Changes in VAT Rates in the Czech Republic Starting in 2024, Including Real Estate Implications

Czech President Petr Pavel has signed an updated package of the government’s economic measures as part of a recovery plan. This package includes changes compared to the original plan, such as adjustments to municipal revenues from property tax or employee benefits, and a reduction of the reduced VAT rate to 12% from the previous 15%. The recovery package is expected to bring significant savings to the state budget: 94 billion Czech crowns this year and 148 billion Czech crowns after two years.

“Not approving the package of economic measures means doing nothing to reduce the budget deficit, which would cause more harm,” explained President Pavel in a video on the social network X. At the same time, he declared that he would pay increased attention to the state budget for the next year to include growth measures and promised not to forget those who were economically affected.

The recovery package introduces only two VAT rates: 12% and 21%. This means that some services will be at the higher rate (for example, draft beer) and some at the lower rate (for example, food). As part of the plan, the corporate tax will be increased from 19% to 21%. On the other hand, wine will remain untaxed. Here are some examples of the expected financial changes:

Foreign Currency

Companies will be able to maintain accounts in foreign currencies (British pound, US dollar, and euro) starting from January 1, 2024, but this option is available only to companies whose majority of transactions are conducted in these foreign currencies.

Employee Benefits

A cumulative ceiling for tax benefits will be introduced, set at half the average salary in 2024. Salary benefits up to 21,983 Czech crowns will be tax-exempt. Employees will be able to receive tax exemption for non-monetary bonuses up to 1,832 Czech crowns per month.

Property Tax

This tax rate will increase by an average of 1.8 times, but all revenues from property taxation will remain with the municipalities. In exchange for the increase in property tax, there will be a redistribution of revenues from shared taxes (10 billion Czech crowns) between the state budget and municipalities, mainly in favor of the state.

Taxation on Agricultural Land

Municipalities are given the authority to introduce a local coefficient of 0.5 for agricultural lands (arable land, vineyards, hop farms, gardens), effectively canceling the property tax increase for these lands.

Redistribution of Gambling Tax Revenues

According to the plan, the gambling tax will be distributed as follows: 55% to the state, 22.5% to municipalities based on the number of permitted gaming machines in their territory, and 22.5% to all municipalities based on the number of residents.

The proposed gambling tax rates in the package remain unchanged—35% for lotteries and gaming machines and 30% for other games of chance (e.g., betting based on winning odds). The state continues to receive 100% of revenues from online gambling.

Streamlining the Minimum Tax for Gaming Machines

The minimum tax for one gaming machine will be increased from 9,200 Czech crowns to 13,400 Czech crowns.

Simplification of Work Agreement Registrations

As part of the plan, some administrative obligations related to resolving work agreements will be removed, leading to an overall simplification of the proposed system.

Value Added Tax

Printed newspapers will be subject to a 12% VAT rate, as will magazines. Supplies of recycling, firewood, diapers, and mineral water remain at the higher VAT rate of 21%.

Additionally, there will be a gradual increase in excise taxes on alcohol, and the period of increase will be shortened to 3 years (2024 – 2026) from the proposed 4 years (2024 – 2027). The tax increase will be in increments of 10 + 10 + 5 percent (instead of the original proposal of 10 + 5 + 5 + 5 percent).

Taxation of Alternative Nicotine Products (Electronic Cigarettes and Refill Nicotine)

Under the plan, a more moderate approach to taxing alternative products will be adopted, resulting in a gradual increase in taxation over 4 years.

DPPO – Taxation Only on Realized Exchange Rate Operations

This refers to so-called unrealized exchange rate differences that companies currently need to report. For example, if a company has a liability in euros, and the euro strengthens, an exchange rate gain is created, which is currently taxed. This unrealized income will now be tax-exempt.

DPFO – Beekeepers

The income tax exemption for beekeeping (up to 50 hives) will remain at 1,000 Czech crowns per hive.

Abolition of Exemption for Executive Apartments

The exemption for compensation of selected employees will be abolished. The transitional provision will ensure that the abolition does not affect those who resided in the discussed apartments before the law came into effect.

VAT Relief on Real Estate

The VAT on new apartments from developers also decreases from 15% to 12%, meaning the final price for the buyer should decrease by 3%. Despite this, discussions with real estate developers in the Czech Republic indicate that most developers will take advantage of the VAT reduction for their benefit and effectively keep the final price as it is, thereby profiting an additional 3%.

Miscellaneous

• The pension for the president after the end of his term will not be increased
• Fines can be imposed electronically by all administrative bodies, including municipal police, headquarters officers, and customs officers

Elements Remaining as in the Original Plan

• Reduction of national subsidies – According to the government, national subsidies have become a business that distorts the market environment in favor of large companies. Therefore, most government ministries will have a cross-cutting reduction in subsidies totaling 54.4 billion Czech crowns. The largest reduction is expected in the Ministry of Industry and Trade – a reduction of 20 billion Czech crowns.
• Change in the conditions for paying recovery allowances – Due to minimal unemployment in the Czech Republic, the unemployment support system will change by extending the required pension insurance period for eligibility for support.
• Reduction of state support for building savings – State support for building savings will be reduced to a maximum of 1,000 Czech crowns per year. The change applies to both existing and new contracts.
• Increase in the price of highway payment stickers – There will be an increase in the price of the highway sticker from the current 1,500 Czech crowns to 2,300 Czech crowns per year. The price of the highway sticker will be fixed, will take into account the carbon emission level of the cars, and a one-day sticker option will be provided.
• Fines for overloading trucks – Municipalities will receive more money from fines for overloading trucks – 30% instead of the current 15%
• Increase in corporate tax – The government proposes to increase the corporate tax from the current 19% to 21%. The current rate is among the lowest in the European Union, so this increase will bring it closer to the average corporate tax rate in the EU.