Irrespective of the duration of the company’s fiscal year, in the last month of the calendar year, the employer is required to perform an annual calculation of taxes on income from employment for its employees.
The requirement to calculate the annual personal income tax derives from Article 47 of the Income Tax Act, which defines the obligation of the employer to perform the annual calculation of personal income tax for employees who earn income from employment in December of the current year if income from employment was not paid on a regular monthly basis during the year. Therefore, the personal deduction was not used or the tax burden was different in certain months on that basis and the tax was paid in a higher amount. The employer is also required to perform an annual calculation of taxes in all other cases when the tax burden in the tax period was different, due to which, based on the annual calculation, the employee would be eligible for the difference for the repayment of overpaid tax or the payment of underpaid tax due to even annual taxation, i.e. equalisation of the taxable amount.
Furthermore, the Personal Income Tax Regulations stipulate that the employer is required to draft an annual calculation of taxes on income from employment for each employee if the following conditions are cumulatively met:
- Employees were employed by the same employer throughout the calendar year. If the employer pays the salary in the current month, then the employer may also perform an annual calculation of taxes for an employee whose employment began on or after 1 January if it was the employee’s first employment, or if the employer has received information that the employee will not receive a salary from the previous employer during January if he/she was employed;
- The employee did not change their place of permanent residence/habitual residence between the cities and municipalities that prescribe the payment of surtax in the current year. In cases when there is a change in the surtax rate in the place of permanent residence/habitual residence during the year, the annual surtax liability is determined by applying the average annual surtax rate for employees who meet the first condition.
The annual personal income tax liability is determined by reducing the amount of total gross wages and other taxable remuneration paid in 2021 by the total calculated salary contributions and the total annual deduction for the employee. The total amount of the annual personal deduction will be recognised solely on the basis of the data stated on the tax deduction form, taking into account any possible changes in the personal deduction, disability and the like, as well as the period to which the relief arrangements apply. The annual tax liability according to the annual calculation is determined by applying the prescribed tax rates to the determined annual taxable amount, which in 2021 are equal to:
By comparing the calculated tax and surtax on the annual taxable amount and the amount of tax and surtax paid during the year, we determine whether the employee is entitled to a refund of overpaid tax or is obliged to pay the difference for underpaid tax and surtax.
The determined difference according to the annual tax calculation will be reported in the JOPPD form under the remuneration / contribution liability code 0406 – Liabilities according to the final annual calculation of personal income tax and surtax on personal income tax based on employment.
It is important to note that if an employee did not have the information on the basis of which he/she is entitled to an increased personal deduction or reduction of the taxable amount stated on their tax deduction form, the employee can exercise their right to repayment via the ZPP-DOH form. The form must be submitted to the Tax Administration by the end of February 2022. The form may be submitted electronically or in person at the competent branch office of the Tax Administration according to the place of permanent or habitual residence.