operate as a surcharge on the excess profit of such companies determined as the difference between the tax base in a given year and the average of the tax bases over the last 4 years (i.e., 2018-2021) increased by 20%. For the banking sector in particular, it is provided that the windfall tax will apply for companies with net interest income of over CZK 6 billion for the previous year. It is also provided that for the energy production and distribution sector, entire holdings will be assessed if a given holding's activities exceed CZK 2 billion per year, which is meant to eliminate the undesirable effect of spillover of profits to parent companies. In other sectors, essentially all active companies will be subject to the windfall tax if the excess profit conditions is met.