Changes of taxation of employees subject to social and health insurance payments abroad
We would like to inform you about a recent amendment of the Income Tax Law effective since 1st January 2019. It introduces changes in calculation of the tax base for employees who are subject to social and health insurance payments in another EU country, country of European Economic Area (EEA) or Switzerland.
Until the end of 2018, there was a united method of calculation of a tax base valid for employees subject to a foreign insurance. The tax base from employment was increased by a hypothetical Czech insurance (so it was multiplied by 1,34 = 34%, which is the rate of employer´s insurance in the Czech Republic) regardless of an actual insurance paid abroad. However, starting 2019, employers have to increase the tax base of their employees by the actual social and health insurance paid abroad.
This amendment highly increases administrative demands placed on employers and causes additional costs related to setting of payroll systems. Moreover, employers should most probably involve only those foreign insurance contributions into the tax base that are equivalent to the Czech social and health insurance payments. Thus, the employers should not only reflect foreign insurance payments of their employees in tax calculation, but should also have some knowledge about foreign insurance systems in order to be able to determine, which foreign insurance payments are equivalent to the Czech insurance contributions. Please note that the exact way of comparison is still subject to discussions with the Czech tax administration.
In conclusion, we trust that the complicated legislative change will be modified by a new amendment of the Income Tax Law in the nearest future. We will inform you on the further development. For a partial clarification of the described situation, please find below an overview of insurance contributions mandatorily paid by employers and employees in chosen European countries, where TPA Group is active.