In this GMS Flash Alert we report on tax developments in the Czech Republic including (1) legislation concerning single monthly employer reporting and (2) a proposed amendment to the Income Tax Act that would abolish the withholding tax on remuneration paid to corporate body members who are individuals and Czech tax nonresidents as well as the withholding tax on income from dependent activity.1
WHY THIS MATTERS
- Single monthly reporting should reduce the administrative burden for businesses as regards their employees: today's 25 reports to various institutions (social security administrations, labour offices, the Ministry of Labour and Social Affairs, the Czech Statistical Office, and tax authorities) will be replaced by one, to be filed by the employer within a single deadline. This will eliminate the multiple collection of repetitive data and reduce administrative efforts.
- The changes proposed on withholding tax will mitigate the inequalities in the taxation of individuals based on their tax residence.
Legislation on Reporting and Information Obligations for Employers
In the beginning of March 2025, the Czech government approved a bill on single monthly employer reporting (in Czech: Jednotné měsíční hlášení zaměstnavatele or “JMHZ”), which the Ministry of Labour and Social Affairs wants to launch from 2026. (See prior coverage by KPMG in the Czech Republic, "Proposal to simplify administration – single monthly employer report" (20 December 2024) at: https://danovky.cz/en/news/detail/1571.)
Along with the bill, a proposal to amend related laws that impose information obligations on employers vis-à-vis government authorities has been submitted to the Chamber of Deputies.
Proposed Amendment to the Income Tax Act2
Proposals to Abolish Withholding Tax
With effect from 1 January 2026, it is proposed to abolish withholding tax on remuneration paid to corporate body members who are individuals and Czech tax nonresidents. Withholding tax will only remain for legal persons exercising the office of a member of a corporate body.
With effect from 1 January 2027, it is further proposed to fully abolish withholding tax on income from dependent activity. This change will affect income from agreements to perform work (outside employment) whose aggregate amount with the same employer in the calendar month does not reach the threshold for participation in sickness insurance, and income from small-scale employment (e.g. income from agreements to carry out a job or from remuneration for exercising an activity whose monthly amount does not reach the threshold for participation in sickness insurance, etc.) where the individual did not sign a declaration of a taxpayer liable to personal income tax from dependent activity.
For taxpayers with income from dependent activity, it is proposed to introduce the obligation to file a tax return unless they ask their employer to make the annual settlement of tax pre-payments. For individuals who are Czech tax nonresidents and receive remuneration as members of corporate bodies, this obligation should apply only if their aggregate annual income from remuneration for exercising the activity in the Czech Republic exceeds 36 times the average wage.
KPMG INSIGHTS
Since international executives tend to be highly remunerated, this obligation could apply. Global mobility managers in charge of the tax compliance affairs of their mobile population may wish to assess the status of their executives and determine whether any of them may become subject to such rules should they be enacted.
Pre-Filling of Tax Forms
In the second phase of the single monthly employer reporting project, it is planned to introduce a new service: the pre-filling of tax return forms using information obtained from the single monthly employer reports.
The bill on single monthly employer reporting was submitted to the Chamber of Deputies for debate on 11 March 2025 – as of this writing, the bill has yet to be brought forward for discussion/debate.
KPMG INSIGHTS
If employers have any questions or concerns about how the new reporting and proposed withholding rules apply to them, and what next steps need to be considered in order to be prepared to be in compliance, they should consult with their usual qualified tax advisers or a member of the tax team with KPMG in the Czech Republic (see the Contact Us section).
FOOTNOTES:
1 Income Tax Act No. 586/1992 Coll.
2 Sněmovní tisk 926/0 (in Czech language). “Government Bill amending certain laws in connection with the adoption of the Act on the Single Monthly Employer Reporting.”
RELATED RESOURCE
This article is excerpted with permission, from"Single monthly employer reporting and related changes to income tax"(12 March 2025), an online publication of the KPMG international member firm in the Czech Republic.
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The information contained in this newsletter was submitted by the KPMG International member firm in the Czech Republic.
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