Donations provided to Ukraine

With respect to the conflict in Ukraine, an amendment to the Income Tax Act has been approved that introduces new possibilities in respect of tax relief regarding donations provided by tax payers to Ukraine.

Now the tax base can be reduced by the amount of donations provided directly to governmental bodies of Ukraine (e.g. via the Ukrainian embassy) or its territorial autonomous units, and also to legal entities and natural persons residing in Ukraine, provided that the receiver meets the current conditions under which the donated amount can be deducted; these are defined by the Income Tax Act as, broadly speaking, donations made for humanitarian, charitable and similar purposes, and also donations provided for the purpose of supporting the defence activities of Ukraine (for example providing military material).

The changes also apply to those natural persons and legal entities who provided their donations in 2022 even before the amendment became effective. Also natural persons who are Ukrainian tax residents and at least 90 per cent of whose taxable income stems from the Czech Republic can deduct the amount of their donations from their Czech tax base.

Moreover, the amendment prolongs the increased 30 per cent limit on the maximum amounts of donations that can be deducted from the tax base. The limits will also apply to natural persons for the 2022 taxable period and to legal entities for the taxable period between 1 March 2022 and 28 February 2023. The increased limits apply to all donations.

Regarding non-monetary supplies provided free of charge in 2022 to help Ukraine, natural persons (who use the method of recording the actual costs) and legal entities can decide whether they wish to use such non-monetary supplies to claim a deduction from the tax base or as a taxable expense. In such a case the condition of an entitled receiver should not be used; rather, it should be sufficient to cite the simple fulfilment of the purpose of the provided supplies. In a case when the full amount of non-monetary supplies in question will not be used fully during the tax period in which they were provided, the rest of the value can be used as a tax loss without limitations regarding the amount of the tax base. If the tax payer decides to use the non-monetary donation as an expense, he cannot also use it as a donation that can be deducted from the tax base.

The amendment also introduces the possibility to exempt from tax an employee's income that was received from the employer in 2022 in the form of accommodation provided by the employer to the employee and their families, if it is the case that they formerly resided in Ukraine but had to leave the county because of the military conflict. Income received by the employee from the employer in the form of a monetary donation intended as help in difficult situation caused by the conflict can be income tax exempt in the same way as gratuitous non-monetary supplies received as the result of a humanitarian or charitable initiative. Newly introduced are tax exempt donations that a tax payer receives by way of assistance with Ukraine's defence efforts.