Act on Accounting. Main topic: IB.Service Czech Republic October Contents

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1 + Main topic: Act on Accounting IB.Service Czech Republic October 2010 Contents ACT ON ACCOUNTING 2 AMENDMENT TO THE TAX CODE 4 AMENDMENT OF INCOME TAX ACT 6 THE LICENSE FEES 7 SOCIAL SECURITY AGREEMENT 8 PERIOD EXTENSION FOR THE SUBMISSION OF VAT REFUND APPLICATION 9 TAX CALENDAR 10 IB. GROUP OFFICES 11 1

2 Act on Accounting Information about the upcoming changes of the Act on Accounting Currently the hearing of the amendment of the Act on Accounting No. 563/1991 Coll. is on the plan of the Chamber of Deputies of the Czech Parliament. The second hearing of this amendment should take place on 26 October Let me inform you about the essential upcoming changes in the following article: The Act shall be brought into effect from 1 January / The use of International Financial Reporting Standards (latest 19a): from now on a) a duty would be imposed on Accounting entities with the registred office in the member state of the European Union that issue securities accepted for trading on the controlled stock market or b) a possibility would be given to accounting entities subjected to consolidation to use International Financial Reporting Standards (IFRS) for accounting and preparation of individual financial statements if the consolidating company uses the IFRS to prepare the consolidated financial statements For the involved accounting entities it would probably mean the following: - ALL IFRS would have to be applied on the preparation of single financial statements according to IFRS; it means they would also have the duty to prepare complete (it means extensive) notes to the financial statements. - for the assessment of tax liability the individual financial statements will have to be available in which the profit before tax was set in accordance with the Czech accounting Ing. Michal Kováč Audit Managing Partner F E m.kovac@ib-gtpraha.cz regulations, such as Act on Accountancy, Decree on Double Entry Accounting and individual accounting standards. Determination of the accounting period for the use of International Financial Reporting Standards and the use itself has to be approved by the decision of the supreme body of the accounting entity. For the first time this duty (right) will be applied in the accounting period starting in 2011 or later. 2/ The Consolidated Financial Statements - 22 cancelled and replaced by 22 to 22b: Those new sections of the Act on Accountancy regulate, specify and extend existing provisions relating to the CONSOLIDATED FINANCIAL STATEMENTS: - composition of a consolidation group - the duty to prepare consolidated financial statements - criteria specifying when is the consolidating accounting entity not obliged to prepare the consolidated financial statements - new: the consolidating accounting entity is not obliged to prepare the consolidated financial statements if the financial statement of such an entity is sufficient enough to give a true and fair view of the financial situation of the object of the accounting of the consolidation group, as the consolidation accounting entity controls only individual and entirely unimportant consolidated accounting entities. - The duty to prepare consolidated annual report 2

3 These provisions will apply in the accounting period starting in 2010 or later. 3/ Administrative offence- 37 cancelled and replaced by new 37, 37a, 37aa, 37ab: OFFENCE is committed by those accounting entities that are not entrepreneurs ADMINISTRATIVE OFFENCE is being dealt with between accounting entities business persons and consolidating accounting entities. The list of offences is defined. The penalties that may be imposed are 3 % or 6 % of the assets value (gross) according to the type of the offence If during the proceedings on the imposition of the fine it is found out that the assets value (gross) is not adequate, then the basis for calculation of the fine is the assets value recognized during the proceedings on the fine imposition. According to this law the administrative offence is firstly being dealt with by the Tax office. These provisions will apply from 1 st January If the proceedings on the imposition of the fine have already started and have not been finished before the effective date of this amendment, then they will be finalized according to the previously valid regulation as long as the new one is not more beneficial for the accounting entity. 4/Specifies which accounting entities will have the obligatory duty to prepare Cash Flow and statement on change in equity and when. This is only informatory specification of the changes, as soon as the amendment will be discussed and authorized we will let you know. 3

4 Amendment to the Tax Code Ing. Ondřej Štedrý Amendment to the Tax Code The new tax code has not become effective yet and the Ministry of Finance has already prepared an amendment that was sent to the professionals for comments. There were several reasons for the amendment; incorporation of the requirement of the coalition agreement for the extension of the period for tax assessment and specification of the law and correction of the mistakes in the original version. The most important amendment changes Change of the holder of procuration status According to the current statutory text of section 25 of the Tax Code the holder of procuration (in Czech prokurista ) has the status of a representative. Section 41 of the Tax Code specifies that if the addressee has a representative, the documents are addressed to this person only. In practise it would mean that if the company has the procuration established the documents would not be addressed to the entrepreneur but to the holder of procuration only so the usability of the data box would be limited. The holder of procuration shall be embedded in section 24 between persons entitled to deal on behalf of the legal entity, in the similar way as a statutory body. Power of Attorney The current wording in Section 28 requires the cancellation of the previous power of attorney by the principal or the attorney so the new power of attorney could be effective. The reason for the submitted change is that there might be doubts as to which power of attorney should be considered as the valid one. The new amendment says that if principal chooses a new attorney, the original power of attorney is being replaced by a new one to its full extent. Extension of the time period set by the tax administrator An important change of Section 36 Paragraph 3, regarding the decision of the tax administrator about the taxable person request for extension of the time period, is proposed in the Amendment. Current version says that if the tax administrator does not issue a decision before the end of the period extension of which is being demanded, the request is granted. Newly proposed text specifies that the tax administrator can decide until the end of the period by which the original time limit is being extended. According to the Ministry of Finance the reason is elimination of the possibility that the tax person submits an application for the extension of the time period, by e.g. 10 years, on the last day of the original period, therefore the tax administrator will not be able to make a decision on time, and the time period will then be extended automatically. However the Chamber of tax consultants does not agree with such text change as it would signify uncertainty for the tax person because until the end of the original period the tax person will not know if the tax administrator granted the extension or not. Change in the length of the period for tax assessment F E o.stedry@ib-gtpraha.cz The change of the period length for tax assessment from three to five years in Section 148 Paragraph1 is being proposed. This change reacts to the request of the coalition agreement. Chamber suggests the acceptance of this proposal, however taking the assurance of legal safeguard and impact on other tax acts into account they suggest using the proposed extension only in the case of such taxation procedures which will start after the tax code comes into effect on According to our information this article will not be included in the amendment and will be proposed again during the next stage of tax reform. 4

5 Sequence of arrears payments There is an amendment in 152 saying that tax paid on the due date shall be used on older arrears of taxes only then to the tax declared for that period and in the end to the tax attribution. The reason is that the tax person would not have any unnecessary default interests. The Chamber of tax consultants has also many comments to the amendment. One of the most important applies to 46, in which the delivery effect is being dealt with. The Chamber suggests letting out the provision, saying that in case of expiry of a period the postman throws the document into the recipient s mailbox. The reason for that is the breach of trust of the people involved in tax administration in tax secrecy by leaving the insertion of documents into the mailboxes not specified by any law and obviously not assigned to the addressee to the postman s own free will. In this way the details about person s income or status of trading company can be endangered. 5

6 Amendment of Income Tax Act Amendment of Income Tax Act 2011 On the basis of post-election coalition negotiations and the government policy statement Czech Ministry of Finance elaborated the amendment of the Income Tax Act. The government submitted the amendment to the Chamber of Deputies for authorization on 7 October 2010 and at the same time it recommended the authorization within the first hearing so the amendment would become effective from 1 January Apart from smaller legislatively technical changes and taxation of the allowance of the state authority representatives, service and accommodation benefits for soldiers and security corps so much discussed in the press, the amendment contains of few other more important changes: Reduction of the basic tax allowance on taxpayer by CZK a year (current allowance CZK new allowance CZK ) Cancellation of income tax exemption for pension, if the summary of all other pensioner s income (payroll, independent gainful activity and lease income) exceeds the amount of CZK per year Extension of the definition income from other independent gainful activity by income from lease of the property registered as business property. With this income 30 % expense allowance shall be used. Giving the possibility of tax deductible depreciation of receivable with balance value more than CZK at the moment of origin by omission of the essential condition for depreciation, which is the possibility of making adjustments to the receivable according to the Reserve Act. However there is an addition as well saying that it is not possible to depreciate the receivable of related party. Ing. Olga Krnáčová F E o.krnacova@ib-gtpraha.cz So called motivation benefits that will be based on the contract provided to those students preparing for the practice with the tax payer (motivation benefit paid to the university student up to CZK per month, in other cases up to CZK per month) can be included in tax deductible expenses. Tax allowance in the amount of one half of the tax liability, that can be claimed by legal entities employers in case that more than 50 % of the employees are handicapped, is being cancelled We will for sure inform you about the final approved version of the amendment of the Income Tax Act. During the same government talks the amendment of Saving for Building Purposes Act was also approved together with another related amendment of Income Tax Act. The amendment principle is: State support of saving for building purposes, that will be put to account of people saving for building purposes in 2011, will be subjected to tax of 50 % Interest on deposits from saving for building purposes including the interests on state support will not be exempt from income tax any longer, it means that interests put by building society to its clients accounts after 1 January 2011 will be subjected to the tax of 15 % (the tax will be deducted and transferred by building savings bank to the bank account of Tax Office). 6

7 The license fees Ing. Ondřej Štedrý The license fees income tax exemption after 1 January 2011 From 1 January 2011 it will be possible, in some cases, to exempt the license fees paid by a Czech company abroad from the income tax in the Czech Republic. The license fees are the payments for the use or provision of the privilege to use copyright, software, patents, trademarks, know-how and also for the lease or other usage of industrial or commercial equipment. In most cases the fees are for the usage of software and lease of movable property from abroad. The conditions for the exemption are: A company which is tax resident of other member state of European Union, Switzerland, Norway or Iceland is the recipient of license fees The payer and recipient of the license fees are entities directly related through capital (it means that the holding is at least 25%) for at least an uninterrupted period of 24 months (the condition of 24 months can also be fulfilled additionally) most often it will be the payment of license fees to the parent company. F E o.stedry@ib-gtpraha.cz The license fee recipient is their beneficial owner (it means the recipient does not accept those fees for other entity) The license fees are not being paid to the credit of permanent establishment situated in the Czech Republic or other state (outside the European Union) The ruling on granting tax exemption has to be issued to the recipient of the license fees (it is necessary to apply for it with the Czech tax administrator) In relation to the last condition mentioned above, it is necessary to verify the agreements on the basis of which the license fees are being paid abroad. If there is a possibility of exemption we now recommend asking the license fee recipient in advance to send you the documents that have to be enclosed with the application for the granting of exemption (tax domicile etc.). 7

8 Social Security Agreement Social Security Agreement The state, to the system of which the social (and health) insurance shall be paid together with other rules, is determined by the regulation within the European Union by the Council Regulation No. 883/2004 in effect from 1 May However, the Regulation does not cover the states outside the European Union (or EEA). A situation can occur in which the insurance has to be paid either to two states or the obligation to pay in any system does not arise at all. For the purpose of prevention of these consequences the social security agreements are being concluded. The Czech Republic has the social security agreements concluded with e.g. Japan, USA, Canada, Ukraine, etc. Currently the Czech Republic has also signed other agreements with Australia (valid from 1 January.2011), Syria and India. Application for a confirmation of belonging to the social security legal regulations We informed you about the new EC Council Regulation No. 883/2004, governing the social and health insurance area, in one of our previous issues. The Czech Social Security Administration has drawn up the new form Collective application of employee and employer for the confirmation of belonging to the legal regulations of social security. You can find it on the following pages of the Czech Social Security Administration (filling instructions included): FF91-43E1-AB63-407C36651CB9/0/ spolecnazadostzamestnanceazamestnavatele.xls Ing. Monika Chvalová F E m.chvalova@ib-gtpraha.cz This form can be used in cases of secondment the exemption application and in cases of parallel activities (it means working activity in more countries at the same time). The following documents have to be attached with the application: 1. Certified copy of the employment contract/contracts, including all its changes and amendments 2. Certified copy of the confirmation of belonging to the legal regulations (if issued), 3. Certified copies of the contractual documents on the basis of which the activity abroad is provided, or the statutory declaration about this activity. Application, on the basis of which the confirmation A1 will be issued, together with all necessary documents has to be submitted at local Social Security Administration. We would also like to mention that the earlier issued forms (E101 and E102) with validity overlapping to the period after 1 May 2010 remain valid, meaning that it is not necessary to apply for the new A1 form supposed the condition of no changes of the details on the grounds based on which they have been issued remain unchanged. 8

9 Period extension for the submission of VAT refund application Period extension for the submission of VAT refund application The authorization process of the proposal of directive extending the period for the submission of application for VAT refund from other member state for 2009 is currently in progress on the European Union level. When the new regulation becomes effective the deadline set originally on 30 September 2010 will be extended until 31 March The regulation becomes effective from the first day after the announcement in the EU Official Journal, with retroactive effect from 1 October Ing. Monika Chvalová F E m.chvalova@ib-gtpraha.cz Considering the fact that all member states currently agree with the regulation it is very likely for the deadline to be extended. If you did not manage to submit the VAT refund application until 30 September 2010, then you will have the chance to do so even after this date. 9

10 IB Service Tax Calendar October October Monday Excise Duty - tax maturity for August 2010 (except excise duty on ethyl alcohol ) 15 October Friday Road Tax - tax deposit for 3 rd quarter October Wednesday Income Tax - monthly payment of payroll and emoluments of office-holders tax withheld 25 October Monday Excise Duty - tax maturity for August 2010 (excise duty on ethyl alcohol only) - tax return for September tax return for the excise duty refund for petroleum oil, green oil and other petrol for September 2010 (if applicable) Value Added Tax (VAT) - tax return and payment for 3 rd quarter and September recapitulative statement for 3 rd quarter 2010 and September 2010 Energy Tax - gas, solid fuel and electricity tax return and maturity for September 2010 November November Monday Value Added Tax (VAT) final date for submission of group registration according to Section 95a of the VAT Act, if the group wishes to be registered from 1. January 2011, or - application for cancelation or change of the group registration according to Section 106a of the VAT Act. Income Tax withholding tax payment based on special tax tariff for October November Tuesday Excise Duty tax maturity for September 2010 (except excise duty on ethyl alcohol ) 22 November Monday Income Tax monthly payment of payroll and emoluments of office-holders tax withheld 24 November Wednesday Excise Duty tax maturity for September 2010 (excise duty on ethyl alcohol only) 25 November Thursday Excise Duty tax return for October 2010 tax return for the excise duty refund for petroleum oil, green oil and other petrol for October 2010 (if applicable) Value Added Tax (VAT) tax return and payment October 2010 recapitulative statement for October 2010 Energy Tax gas, solid fuel and electricity tax return and maturity for September November - Tuesday Income Tax withholding tax payment based on special tax tariff for October 2010 Property Tax maturity of the 2 nd tax installment (for payers of tax liability over CZK 5000) 10

11 Further information IB. Group offices AUSTRIA (Vienna) Wilfried Serles, T IB Interbilanz Schönbrunner Straße Stiege 1/7. Stock A-1120 Wien T , F E office@ib-gtwien.at MMag. Roland Teufel, T Mag. Andreas Röthlin, T IB Interbilanz Hübner Schönbrunner Straße Stiege 1/7. Stock A-1120 Wien T , F E office@ib-gtwien.at SERBIA (Belgrade) Marco Egger, T IB Interbilanz Bulevar Milutina Milankovica 136a, RS Novi Beograd T , E office@ib-gtbeograd.co.rs SLOVAKIA (Bratislava) Viera Masaryková, T Wilfried Serles, T Panská 14, SK Bratislava T , F E office@ib-gtbratislava.sk CROATIA (Zagreb) Renata Benović, T Marco Egger, T Ulica grada Vukovara 284, HR Zagreb T , F E office@ib-gtzagreb.hr SLOVENIA (Ljubljana) Marco Egger, T Katja Pogac, T Sanja Relić, T Klara Vovk-Zavec, T IB Interbilanz Linhartova 11a, SI-1000 Ljubljana T , F E office@ib-gtljubljana.si CZECH REPUBLIC (Prague/Brno) Helmut Hetlinger, Michal Kováč, T Olga Krnáčová, T ,, F E office@ib-gtpraha.cz Pekařská 7, CZ Brno T , F E office@ib-gtbrno.cz UKRAINE (Kyiv) Wolfgang Schmid, T IB Interbilanz Consulting TOV IB Interbilanz Audit TOV Yaroslavskaya Str. 6, UA Kyiv T , F E office@ib-gtkyiv.co.ua HUNGARY (Budapest/Győr) Waltraud Körbler, T Vámház krt. 13., H-1093 Budapest T , F E office@ib-gtbudapest.co.hu Fehérvári út 75, H-9028 Győr T , F E office@ib-gtgyor.co.hu IB.Group is a member of huebner & huebner 11