Reporting tax-exempt income of natural persons

Czech Republic: Taxpayers of personal income tax are faced with a new reporting duty towards the authorities

A natural person who attains income during a given tax assessment period which is exempt from personal income tax and exceeds CZK 5 000 000, must notify the tax administration hereof by the deadline for filing the income tax return for the given assessment period during which the income was attained (Sec. 38v of Act No. 586/1992 Coll., on Income Taxes). This obligation applies for the first time to income attained during the tax assessment period 2015.

The details of the notice are governed by a Communication on the notice of tax-exempt personal income, issued by the finance administration under reference number 2899/15/7100-10111-010440. The notice itself is to be submitted on form No. 25 5252 MFin 5252 – Template No. 1 Notice of tax-exempt income pursuant to Sec. 38v of the Income Tax Act. Both can be found on the website of the Czech finance administration. In the notice, the taxpayer shall disclose the amount of income, describe the circumstances under which they attained the income, and state the date as of which they disposed of this income.

Income which pertains to joint marital property needs only to be reported by one of the spouses.

The duty to notify tax-exempt income does not extend to income with respect to which the tax authorities are themselves able to ascertain the relevant data from public registers or records to which they have access, and which are published on an official bulletin board and in a way allowing for remote access (such as the real estate cadaster). The notification duty thus does not extend to e.g. tax-exempt income from the sale of a family home and the pertaining land plot. The same approach applies in the case of tax-exempt income in the form of a donation, if the subject matter of donation is a property accounted for in the real estate cadaster. By contrast, the tax-exempt transfer of ownership interest or shares in a company, for instance, is subject to the notification duty.

If the tax administration learns of the fact that a taxpayer failed to comply with this duty, it will first call upon them to make amends and grant them an additional time period within which to do so. Taxpayers who do not honor their notification duty even after such a reminder, face a fine for unreported tax-exempt income. The amount of this fine will be set based upon the amount of the income that was not declared, and is staggered depending on how long it took the taxpayer to fulfill the duty; the fine may amount to up to 15 % of the unreported income.

This fine for unreported tax-exempt income may be imposed only until the end of the tax assessment period.

Source: Income Tax Act, website of the financial administration

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