Proposed Changes to the Taxation of Individuals in Connection with the Introduction of EET 2.0

Most of the proposed changes are expected to become effective as of 1 January 2027. However, the legislative process is still at an early stage, and the final wording of the proposal may yet undergo significant changes.

EET OFF: Sales Registration or a Higher Flat-Rate Tax

One of the significant changes directly linked to EET 2.0 concerns small entrepreneurs within the first band of the flat-rate tax regime. The proposal introduces the possibility of being exempt from the obligation to register sales in exchange for an increase in the monthly flat-rate tax through a special tax surcharge.

The regime referred to as EET OFF would only be available to individuals in the first band of the flat-rate regime whose self-employment income does not exceed CZK 1 million annually. Instead of the standard monthly income tax advance payment of CZK 100, these taxpayers would pay CZK 1,500 together with mandatory social security and health insurance contributions. Through this approach, the legislator is responding to long-standing criticism that, for the smallest businesses, the administrative burden associated with EET was often disproportionate to its actual fiscal benefit.

The proposal also regulates in considerable detail the commencement and termination of this regime. For example, if a taxpayer exceeds the income threshold or ceases to meet the conditions of the first band of the flat-rate regime, they would no longer be entitled to apply the EET OFF regime from the following tax period. The proposal also specifically addresses situations involving the interruption and subsequent resumption of business activities.

Return of the Tax Credit for Sales Registration

Alongside the return of EET, the proposal also reintroduces the tax credit for sales registration, which was abolished following the termination of the original EET system.

The newly proposed credit is intended as a one-off measure and may amount to up to CZK 5,000. It may only be claimed in the first tax period in which the taxpayer registers a sale subject to the new sales registration obligation for the first time.

In practice, however, the benefit will not have the same impact for all taxpayers. The proposal limits the maximum amount of the credit according to the taxpayer’s actual tax liability. As a result, the full credit will most likely be utilised primarily by taxpayers with a higher tax base.

Employee Benefits Once Again Under Scrutiny

A substantial part of the amendment also focuses on employee benefits. In several respects, the proposal returns to the rules applicable before 2024 while simultaneously addressing practical issues created by the recent introduction of exemption limits.

The proposed abolition of the exemption limit for most leisure benefits has attracted particular attention. Contributions towards cultural, sport and similar activities would therefore no longer be subject to the current limit of one half of the average wage. Recreation and travel benefits would remain an exception, with a separate annual limit of CZK 20,000 to apply once again.

The amendment also expands the range of exempt non-monetary benefits to include contributions towards selected community-based social services, such as personal assistance services, caregiving services or day-care centres. The proposal clearly reflects increasing pressure to support employees caring for close family members.

By contrast, healthcare related benefits would remain subject to the annual exemption limit linked to the average wage. An exception should apply to selected preventive healthcare programmes, which are expected to have a separate tax regime without this cap.

At the same time, the fundamental philosophy of the tax treatment of employee benefits remains unchanged: where a benefit is tax-advantaged on the employee’s side, the related costs are generally treated as tax non-deductible for the employer.

Tips: Finally Clearer Rules?

Another interesting proposal is the planned partial tax exemption for tips in food service establishments. The exemption would apply to voluntary tips provided by customers to employees in direct connection with the provision of catering services at food service premises.

In practice, this would typically apply to waiters, waitresses, bartenders or cooks. The proposal simultaneously excludes mandatory service charges, such as couvert fees, as well as stalls or food trucks without on-site dining facilities.

The exemption should be limited by an aggregate cap corresponding to 7% of the employer’s monthly revenues from catering services, calculated in aggregate for all employees. However, practical uncertainty may arise here because the proposal does not yet precisely define what should be understood as revenue from catering services.

Nevertheless, the proposal can be viewed as an attempt to address the long-standing uncertainty surrounding the tax treatment of tips, particularly given the growing prevalence of cashless payments.

Return of the Student Tax Credit and Kindergarten Tax Credit

The amendment also restores several tax reliefs abolished in previous years. These include the student tax credit amounting to CZK 4,020 annually and the childcare facility tax credit (commonly referred to as kindergarten tax credit).

With respect to the kindergarten tax credit, the proposal newly addresses in detail situations involving shared or alternating custody. As a general rule, the maximum tax credit would be divided equally between households unless the taxpayers agree otherwise.

At the same time, pre-school facilities would become subject to a new reporting obligation requiring them to provide the tax authorities electronically with information regarding the amounts paid. The aim is primarily to prevent duplicate claims for the tax credit.

The Proposed Changes May Still Be Modified

The proposal is still at an early stage of the legislative process and, following its approval, has been submitted by the government to the Chamber of Deputies. It can be expected that some of its parameters will still be subject to both professional and political debate. Nevertheless, it is already clear that the potential introduction of EET 2.0 would not merely mean the return of electronic sales registration, but also another significant intervention in the taxation of individuals.

We will continue to monitor the legislative process closely and keep you informed of any significant developments.

Should you have any questions, please do not hesitate to contact our specialists, who will be happy to assist you in assessing the practical implications of the proposed changes.

Authors: 

Gabriela Ivanco, Tax Department Manager

Anna Klímová, Newsletter Editor