Taxation of Employee Benefits in 2025
How to structure employee benefits for maximum tax savings?
The taxation of benefits in 2025 depends on the type of benefit, its form, and its correct setup in the company's internal regulations. Incorrect classification or exceeding the tax limit can result in additional taxation and levies, while a well-designed system can reduce payroll costs. In this article, you will learn how to distinguish between individual benefits, how to record them, and what to amend in your internal regulation.
Key takeaways
What tax exemption limits do you need to monitor?
Leisure benefits, such as contributions for recreation, culture, sports events, kindergartens, or employer-provided libraries, are exempt only up to 50% of the average salary. For 2025, this limit is CZK 23,278.
In contrast, health benefits, which include medical services, therapeutic and hygiene services, or prescription medical devices, have an increased limit in 2025. The exemption is now set at up to 100% of the average salary. This limit for 2025 amounts to CZK 46,557.
Our Prague-based lawyers and tax specialists at ARROWS regularly handle these issues and can help you set up a benefit system so that every crown spent on benefits is tax-efficient. For an immediate solution to your situation, write to us at consultation@arws.cz.
Risks and penalties | How ARROWS helps |
Exceeding the CZK 23,278 limit for leisure benefits – necessity of additional taxation and contributions for the employee. | Legal consultations that protect against fines and inspections – we will help you monitor the use of benefits and design a record-keeping system. |
Incorrect classification of a benefit (e.g., treating a monetary benefit as non-monetary) – tax assessment and penalties. | Preparation of documentation that protects against fines and penalties – we will ensure a review of the benefit system and contractual documentation. |
Absence of an internal regulation – risk of non-recognition of employer costs and penalties from the Labour Inspectorate. | Drafting of internal directives – we will prepare a comprehensive and auditable internal regulation for providing benefits in accordance with the Income Tax Act. |
Strategic Setup of Key Benefits
In addition to leisure and health benefits, special attention must be paid to meal allowances and long-term savings. These areas offer significant potential for tax optimisation for your SMEs and larger companies.
Meal Allowance Lump Sum: An Even More Effective Tool, but with a Limit
The meal allowance lump sum maintains its position as an administratively simple form of contribution. For the employer, the contribution remains a tax-deductible expense in any amount. For the employee, however, it is exempt from tax and contributions up to a limit of CZK 123.90 per shift worked (representing 70% of the upper limit of the meal allowance for a business trip of 5–12 hours for 2025).
This contribution must be properly established either in a collective agreement or in an internal regulation. If you opt for the meal allowance lump sum, it is crucial to precisely define the conditions for entitlement (e.g., working a minimum of 3 hours) to avoid tax penalties.
The lawyers at ARROWS will prepare internal directives for you, taking into account the specific needs of your employees. Do not hesitate to contact our Prague-based office – consultation@arws.cz.
Long-Term Retirement Savings: A Common Limit for DPS, LTC, and DIP
The year 2025 confirms the introduction of the Long-Term Investment Product (DIP). The DIP, along with supplementary pension savings (DPS) and long-term care insurance (LTC), shares a common limit on the employer's side for the tax exemption of contributions for employees.
Employers can contribute a total amount of up to CZK 50,000 per year to all three products (DPS, LTC, DIP) without taxation and contributions for the employee. From the employee's perspective, all three products also share a common limit for deduction from the tax base, which is CZK 48,000. We recommend that investors and business owners consider LTC, which is newly tax-advantaged if it covers dependency levels III and IV.
Company Car for Private Use: What to Watch Out For?
Providing a company car for private use is a popular benefit for top managers. This benefit is always taxable, with a fixed percentage of the vehicle's purchase price being added to the employee's tax base.
The tax base varies depending on the type of vehicle:
Zero-emission (electric/hydrogen): 0.25% of the purchase price per month.
Low-emission (e.g., plug-in hybrid): 0.5% of the purchase price per month.
Other vehicles (internal combustion engine): 1% of the purchase price per month.
Correctly determining the vehicle type and its purchase price is critical for an accurate calculation of the tax base and for avoiding errors in payroll accounting. We can prepare expert training for your employees or management, including a certificate on this topic. For an immediate solution to your situation, write to us at consultation@arws.cz.
Risks and penalties | How ARROWS helps |
Incorrect calculation of the tax base for a company car – additional assessment of tax and insurance for the employee and employer. | Legal opinions – we will assess the correctness of vehicle categorisation (low-emission vs. other) and verify the payroll agenda setup. |
Providing contributions to DPS/DIP/LTC without the product complying with the law (e.g., the DIP is not provided by an entity registered with the Czech National Bank). | Legal advice on obtaining permits and licenses – we will verify whether the provider of the savings product for employees complies with Czech National Bank legislation. |
A foreign employee uses accommodation without proper documentation – the accommodation is subject to full taxation. | Representation before administrative authorities – we will ensure the correct structuring of non-monetary accommodation for expatriates and prepare the documentation. |
Taxation of Benefits for Foreign Managers: The Role of Tax Residency
In multinational corporations and companies with international branches, it is often necessary to address the taxation of benefits for foreign managers. The key concept here is tax resident. For taxation purposes, it is not nationality that matters, but tax residency, which is determined by place of residence, a time test (183 days), and, in case of dispute, according to Double Taxation Treaties.
One of the common benefits for foreigners, temporary accommodation provided by the employer as a non-monetary benefit, is tax-exempt up to CZK 3,500 per month, provided it is legally structured correctly. A cash contribution for accommodation, on the other hand, is always taxable.
ARROWS International provides comprehensive legal services in the field of international taxation, thanks to a network built over ten years, and we deal with these issues with an international element on a daily basis. Need legal assistance? Contact us at consultation@arws.cz.
How to Ensure Legal Certainty? The Key Role of an Internal Regulation
Regardless of the type of benefit, the foundation of legal certainty is its proper establishment. All rules, the circle of eligible persons, and the conditions for use must be detailed in an internal directive (internal regulation). This directive is essential for protecting the employer from disputes with employees and from inspections by the tax authority or the Labour Inspectorate.
At ARROWS, we will help you draft internal directives that define the conditions for providing benefits in accordance with the current Labour Code and the Income Tax Act, thereby preparing strong documentation for you in case of inspections. We pride ourselves on speed and high quality, which is appreciated even by clients with the highest demands within our portfolio (more than 150 joint-stock companies, 250 limited liability companies, and 51 municipalities and regions).
Gain Tax Certainty and Peace of Mind for Your Business
Setting up employee benefits in 2025 is a complex legal and tax matter that requires detailed knowledge of current legislation and careful preparation of internal documentation. The ARROWS law firm offers you comprehensive legal services in this area, from drafting internal directives and preparing documentation, through legal consultations and expert training, to representation before administrative authorities.
Our experience from long-term service provision allows us to effectively optimise your costs and minimise the risk of fines. We are also happy to connect you with our other clients if you are dealing with interesting investment or business opportunities within your company. Don't let the taxation of benefits jeopardise your tax savings. Contact us today for a review of your benefit system and to ensure its full compliance with the law – consultation@arws.cz.
About the author
Disclaimer:
The information contained in this article is for general informational purposes only and serves as a basic guide to the issue as of 2026. Although we strive for maximum accuracy, laws and their interpretation evolve over time. We are ARROWS Law Firm, a member of the Czech Bar Association (our supervisory authority), and for the maximum security of our clients, we are insured for professional liability with a limit of CZK 350,000,000. To verify the current wording of the regulations and their application to your specific situation, it is necessary to contact ARROWS Law Firm directly (consultation@arws.cz). We are not liable for any damages arising from the independent use of the information in this article without prior individual legal consultation.