According to Act No. 586/1992, Coll, on Income Taxes individuals can reduce their tax base by deductible items and tax credits.
Deductibles and tax credits can be claimed through the annual tax settlement filed by the employer on behalf of the employee or when filing the tax return. Below is a basic overview of these, including the conditions for claiming them and the documents to be attached to the tax return or annual tax settlement.
What are the deductible items?
The value of donations for public benefit
If you have made a donation for charitable purposes, which are defined by the Income Tax Act in §15 par. 1, you can reduce your tax base by these amounts. The law includes among charitable purposes, for example, donations for science and education, culture, education, health, police, fire protection, or social, humanitarian and other purposes. The donation must amount to a minimum of CZK 1,000 or represent 2% of the tax base.
A maximum of 15% of the tax base can be deducted. For donations made in support of Ukraine's defence efforts, the deduction is increased to 30% of the tax base.
In order to claim the deduction, it is necessary to provide a donation receipt, which must show who is the recipient of the donation, its value, the object, the purpose and date of the donation.
If the donation was made in support of Ukraine's defence efforts, to one of the published accounts of the tax administration, it is sufficient to provide, for example, a bank statement or a money order and printed information about the recipient and the purpose of the donation.
Interest paid on a loan to finance housing needs
The deduction applies only to interest paid on a loan arranged for housing. The Income Tax Act, §4b, includes the purchase of a house, a housing unit, a plot of land or renovation of an existing property, among others, as a housing need.
If the acquisition of the housing needs financed by the loan occurs before the end of 2020, interest of CZK 300,000 can be deducted from the tax base.
If the acquisition of the housing need financed from the loan occurs from 1 January 2021 onwards, interest of only CZK 150,000 can be deducted from the tax base.
In order to claim the deduction in the first year, a contract on the mediation of the loan must be presented. In subsequent years, a certificate from the building society or bank stating the amount of interest paid for the period in question is sufficient.
Contributions made to pension products
These are contributions paid for supplementary pension schemes, pension insurance and supplementary pension savings with a state contribution.
A maximum of CZK 24,000 can be deducted from the tax base and only contributions over CZK 1,000 per month can be deducted.
In order to claim the deduction, a certificate from the pension company confirming the contributions paid for the period in question must be presented.
Premiums paid for private life insurance
Premiums paid for private life insurance in the maximum amount of CZK 24,000 can be deducted from the tax base. In order to claim the discount, a certificate from the insurance company confirming the amount of the premium paid is required.
Membership fees paid toa trade union
If you are a member of a trade union, you can deduct from your tax base the contributions you paid to that organisation during the tax year. You can deduct up to 1.5% of your taxable income under §6. However, the maximum amount is CZK 3,000.
In order to claim the deduction, a certificate from the trade union must be provided.
Upgrading of qualifications
If you have paid for an examination to verify the results of further training, you can deduct this expense from your tax base up to CZK 10,000. The limit increases to CZK 13,000 for people with disabilities and CZK 15,000 for the severely disabled. However, the expenses must not be paid by the employer and, for taxpayers with income from self-employment, must not be claimed as an expense under §24.
The tax liability can be further reduced by means of tax rebates, which are regulated by the Income Tax Act in §35ba to 35c.
What are tax rebates?
Tax rebate per taxpayer
This discount is available to any individual who is subject to income tax. The discount is also available to non-tax residents. The amount of the discount is CZK 30,840. The discount applies in full regardless of how many months you have received taxable income in the tax year. The discount does not have to be documented.
Spouse discount
The spouse discount can be claimed at CZK 24,840 if the following conditions are met:
- marriage or registered partnership,
- the spouses live together in a jointly managed household,
- the spouse's income must not exceed CZK 68,000 for the period in question.
§35ba(1)(b) of the Act defines what income is not included in the limit for the application of the discount. We have listed them in our article How to claim the allowance of the spouse.
In order to claim the discount, you must submit an affidavit or a certificate from your employer confirming that your spouse's income did not exceed CZK 68,000 in the relevant period.
Discount for disabled persons
A taxpayer who receives a first- or second-degree disability pension can claim a discount of CZK 2,520 per year.
A taxpayer in receipt of a 3rd degree invalidity pension can claim a discount of CZK 5,040 per year.
A taxpayer who holds a ZTP/P card may claim a discount of CZK 16,140 per year.
The discount is evidenced by the decision granting the invalidity pension and the ZTP/P card.
Student discount
A discount of CZK 4,020 per year is available to taxpayers who are students up to the age of 26.
To claim the discount, proof of study must be provided.
Child placement discount
If you have a child placed in a pre-school, you can claim tax relief on the amount of the costs you have paid for the placement. The relief can only be claimed if the dependent child lives in a shared household with you. The maximum amount of the allowance is the minimum wage for the year.
To claim the discount, you must provide a certificate from the pre-school provider.
Discount for a stayed execution
The discount can be used in the case of a stayed execution for debts whose value does not exceed CZK 1,500 and has been enforced for at least 3 years.
The discount can be applied in the amount of 30% of the value of the claim. The maximum discount is CZK 450 (30% of CZK 1,500). The entitlement to the discount is evidenced by the resolution on the suspension of execution.
Child discount
According to §35c, the taxpayer can claim a discount for a child who lives in a joint household as follows:
- A discount of CZK 15,204 per year can be claimed for the first child.
- A discount of CZK 22,320 per year can be claimed for the 2nd child.
- A discount of CZK 27,840 per year may be applied to the 3rd and each subsequent child.
For a disabled child with a ZTP/P card, double the relevant amount can be deducted.
In order to claim the discount, an affidavit or a certificate from the employer of the other parent stating that he/she does not apply the discount to the child must be presented.
Unlike all of the above mentioned allowances, here the taxpayer can achieve a tax bonus. If the entitlement to the discount exceeds the calculated tax, the difference is a bonus which the tax office will refund if the value exceeds CZK 100.
The application of all of the above deductions and discounts depends on the correct documents and additional information needed to process the annual accounts or complete the tax return. The calculated tax can therefore be further reduced and your tax liability optimised.
If you want to know all the possibilities of reducing your tax liability and thus optimise your tax to the maximum, it is advisable to contact a tax advisor when preparing your tax return.
