What were the rules until now?
You must have confirmation of the donation from the organisation concerned. The money must go to a good cause – generally charities, foundations, associations, institutes, etc.
As an employee or self-employed person, you could deduct a total of at least 1.000 Kč and at most 15 % of the tax base (an employee’s gross wages, or the difference between income and expenditure for a self-employed person).
As a company, you could deduct a donation worth at least 2.000 Kč, up to an overall maximum of 10 % of the tax base (the difference between revenue and expenses).
Example) Self-employed Jan Novák had income of 800.000 Kč and expenditure of 480.000 Kč in 2020. That year, he also donated 500 Kč to People in Need and 4.500 Kč to the Salvation Army.
Tax base = income of 800.000 – expenditure of 480.000 = 320.000 Kč … he can deduct up to 15 % of this amount, i.e. 48.000 Kč => he can deduct the entire donation from the tax base => reduced tax base = 315.000 Kč. The donation saves him 750 Kč in tax.
What has changed?
The upper limits for claiming this deduction have changed. For employees, self-employed people and companies alike, the limits have been raised uniformly to 30 % of the tax base. However, this change is only temporary – it applies only to 2020 and 2021, after which the upper limits will return to their previous levels.
The state wants to encourage the flow of money from the private sector to the non-profit sector, which often substitutes for the state’s social activities.
This article may interest clients who have not yet filed their 2020 tax return, as well as those considering expanding their charitable giving next year and wondering whether it will ‘pay off’. If you are unsure, feel free to get in touch and we will look at it together. 🙂