Starting a Czech trade license does not mean that you immediately start paying monthly income tax.
Under the standard tax system, you earn money during the year, keep records of your business income and calculate your income tax after the tax year ends.
KEY FACT
Having an active trade license does not create income tax by itself. Your final tax depends on your taxable income and your overall tax situation.
Social and health insurance work differently and have their own payment rules.
When Do You First Pay Income Tax?
Under the standard tax system, freelancers usually settle income tax through the annual Czech income tax return.
If you start your trade during the year, you report the business income earned from the date you started until the end of that calendar year.
For example, if you start in September, your first tax return includes your business income from September to December.
You do not start paying monthly income tax just because your trade becomes active.
KEY FACT
Your first income tax payment usually comes after the tax year in which you started your business.
The exact filing dates are explained on the Tax Deadlines page.
What If You Have No Income From Your Trade?
If you earn nothing from your trade during the year, there is no trade income to tax.
This does not automatically mean that you have no other obligations. Social insurance, health insurance, employment income, foreign income or other parts of your tax situation can still matter.
Is Income Tax Calculated From Everything You Invoice?
No. Your income tax is not calculated simply by multiplying the total amount you invoice by a tax rate.
Business expenses reduce the amount used to calculate your tax. Depending on your activity, you can use actual expenses or a percentage expense allowance.
For ordinary trade business income, the percentage expense allowance is 60%. This means 60% of qualifying income can be treated as expenses without proving each expense with receipts. The maximum expense amount under the 60% allowance is 1,200,000 CZK. Craft trades use a different 80% category.
IMPORTANT NOTE
If you use the 60/40 method, the 60% allowance already includes your business expenses. You cannot deduct additional business expenses separately.
Once you use the percentage-expense method for a tax year, you cannot later go back and replace it with your actual expenses for the same tax year.
The percentage-expense method cannot be changed retroactively for the same tax year.
LEGAL REFERENCE
Act No. 586/1992 Sb., Income Tax Act, § 7(7)–(8).
Section 7(7) states that the percentage-expense method cannot be changed retroactively. Section 7(8) confirms that the percentage allowance includes all expenses connected with earning that income.
Watch: How the 60/40 Tax Method Works
This video explains how the 60/40 method works for Czech freelancers and when the expense allowance can be used. What Income Tax Rate Do You Pay?
Czech personal income tax uses two rates: 15% and 23%.
The higher 23% rate applies only to the part of the tax base above the applicable annual threshold. Passing the threshold does not make your entire tax base subject to 23%.
You can find the current threshold and calculation on the Income Tax Rates page.
KEY FACT
Crossing the 23% threshold does not mean that all of your income is taxed at 23%.
Tax Discounts Can Reduce Your Final Tax
After income tax is calculated, applicable tax discounts can reduce the final amount you need to pay.
The Czech system includes the basic taxpayer discount and other tax discounts or benefits if you meet their conditions.
This is another reason why simply multiplying your invoices by 15% does not tell you your final tax.
Calculate Your Czech Freelancer Tax
Use the Pexpats tax calculator to estimate the income tax, social insurance and health insurance connected with your freelance income.
Czech Freelancer Tax Calculator
Calculate your estimated Czech income tax, social insurance and health insurance based on your yearly freelance income.
PRACTICAL PEXPATS NOTE
The calculator gives you an estimate. Your final tax can be different depending on your yearly tax situation.
