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Legislative changes affecting payroll processing in the first half of 2022
– SME Info Czechia 2022-2
Changes related to wage garnishments and insolvency withholdings
The parameters that affect the amount of the non-collectible portion of an employee’s salary and thus the calculation of deductions from an employee’s salary have already changed three times this year.
The first change introduced by government decree on 28 January 2022, when the monthly standard cost of living for the purposes of the housing allowance for the period from 1 January 2022 to 31 December 2022 was increased by CZK 1,120. The ambiguous wording caused the approach of payroll accountants and even regional courts to be different until the unification standpoint of the Civil and Commercial Chamber of the Supreme Court on 8 June 2022. Following the issuance of that standpoint, the interpretation has been unified, and it is now clear that this increase in the monthly standard cost of living is to be reflected in the calculation of both wage garnishments and insolvency withholdings.
The other two changes relate to the increase in the subsistence minimum. The first change took place with effect from 1 April 2022, and the second change is effective from 1 July 2022. As a result of these two changes, the individual subsistence minimum has increased from the original CZK 3,860 to initially CZK 4,250, and from 1 July 2022 the individual subsistence minimum is CZK 4,620. This change will be reflected for the first time in the calculation of salary for July 2022.
Changes due to the situation in Ukraine
Two amendments to the Income Tax Act in connection with the situation in Ukraine were approved. These amendments, for the 2022 tax year, increased the threshold for tax deductibility of donations to 30% of the tax base and also expanded the range of purposes of the tax-effective donation to include support of Ukraine’s defense efforts and also the range of recipients of the tax-effective donation – in the 2022 tax year, donations to Ukraine, its territorial administrative units, as well as to individuals and legal entities with a residence or registered office in Ukraine are tax-deductible. Both amendments were approved retroactively and are effective from the beginning of 2022.
Two new acts were also approved that, among other changes, allow free access to the labour market for citizens of Ukraine, their family members and foreigners who prove that they were holders of a valid permanent residence permit in Ukraine, who were fleeing the armed conflict on the territory of Ukraine. These people are enabled to obtain a visa tag, which grants them the status of so-called Temporary Protection for a period of 1 year. Foreigners who are granted Temporary Protection are then considered as foreigners with permanent residence for the purposes of the Employment Act. Based on this, it is then possible to employ these foreigners as foreigners with free access to the Czech Republic labour market.
One of these acts, which are also known as LEX Ukraine, also amends the tax-exemption of the benefit in-kind when an employee was provided with accommodation by his employer in the 2022 tax year. If this accommodation is provided under the Income Tax Act definition to an employee and his family member residing in Ukraine on the grounds that this family member left Ukraine in connection with the armed conflict on its territory caused by the invasion of the Russian Federation troops, this employee’s income is considered fully exempt.
Changes in employee income related to low emission vehicles provided also for private use
Effective on 1 July 2022, there is a change in the value of the benefit in-kind for vehicles provided by an employer to an employee for both business and personal use. Newly, where the vehicle provided is a low-emission vehicle (i.e. an electric or hybrid vehicle), an amount equal to 0.5% of the vehicle’s entry price, including VAT, will be treated as income to the employee. For other vehicles that do not meet the definition of a low-emission vehicle, an amount equal to 1% of the vehicle’s entry price, including VAT, remains to be treated as income.
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The purpose of SME INFO is to provide general information and to draw the attention to the current changes in law which we believe to be important for the business operation of our clients. It is not a replacement for careful review of the acts and rules and the consultation with your tax advisor.
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