How much income must you report?

This concerns an individual receipt of income exceeding CZK 5 million. “Individual” means receipts are not added together over the year.

So if, in a rosy version of reality, your grandmother gives you CZK 3 million and your mother another CZK 3 million in the same year, neither individual gift exceeds CZK 5 million and you need not report anything. But if your kind grandmother alone gives you CZK 6 million, you cannot avoid reporting it. 🙂

How do you report the income?

You do not need to worry about drafting a special document: the Financial Administration has a simple form ready for this notification. You must state the amount of income, the circumstances in which you acquired it and the date it arose.

When must you submit the notification?

As with a tax return, the deadline for paper filing is 2 April 2024. If you use a data box, the deadline is 2 May 2024.

Be careful: notification of exempt income over CZK 5 million must also be filed by people who do not normally have to file a tax return! 

What if you do not report exempt income?

You need to be very careful about reporting exempt income. The penalties are fairly severe!

  • 0.1% of the unreported income if you report it after the deadline without being prompted (i.e. a CZK 6 thousand fine in the kind-grandmother gift example above)
  • 10% of the unreported income if you fulfil the obligation within the additional period after the tax office requests it (i.e. a CZK 600 thousand fine in the kind-grandmother gift example above)
  • 15% of the unreported income if you fail to fulfil the reporting obligation even within the additional period (i.e. a CZK 900 thousand fine in the kind-grandmother gift example above) 

If you report exempt income but state an incorrect amount, you also risk a penalty. It is then calculated on the difference between actual and reported income.

Which exempt income must be reported to the tax office when it exceeds CZK 5 million?

First, it is important to note that this concerns not only monetary income but also non-monetary income. A non-monetary receipt might, for example, be a gift of property. 

Gifts

If someone close to you gives you gratuitous income exceeding 5 million, you must report it.

The general rules for gift exemptions are:

  1. a gift from a relative in the direct or collateral line is fully exempt, so you can receive as much as your grandparents or uncles consider appropriate without paying any tax on that income
  2. a gift is also exempt if it comes from someone with whom you lived in a jointly managed household for at least a year before receiving it
  3. occasional receipts not exceeding CZK 15,000 a year are exempt (but of course their amount means you do not have to report them :-))

Inheritance

Whether you inherit a book or a marble villa, the income is always tax-exempt; you only need to monitor its value for the tax-office reporting obligation.

Securities and ownership interests

If you sell shares (securities) and the period between acquisition and sale exceeds 3 years, the income is exempt. Share-income exemption has further conditions, which I described in detail here. The same applies to selling companies (interests in business corporations), where the holding-period test is 5 years. For both types of income, however, the maximum exemption within a year is CZK 40 million. 

An interesting Supreme Administrative Court judgment in October 2023 concerned exempt income from transferring investment-fund units between spouses. Several units were transferred, but through a single legal transaction, between the same two people and with the same intention. To assess whether the exempt income had to be reported to the tax office, the values of all gifted units were added together. If that total exceeded CZK 5 million, the income had to be reported to the tax office. 😊

Other income

Other common exempt income includes pensions, retirement payments, all social benefits, state building-savings contributions, grants, tax bonuses, and benefits in kind or social assistance provided by an employer from its cultural and social needs fund. Here, however, you are unlikely to approach the CZK 5 million reporting threshold. :-))

Which exempt income need not be reported?

You can relax if your income comes from selling a family house or other property registered in the Land Registry, even if you receive more than CZK 5 million for the sale. Your tax office can establish this itself from the purchase agreement in the Land Registry. It is a publicly accessible register, so you are spared the notification. However, this does not apply to gifted or inherited property!

If you are unsure how, or indeed whether, to report your income to the tax office, as always, do get in touch and we will certainly sort it out together. 😊