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On 6th February 2008, the Czech Ministry of Finance issued a short precaution to inform that the restrictions on claiming monthly tax relief of 2,070 CZK as a non Czech tax resident would be repealed.
Due to the time required to change this law through the proper process, the law will not actually be changed until 1st July 2008. However, in the meantime this statement advises to employers that all employees are now to be treated as Czech tax residents.
Unfortunately if you were one of those who did not get the 2,070 CZK in your salary last month this will seem too late. You will be able to claim this money back, but in the absence of any further changes to the law, you will have to wait until next year and claim it in the annual reconciliation process. Only the part of the law relating to claiming the monthly relief has been repealed, all other parts relating to the calculation are to remain.
This now means that there is no need to apply for tax domicile status, or hand in any documentation to your HR department. Tax Relief will now be granted under the same conditions as 2007.
New CR Income Tax Calculations for 2008
As of 1st January 2008, the way income tax is calculated in the Czech Republic has changed. Previously, it was calculated as a deduction from your base monthly income on a progressive scale between 12% and 32%. Taxation is now linear, based on your super gross salary, and dependent on your social and health charges, with a new rate of personal tax relief.
This article is only intended for those who are employed. Anyone who works under Zivnostensky and does a tax return at the end of the year is under different circumstances with regards to the tax relief.
Further details of the four terms mentioned in the first paragraph and an example calculation for a monthly salary of 30,000 CZK are given below.
Super Gross Salary
A new concept has been introduced for 2008, that of ‘Super Gross’ salary. Your super gross salary is the sum of your basic gross salary, and, the amount of social and health contributions paid on your behalf by your employer. As standard your employer’s contributions equate to 35% of your base salary.
Super Gross Salary = Base Salary + 35% of Base Salary
To take a base salary of 30,000 CZK as an example, your super gross salary would be 40,500 CZK.
Once your super gross salary has been determined, the amount of income tax paid is easy to determine. It is 15% of your super gross salary, regardless of how much base salary you earn.
Gross Income Tax payable = Super Gross Salary x 15%
Using the example of 30,000 CZK again, your gross income tax will amount to 6,075 CZK. This can be deducted from your base salary to give a gross monthly income of 23,925 CZK.
Social and Health Charges
An employer makes obligatory contributions to your social and health insurance on your behalf. Social charges are used to contribute to pensions insurance, sickness insurance and unemployment insurance. In total, depending on the level of health insurance provided by your company, the total contributions made by both you and your employer are equivalent to 47.5% of your base salary.
This total is divided between the two parties as 35% paid by the employer and 12.5% paid by the employee. This was the same in 2007 and has not changed.
On a base salary of 30,000 CZK your contributions will be 3,750 CZK (this will depend on the level of health insurance offered by your company, but this figure is based on the standard).
Gross Monthly Income
Using the three sections above it’s now possible to determine a gross monthly income.
Gross Monthly Income = Base Salary – Income Tax – Social & Health Charges
Again using our example of 30,000 CZK, the gross monthly income will be 30,000 – 6,075 – 3,750 = 20,175 CZK.
Personal Tax Relief
Personal tax relief is an amount of tax which can be claimed back. In 2007, this was fixed at 600 CZK per month. In 2008, personal tax relief has been increased to 2,070 CZK. This will add 2,070 CZK to your monthly income, and you can now assess your net monthly income.
Net Monthly Income = Base Salary – Income Tax – Social & Health Charges + Personal Tax Relief
For our example salary of 30,000 CZK, this gives a net monthly income of 22,245 CZK.