Currently discussed tax changes: amendment to the ERS Act and prepared changes to taxation rates

Amendment to the ERS Act

The governmental amendment to the ERS Act (the Electronic Registration of Sales Act) has been under discussion for quite a long time, but the Senate has refused its wording. The approval depends on a repeated vote in Parliament in September.

The main impact of the amendment is the start of the last phase of the ERS, which would extend the duty to other kinds of business that have so far not been subject to the electronic registration of sales. These are, for example, providing legal, tax, accounting, and similar services, liberal professions, providers of health care or veterinarian care, providers of transportation, entities operating in vegetable and animal production, producers of groceries, and craft activities.

The amendment contains a few partial changes regarding certain exceptions for specific kinds of activities and also the possibility of using a special (off-line) regime for VAT non-payers with no more than two employees and a yearly cash turnover of no more than CZK 600,000. Its application will be subject to approval by the tax administrator requested by the respective entity.

If the amendment is approved in September and published in the Collection of Laws, it will become effective from 1 October 2019. The start of the last phase of the ERS should occur on 1 April 2020.

Prepared changes to taxation rates

Part of the above-mentioned amendment to the ERS Act is also re-classification of some supplies to the 10% VAT rate (most likely effective from 1 April 2020). The rate change should affect the following services:

• catering services and the serving of beverages, including draft beer;

• water and sewer charges;

• delivery of e-books and audiobooks;

• cleaning of interiors and cleaning of windows in households;

• minor repairs of shoes, leathers goods, clothing and household textile products, bicycles;

• hairdresser and cosmetic services.

Parliament is also debating a governmental proposal for the rate package that should increase the revenues of the public budget, namely the following steps:

• increasing the excise tax on alcohol (approximately by 13%), cigarettes and tobacco (10%) and changes to the tax on gambling and termination of the tax exemption on gas used for heating by households;

• winnings from gambling should be tax exempt only for amounts under CZK 100,000, and amounts above the limit should be taxed by a 15% withholding tax;

• setting a consistent method of rounding crown bonds regarding bonds issued before 2013 and after the date in such a way that, in both cases, the final tax for one taxpayer will be rounded;

• a change to the Reserve Act in the form of changing rules for technical reserves for insurance companies.

A proposal for a digital tax is currently in the comment procedure. The tax should apply to internet firms with global turnover above EUR 750 million and with turnover in the Czech Republic for realised taxable supplies above CZK 50 million. The subject of the 7% tax should be the placing of targeted advertisements on digital interfaces.