The Czech Parliament has passed an amendment to the Sick-Leave Insurance Act which widens the circle of those who are deemed to draw earnings from dependent employment in the terms of Sec. 6 of the Czech Income Tax Act and who are thus subject to pension and sick-leave insurance.
As of the moment when the amendment comes into force (i.e., as of the first day of the month in which the amendment is promulgated into law by publication in the “Collection of Laws”), mandatory pension and sickleave insurance also apply to the following categories of gainfully employed individuals:
- Shareholders (members) and executives of limited liability companies and limited partners of limited partnerships, provided that they render performances for their company outside an employment agreement and receive compensation for such performances;
- Members of co-operatives, if they carry out remunerated work in bodies of the co-operative outside an employment agreement, and in so doing perform duties which do not qualify as work performance pursuant to the co-operative’s charter;
- Members of collective bodies of legal entities (such as the members of the board of directors or supervisory board of a joint-stock company),
- Liquidators and proxy agents (i.e., holders of proxy power – prokuristy in Czech),
- Directors of branch offices of foreign legal entities who are entered in the Czech Commercial Register.
The criterion for participation of these individuals in the said categories of social insurance is a reference income of at least CZK 2,500 per month.
Previously, the members of collective bodies of legal entities, liquidators, and proxy agents did not participate in general sick-leave or pension insurance schemes; only health insurance contributions were being withheld from their compensation. Shareholders (members) and executives of limited liability companies, limited partners of limited partnerships, and members of co-ooperatives were both health insured and pension insured (but not, after 2009, sick-leave insured), in all those months in which their earnings exceeded the reference income of (currently) CZK 6,200 per month.
The amendment mitigates the negative impact for members of collective bodies of legal entities (boards of directors and supervisory boards) by abolishing those provisions of the Income Tax Act which provided that the compensation of such individuals was not a deductible expense on the level of the company.
Originally published by the bnt newletter bnt – pravda & partner, s.r.o.; author: Markéta Pravdová, Attorney-at-Law, Partner.
