In attempt to relaunch the economy after the COVID crisis, the government has made amendments to the laws aimed at accelerating economic development. The following proposed changes to tax legislation are expected to enter into force in January 2022.
On May 5, 2021, the government approved proposals for three laws:
Amendments to the Personal Income Tax Act
With the proposal of the Act on Amendments to the Personal Income Tax Act, the government wishes to help the economy by relieving taxpayers.
1. Raising general relief
By gradually increasing the general relief, the tax burden on income from work will be reduced. The general tax relief for all taxpayers is expected to gradually increase from the current €3,500 to €7,500 by 2025.
According to the proposed changes, the general tax relief would increase to €4,500 next year. This means that recipients of minimum wages could expect an increase of €160 in their net wages this year. Similarly, those receiving average wages could expect net annual wages to increase by €260.
2. Tax reduction for high income earners
The proposal also brings changes in the levels of the personal income tax scale. The biggest change is expected in the highest tax bracket, where the tax rate is expected to be 5% points lower; thus falling from the current 50% to 45%.
3. Introduction of senior relief
The amendment to ZDoh-2(Personal Income Tax Act) sets the ground for the reintroduction of senior relief, namely a reduction of the annual tax base in the amount of € 1,500 per year will be applicable for tax residents after reaching the age of 70.
4. Capital gains tax
Tax profits will no longer be taxed after 15 years. In addition, the tax rate on interest, dividends, and capital gains is reduced from 27.5% to 25%.
The rental income rate is also changing, falling to 15%. However, the level of standard costs recognized in determining the tax base of rental income is also reduced from 15% to 10%.
Changes in corporate income tax
1. Modification of grant facilities
The tax credit for grants is being increased from the current 0.3% of taxable income to 1%.
2. New relief for green and digital transition investments
Entrepreneurs who are willing to invest in cloud computing, artificial intelligence, environmentally friendly technologies, cleaner, cheaper and healthier public and private transport, decarbonization of the energy sector, energy efficiency of buildings, introduction of other standards for climate neutrality will be able to consider tax relief 40% of the amount invested.
3. Employment benefits
Aiming to facilitate employment, the government has developed three different types of benefits, which are mutually exclusive:
- Persons under the age of 25: for the first employment of such a person, the employer is granted a benefit of 55% of the salary for the first 24 months of employment.
- Persons under the age of 29 (previously 26) and those over the age of 55: If an employer re-employs such a person for an indefinite period of time, he or she is entitled to a 45% allowance for the first 24 months of employment.
- Allowance for deficient occupations: Employers will be able to claim a 45% allowance for the first 24 months if they employ a person with a profession for which there are not enough staff in the labor market according to the needs of employers.
Changes in value added tax
The main guideline in drafting the Act Amending the Value Added Tax Act was to simplify the administration for taxpayers as well as tax authorities.
1. Facilitation in the purchase of an electric vehicle
An important novelty of the proposal is the introduction of a deduction of value added tax for personal motor vehicles without carbon dioxide emissions – electric vehicles used by entrepreneurs to carry out activities. In the case of such a vehicle, input VAT could be deducted, if the total value of the vehicle (including VAT and other charges) does not exceed €80,000.
2. Change for farmers
Farmers can freely decide whether they want to enter the TAX system or not, as the is no longer a limit
3. Obligation to print the invoice
The issue of a printed invoice is no longer mandatory for domestic deliveries of goods or B2C operations. The taxpayer issues them only at the express request of the buyer. For all other transactions, the obligation to print the invoice remains.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.