Once the decision to open a business in the Czech Republic has been made the legal form of business must be categorized. The main options are: a self-employed business license (živnostníci), a limited liability company (S.R.O., společnost s ručením omezeným) or a joint stock company (A.S., akciová společnost).This article will further focus primarily on the self-employed people.
EU citizens (including Czech citizens) and non-EU citizens who wish to become self-employed firstly need to apply for a trade licence. For non-EU citizens who wish to work independently in the Czech Republic, a trade licence also legitimizes the purpose of their stay in the Czech Republic and is therefore a necessary document when filing your long-term visa or residence permit application.
When you receive your trade licence, you are obliged to register at the Social Security Office and at your local Tax Office. EU citizens are also obliged to register at the National Insurance company called VZP. Non EU citizens don’t need to register at health insurance company, but must have valid health insurance for foreigners.
The business activities must be registered at the Trade License Office to obtain an extract of its trade license. The trade License is a license issued by the municipal corporation which gives you permission to carry on the particular trade or business for which it is issued.
The required documents are as follows:
The Trade License Office must complete the registration process within 5 working days from the day when all required documents were submitted. After the completion of the registration process, the Trade License Office issues the excerpt of the trade license register which is either picked-up personally by the applicant at the Trade License Office, delivered by post mail, or delivered to an electronic data box.
The Czech public health insurance system is based on obligatory participation of insured persons. Every person is insured individually. Self-employed persons from other EU countries, active in the territory of Czech Republic and covered by Czech social security legislation are obligatorily insured only according to the national law.
Non EU-citizens can not participate to the public health insurance system and they are required to arrange commercial health insurance.
Registration
The Czech health insurance system is administered by seven health insurance companies and you can choose any one of them. These companies are:
As for social insurance, the registration must be done within 8 days from the day when the business activity is started to carry on.
The required documents are as follows:
Health insurance tax
The health insurance tax for self-employed is 13,5% of the assessment base per year. The assessment base is equal to 50% of the tax base achieved in the previous calendar year.
The health insurance tax is calculated once a year, however, the contribution must be paid on a monthly basis (basically a deposit). The final report for the health insurance company is called „Přehled o příjmech a výdajích“ and must be submitted at the April 30rd at the latest. Based on completed Tax declaration is calculated the final amount of the health insurance contribution. The final report includes the summary of paid contributions during the year (deposits). The difference between the contributions paid and the final amount must be paid within 8 days after submitting the report. In case of overpayment - you have paid more during the year than is the final amount calculated in the report, health insurance company will refund you.
Monthly contribution
Contributions are paid for individual calendar month and are payble till 8th day of the following calendar month, e.g. contribution for the month January is due on the February 8th at the latest. The day of payment of the contribution is the day on which the the payment is credited to the account of the relevant insurance company.
Amount to be paid
Amount of the monthly contributions is calculated on the basis of the income from previous year and the calculation is included in the final report for Health insurance company submitted at the end of March (Přehled o příjmech a výdajích OSVČ).
Short explanation: the base for calculation of the contribution for health insurance is 50% of the tax base achieved in the previous calendar year. The contribution for health insurance is 13,5% from the base per year.
First year of your business aktivity - the payable amount of contribution is equal to the minimum stated by goverment. This minimum amount is updated every year and for the year 2017, this amount is CZK 1.906,-.
Individuals who are considered as tax residents in the Czech Republic are levied a flat personal income tax rate of 15% and individuals with incomes exceeding 48 times the average salary within the calendar year are entitled to pay a solidary surcharge of 7%. Taxable income includes income from employment, entrepreneurial income, capital (interest, dividends, etc.), rent and other forms of income.
Tax residents of the Czech Republic = foreigners who have their home address in Czech Republic or who usually stay for more than 183 days during a tax year.
Tax residents of the Czech Republic – have the duty to state on their tax return not only sources of income in the Czech Republic but also their sources of income abroad.
Income from abroad is understood to be income that comes from sources abroad and is subject to taxation abroad. In order to avoid double taxation of this income exist Double Taxation Treaties between countries.
Non-tax residents are levied only for income sourced in Czech Republic.
Registration
Registration must be done within 30 days of recieving the trade licence at the tax office. The list of all tax offices can be found find here.
The required documents are as follows:
Income tax rate
In the Czech Republic, you pay income tax at an annual flat rate of 15%.
Tax base = Income – Cost
You may be entitled to a tax-free allowance and deductions for certain types of expenditure. Even if you are not considered as resident for tax purposes you can apply for tax allowances – provided that your income
from Czech sources amounts to at least 90% of your worldwide income. Check with your tax office/tax adviser/accountant.
Non-resident taxpayers are also entitled to a basic tax discount of CZK 24 840 per year.
If the income exceeds 48 times the average salary within the calendar year ( the limit for the year 2017 is CZK 1 355 136 Kč/year) there is a solidary surcharge of 7%.
When and how do you pay?
Tax Declaration need to be submitted by April 1st (in case you cooperate with tax advisor the deadline is July 1st).
Income tax must be paid by April 1st (or July 1st) at the latest. The day of payment is the day on which the the payment is credited to the account of the relevant Tax office. More information about the payment of the income taxe is available here.
Tax advance payments
During the first year of your business activity you dont need to pay any tax advances. Next years: If last year you paid more than CZK 30 000 in income tax, you have to pay tax advances (40 percent of your last tax liability) twice a year. If your annual tax is higher than CZK 150 000, you have to pay four times a year. Payment is due on the 15th day of the third, sixth, ninth and twelfth month.
Social insurance
EU citizen is obliged to pay social contribution as the Czech Republic is an EU member and part of an EU-wide reciprocal system. This means for example, that if you have worked in France and then move to the Czech Republic and live here until you retire you could draw a pension here.
Non-EU citizen dont need to pay social security contributions in case their home country doesn´t have a social security arrangement with the Czech Republic. It is recommended to check with your tax adviser/accountant.
Registration
Social insurance is provided in the Czech Republic by Česká správa sociálního pojištění.
Registration must be done within 8 days from the day when the business activity is started to carry on.
The required documents are as follows:
- Passport
- Trade Certificate
- Residence permit
Based on the registration, the insurance company will issue a social security number – basically an eight-digit „variabilní symbol“ important for correct identification your payment to social security contribution and communication with social insurance office.Social insurance tax
Social insurance tax for self-employed is 29,2% of the assessment base for the current year. The assessment base is equal to 50% of the tax base achieved in the previous calendar year.
The social insurance tax is calculated once a year, however, the contribution must be paid on a monthly basis (basically a deposit). The final report for the social insurance company called „Přehled o příjmech a výdajích“ must be submitted by April 30rd. Based on completed Tax declaration is calculated the final amount of the social security contribution. The final report includes the summary of paid contributions during the year (deposits). The difference between the contributions paid and the final amount must be paid within 8 days after submitting the report. In case of overpayment - you have paid more during the year than is the final amount calculated in the report, social insurance company will refund you.
Monthly contribution
Contributions are paid for individual calendar month and are payble from the 1st to the 20th day of the following calendar month, e.g. contribution for the month January is due on the February 20th at the latest. The day of payment of the contribution is the day on which the the payment is credited to the account of the relevant insurance company.
Amount to be paid
Amount of the monthly contributions is calculated on the basis of the income from previous year and the calculation is included in the final report for Social insurance company submitted at the end of March (Přehled o příjmech a výdajích OSVČ).
Short explanation: the base for calculation of the contribution for social insurance is 50% of the tax base achieved in the previous calendar year. The contribution for social insurance is 29,2% from the base per year.
For the first year of a new business activity, the payable amount of contribution is equal to the minimum amount stated by the goverment (link to reference). This minimum amount is updated every year and for the year 2017, this amount is CZK 2.061,-.