Income Tax Rate Increase
The most important change is without doubt cancelation of the 19% flat income tax rate after 9 years of its existence and introduction of progressive taxation depending on the amount of income of the tax payer – natural person.
The amended Income Tax Act increases the income tax rate of corporations from the previous 19% to new 25% generally for all corporations irrespective of their legal form, scope of business activities, the amount of income gained or turnover or any other criteria. At the same time the amendment introduces progressive taxation of natural persons (whether entrepreneurs/trade license operators or persons carrying out entrepreneurial activities on basis of special permit or license or individuals – non-entrepreneurs), whereas a 19% tax rate shall apply to the tax base of natural persons up to the amount of 176.8 times the applicable living minimum and a 25% tax rate shall apply to the tax base surpassing the aforementioned sum. The amount of living minimum is annually changed by law and its amount as of January 1, 2013 is set at EUR 194.58. Given the above, the income of natural persons up to the amount of EUR 34,401.74 per year shall be as of January 1, 2013 taxed by 19% tax rate and any other income of the natural persons surpassing EUR 34,401.74 shall be subject to 25% tax rate. If, for example, certain natural person achieves a tax base amounting to EUR55,000 inthe respective year than its tax base up to EUR 34,401.74 shall be subject to 19% tax rate while the remaining EUR 20,598.26 shall be subject to 25% tax rate.
Change of the flat-rate expenditures
The amended Income Tax Act anticipates limitation of flat-rate expenditures of entrepreneurs through introduction of a statutory ceiling/maximum.
Under previous regulation effective until December 31,2012 atax payer who was not a VAT payer (whether voluntary or mandatory VAT payer), or tax payer who was a VAT payer only for part of the taxable period (e.g. in case when the tax payer became a voluntary VAT payer after January 1 of the respective year), and who did not apply actual tax expenses, may have applied flat-rate expenses in the amount of 40% of the aggregate of its income accrued from the tax payer´s business activities. In practice, a tax payer who met the above criteria was not obliged to maintain books on its income and expenditures but was obliged only to record its income together with its supply and receivables, and instead of actual expenditures applied 40% flat-rate expenditures.
Although the legal institute of 40% flat-rate expenditures remained even upon amendment of the Income Tax Act, the total amount of thus applicable expenditures was at the same time limited by statutory maximum of EUR 5,040 per year, or EUR 420 per month. Regardless the amount of tax base of the tax payer in the respective year the tax payer is entitled to apply the flat-rate expenditures only in the maximum amount of EUR 5,040 per year, whereas the sum surpassing the abovementioned amount shall be subject to respective tax in full. If the tax payer does not perform a gainful activity throughout the entire year than such tax payer is entitled to 40% flat-rate expenditures on monthly basis up to the maximum amount of EUR 420 per each calendar month.
Nontaxable part of tax base per wife/ husband
The amendment of the Income Tax Act substantially limited the group of tax payers who shall be entitled to apply the nontaxable part of tax base per wife/husband. The nontaxable part of tax base is applicable only with respect to the following persons:
- wife (husband) who in the respective taxable period took care of a juvenile child living in common household with the tax payer;
- wife (husband) who in the respective taxable period received financial support for custody;
- wife (husband) who in the respective taxable period was enlisted into recordings of job applicants;
- wife (husband) who is considered a disabled person or severally disabled person.