Czech Trade license of freelancer and information about taxes
The Czech trade license of a freelancer is the business status of a self-employed person with the ability to do several business activities. The person with a trade license will have a registered tax number and the same rights as the company registered in the Czech Republic.
There are 82 common activities that fall under one trade license. These activities don’t require any special education or university degrees. The most common activities for our clients include graphic design, IT and general consulting, foreign language teacher, sales, photography services, and event organizing. The trade license holder can participate in all 82 activities under one trade license and under tax number.
The most important conditions of obtaining the trade license are a criminal clearance report from the home country if the foreigner doesn’t have permanent residency in the Czech Republic. The full registration process takes 2 days.
Criminal clearance report
EU citizens
A criminal clearance report or temporary residency is NOT required for EU citizens for registering Czech Trade license and other authorities.
Ukrainian citizens with protection visa
A criminal clearance report is not required from Ukrainian citizens with a Czech protection visa or foreign police registration.
British Citizens After Brexit
After Brexit, British citizens are considered third-country nationals, and for obtaining a Trade license in the Czech Republic you must obtain a Criminal Clearance Report from the UK and a Temporary residency permit. You can apply online here. UK citizens who didn't obtain temporary residency under the Brexit protection, should apply for a freelancer visa.
US citizens
A criminal clearance report form doesn’t exist in the US. So US citizens must provide an affidavit confirming they have not committed any crime. This is an affidavit that must be signed at the US embassy. Make an appointment online to visit the US embassy in the Czech Republic. They will provide the proper form to fill out and sign in person. The charge is 50 USD. For those who are still in the US, arrange an affidavit form at the nearest Czech embassy.
Canadian citizens
A Canadian criminal clearance report should be translated into the Czech language. Here is a list of official translators in Canada (Link) and it should have a super legalization stamp at the Czech embassy. Please check the link. For Canadians who are already living in the Czech Republic, please contact the Canadian embassy.
Citizens of Australia, Brazil, and South Africa
Criminal clearance reports should be translated into the Czech language and must have an Apostille stamp. Legal translations can be done for an additional fee in Prague.
Exception for NON-EU citizens
A criminal clearance report is not required for Permanent residency, Partnership visa, Blue Card, or Student Visa( D/VC/23) holders.
Consent with the business address
Each trade license holder should have a business address. Renting an office is not necessary. It can be a so-called virtual or remote office. For those who already have their own apartments, the home address can be used as the business address. Additionally, we can offer business addresses from our office building for 7 300 CZK per year. You can check our virtual business address support package here
Social Tax and Health Insurance in 2023
EU citizens are registered at public health insurance and social tax after registration and activation of trade licenses.
Other nationalities’ trade license is activated and registered at social tax after they collect their Czech visas at the Czech embassy.
Since May 2016, US citizens must be registered with public health insurance. Other non-EU nationalities should buy commercial health insurance according to the future period of stay.
Since 1.1.2015 maximum amount for health insurance was canceled and there is no maximum amount limit for Czech insurance from the Czech trade license income.
Social Tax for trade license holders in 2023 is 2 944 CZK monthly which is the minimum deposit and it’s only for the first year. Public health insurance of VZP for trade license holders is a minimum of 2 722 CZK monthly, also only for the first year. You might pay a difference after the calculation of your final income for the previous year. The final calculation comes from your yearly clean income. Social Security tax is 29.2%, from half of the net and taxable income. Health insurance is 13.5% of half of the net and taxable income.
Social security tax has a limit and is taxable up to 1 935 552 CZK clean income. Over this amount of income, social security is not taxable.
Income tax or Annual tax report
Income tax for trade license holders is fair. The Czech trade license holders can choose various types of tax options. Income tax is 15% of net income and there is a 30 840 CZK tax discount. The Income-tax will be 23% for the amount over 1 935 552CZK.
Method 60/40 is the most common. The collection of payment receipts or invoices from expenses is not necessary.
It means a fixed 60% cost allowance and a 40% income. For example, if the total gross income for last year was 300 000 CZK, then 300 000 – 60% cost allowance( fixed expenses) = 120 000 clean income. 15% tax will be paid from 120.000 which means 120 000 - 15%= 18 000 (tax amount) - 30 840 (tax discount) = 0 CZK (final tax amount). It is not possible to use Method 60/40 if your income is higher than 2 million.
In this example, taxes will not be paid. This method is convenient and the best solution for EU citizens and EU family members(partner visa).
We don’t recommend this method for other nationalities who need to renew their visas or residency permits in the future because income proof is required if they don’t have at least 500 000 CZK.
For the situation and calculation which was used above, other nationalities should use the method tax from the full amount for avoiding visa renewal rejections due to insufficient funds.
Please check more information about income proof calculation of MOI offices here.
Our services and fees are as follows:
Our complete service fee is 10 900 CZK.
It includes:
Trade license registration including registration fees;
Trade license activation;
Registration with the financial tax office;
Registration with the social tax office;
Registration with Public health insurance;
Non-EU and non-US clients may have translation fees of criminal reports;
Trade license for Third-country nationalities has expiration dates.
Income tax 2023
The income tax amount is increased to 23% for income above 1 935 552 CZK. Income tax under the net income of 1 935 552 CZK is 15%.
For example, Your gross income is 3 500 000 CZK and your Czech income tax from freelancing in 2023 would be the following.
Using the 60/40 method up to 2 000 000 - 60%( 1.2 million CZK) = 800 000 CZK
1 500 000 + 800 000 = 2 300 000 CZK is your tax base
2 300 000 CZK - 1 935 552 = 364 448 CZK.
1 935 552 - 15%= 290 333 CZK.
364 448 - 23% = 83 823 CZK.
So the total amount of income tax from 3 500 000 CZK is 374 146 CZK (290 333 CZK + 83 823 CZK).
Capital Gain and Crypto Tax
The Capital gain and Crypto income tax rate is 15% or 23% in The Czech Republic. To calculate the tax rate, should find out your final and total net income or tax base and follow the rule above for determining a rate of 15% or 23%. Only net income from Capital gains and Crypto is taxed. This means you need to pay taxes when you sell your investments and make a profit and the profit amount is taxed only. If you had a loss( the amount you bought is less than what you sold) then you don't declare any tax.
When you have a trade license and income from capital gains and crypto, then both incomes are merged and then the final tax is calculated. But the income from capital gains and crypto should be declared as private income for better tax optimization. Because if you declare the capital gains and crypto income as business income, then your social security and health insurance payments become higher.
Please, check the Czech Crypto and Capital Gain Tax calculator for 2023/2024 here
Tax relief
Tax relief refers to expenses deductible from taxable income (your tax base). For example, if using the 60-40 reporting method, tax relief applies to the 40% base you will pay taxes on. Tax reliefs in 2023 are applicable if the freelancer's annual clean income is over 103,800 CZK.
Deductible expenses from taxable income in the Czech Republic include:
Voluntary Blood, Plasma, or Organ Donor Relief (for voluntary blood, plasma, or organ donors who opt not to get paid)
- 3 000 CZK for voluntary blood donors
- 3 000 CZK for voluntary plasma donors
- 20 000 CZK for voluntarily organ donors
Mortgage Interest Rates Relief (for the months which you have an active trade license while also paying on a mortgage)
- Up to a maximum deductible amount of 150 000 CZK
Pension and Retirement Funds (for private pension savings within the non-government sector)
- Up to a maximum deductible amount of 24 000 CZK from private pension savings investments
Life insurance
- Up to a maximum deductible amount of 24 000 CZK for life insurance payments
Continuing Education Examination Fees (for examination fees to certify an improved / progressing level of education)
- Up to a maximum deductible amount of 10 000 CZK
Research (for implementation of public research and development
- No limit to the deductible amount
Supporting Professional Education (for any related expenses to support the education of another person: tuition, exam fees, etc)
- No limit to the deductible amount
Tax discounts
Tax discounts are deductions to the total tax amount (not the tax base). In the Czech Republic, tax discounts include:
Annual tax discount for freelancers (available for everyone, no matter if your trade license has been active for the full year, or only one month of the last tax year) : 30 840 CZK
- The discount applies to income from self-employment, regardless of whether it is your main source of income, or it is side income (together with full-time employment)
Tax discount for an unemployed spouse (or a spouse with income under 68 000 CZK for a full year: 28 840 CZK)
- Note: the income of the spouse is considered the spouse’s net income
Tax discount for students under 26 years old, or for students under 28 pursuing a doctorate degree
- 350 CZK per month, up to a maximum of 4 200 CZK for a full year of studies
Tax discount on fees for kindergarten (only applicable to one of the child’s parents)
- 15 200 CZK per kid per year
Tax bonuses
A tax bonus is an amount which the taxpayer can claim back from the tax office due to overpayment after deductions. This amount includes bonuses for parents of one, two, or more children:
- Up to a maximum bonus of 15 204 CZK for a first child
- Up to a maximum bonus of 22 320 CZK for a second child
- Up to a maximum bonus of 27 840 CZK for three or more children
Note: Only one of the parents may claim a tax bonus for children. Further, the maximum bonus amount is calculated based on how many months of the taxable year the parent’s trade license was active.
Personal income tax advance deposit
If you pay over CZK 30,000 income tax (after relief, discounts, and bonuses) in a given year, you should pay income tax advances the following year. Income tax advances are deposits that will go towards part of your income tax balance at the end of the next taxable period.
However, note that you do not need to make income tax deposits if:
- Your income taxes were CZK 30,000 or less.
- It is the first year of running a business or freelancing.
- You also have full-time employment which pays the advances.
- You’re registered and paying flat taxes.
Categories in which you will need to pay an advance towards your personal income tax include:
- You paid income tax over CZK 30,000 but less than CZK 150,000. In this case, you must make deposits semi-annually (2x per year) at 40% of the original tax obligation.
You paid income tax over CZK 150,000. In this case, you must make quarterly advance payments at 40% of the original tax obligation.
Trade license validity and extension
After activating a trade license, how long the license is valid depends on your residency status. In some situations, there will be a validity (“valid until”) date. Other types of residency grant trade license validity for an unlimited amount of time.
- Non-EU Zivno Visa or any Long-Term Residency holders have a trade license valid for the duration of their visa / residency. (Make sure to extend the trade license when applying for a new visa, biometric card, or bridge visa during the residency process.)
- Ukrainian Citizens with Refugee Status possess a valid trade license for the duration of their temporary protection visa. (Remember to extend the license when applying for a new protection visa.)
- Partnership Visa and Permanent Residency holders receive an unlimited trade license. (There is no need to file for extensions. However, it is important to remember to pause the trade license if not actively generating income from self-employed activities.)
- EU Citizens, their family members, and UK Citizens with Temporary Residency under the Brexit deal have unlimited validity of the trade license.
Note: Always remember to cancel or pause your Zivno / trade license when you stop running your freelance business! Pausing / canceling the trade license informs social security and health insurance offices that you are no longer responsible for making monthly deposits. If you fail to do so, both offices will still expect monthly deposits from you, even if your income from trade license activities is zero.
Czech VAT
The Czech VAT limit amount is increased to 2 000 000 CZK from 1.1.2023. You will become a Czech national VAT payer if your income exceeds 2 million CZK in the last 12 consecutive months from your Czech source of income. For example, you have income from Czech registered business 200 000 CZK and from Companies that are registered out of the Czech Republic of 2 000 000 CZK. You are not eligible for Czech VAT registration because your Czech sources of income didn't exceed over 2 million CZK in the last 12 months.
Czech VAT rates and charging VAT in 2023
- The basic rate of VAT - is 21%,
- The first reduced VAT rate - 15%,
- The second reduced VAT rate - 10%.
Examples of Charging VAT for Czech registered businesses while invoicing out of the Czech Republic for the services provided from the Czech Republic.
1. Invoicing as Czech VAT Registered business
a) Invoicing for services from Czech registered businesses to EU registered businesses, 0% VAT - EU reverse charge
b) Invoicing for services from Czech registered businesses to individual clients, 21 % VAT
c) Invoicing for services from Czech registered businesses to out-of-EU registered businesses, 0% VAT
2. Invoicing as Czech Light VAT Registered business
a) Invoicing for services from Czech registered businesses to EU registered businesses, 0% VAT - EU reverse charge
b) Invoicing for services from Czech registered businesses to individual clients, 21 % VAT
c) Invoicing for services from Czech registered businesses to out-of-EU registered businesses, 0% VAT
3. Accepting services from companies registered out of the Czech republic
If you receive services from companies registered out of the Czech Republic( google/Facebook ads, Airbnb, etc) you should pay 21% VAT in the Czech Republic.
For example, you promote your business on Facebook and Facebook ads are running in the Czech Republic. Since Facebook is not a Czech-registered business, you should pay a 21% VAT on top of the Facebook ads fee.
Light VAT
Light VAT is needed if you invoice EU-registered companies that are registered out of the Czech Republic. You should apply light VAT statements monthly. Please contact us for the accounting service packages.
Contact us and we will help you to understand the tax system in the Czech Republic!
Czech trade license as a side income
In the first year of side business who have full-time employment, you don’t need to pay social security and health insurance payments. Trade license during the maternity stay is considered as a side income.
Social Security and Health Insurance balance
If your clean income from your trade license is higher than 96 777 CZK ( your 40% when you use the 60/40 tax method) then you start paying the deposit next year. So the limit for social tax is 96 777 CZK. If you are over this amount you will pay some balance and start paying a deposit of 1 018 CZK next year, if your clean income for the full year is under 96 777 CZK, then you pay 0 CZK balance and 0 CZK deposits.
Health insurance is calculated in this way 0,135 x 0,50 x your clean income (40%): months of your trade license last year.
For example, as a side income trade license, you earned 103 500 CZK last year. You used 60/40. So your clean income (40%) is 41 400.
Social Tax you don’t pay any balance or deposit because 41 400 < 96 777 CZK.
Health Insurance
0,135 x 0,50 x 41 400 (your clean income): 12 months = 233 CZK. That is what you should pay for your Health insurance balance.
Income tax
Income tax of side business trade license and employee tax are merged and declared in one tax report with all tax discounts and bonuses for the full previous tax year.
Czech online tax calculator
Now you have an opportunity to monitor your finances by using our Czech Tax calculator. Click below and check your income after taxes.
Flat Tax 2023
In 2021, the Czech Financial Office introduced a new flat tax reporting method. As of 2023, the minimum flat tax amount in the Czech Republic is CZK monthly. This amount covers health insurance, social insurance, and income tax – with no paperwork and limited legwork involved.
Updates to the Czech flat tax in 2023 include:
- An increase in the total income limit;
- A change in the payment amount for each bracket.
The flat tax limit is up to a maximum of 2 000 000 CZK, divided into the three bands above, and depending on gross income level.
However, keep in mind that sometimes it is not advantageous to take on a flat tax reporting regime. Paying a flat tax makes more sense for single entrepreneurs. This is because these taxpayers often have few discounts, along with no tax bonuses from offspring.
If you have children, or expect to claim various relief and discounts, other tax reporting methods will be more advantageous. Remember to always consider professional tax consultation before signing up for flat tax reporting if in any doubt.
Gift Tax in the Czech Republic
Officially, the Income Act of 2014 abolished Gift Tax in the Czech Republic, as well as inheritance tax. Now, taxpayers must declare all income deriving from donations as part of their regular income tax. This amounts to 15% for natural persons, or 19% from legal entities.
In other words, assets which derive from donations are subject to zero gift tax. However, they are included under income tax as gratuitous income.
This income is thus taxed at the same rate as all other income from one year to the next. That is, unless the donation is exempt from income tax. Exemptions from income tax include:
- Donations from a spouse or direct relatives (children, parents, grandparents, grandchildren)
- Gifts from a collateral line of kin (siblings, nieces, nephews, uncles, aunts; children’s spouses; spouse’s children, spouse’s parents, parent’s spouses)
- Gifts from persons who lived with the beneficiary, donor, or testator for at least 1 year before the transfer or death of the testator in a joint household. This person would thus be a caretaker of the joint household, or were once a dependent of the beneficiary, donor, or testator for maintenance purposes.
Note: Any donation which does not exceed CZK 15 000 per year (tax period) is exempt from income tax. This stands regardless of the donor.
Taxes for donating real estate
Donation is one way to easily and inexpensively transfer real estate to somebody. Real estate is exempt from gift taxes. However, donating real estate does fall under income tax if you are not one of the groups above.
The same rules also apply, so natural persons will pay 15% and legal entities pay 19%. This amount falls under gratuitous income and will have subsequent tax rates from one taxable year to the next.
How to reduce tax burden by reporting a cooperating person?
You can also transfer part of your income to a cooperating person and thereby reduce your tax burden. The cooperating person helps the self-employed person in business activities. These can be for example administration, accounting, customer orders, communication with suppliers, etc.
Most often, the cooperating person is a husband or wife, although in some cases it can be children or parents. The cooperating person must reside and work in the same household, or participate in a joint “family business” venture. (Find the legal definition of the so-called “family business” in Section 700 of the Labour Code.)
Who can you report as a cooperating person?
- A child over 18 who is currently enrolled as a student
- Retired parent
- Wife on parental leave
- A spouse whose main employment is with the employer
If the cooperating person is currently on parental leave or otherwise employed, their cooperation is considered a secondary, independent income-earning activity. However, it is more advantageous if the cooperating person’s main self-employment is from the cooperation. This is due to the mandatory contributions to health and social insurance for secondary, self-employed persons.
Conditions for cooperating persons
Additionally, the following conditions apply to a cooperating person:
- They are of at least 18 years of age with the legal power to conduct their own personal and financial affairs
- There is no trade license is necessary, while activities are regarded as self-employed
- Only the cooperating person is able to apply for a spouse or child discount. The entrepreneur cannot.
- All income and expenses must be divided and reported by the entrepreneur and cooperating person according to the law.
- Both parties must fulfill all reporting obligations.
How to report a cooperating person
To take on a cooperating person, the entrepreneur must inform the tax office, social security, and the health insurance provider. The cooperating person must also register for income tax on their own behalf, and have a Tax ID number.
Social security offices then provide a variable symbol for making advance payments. The same is true for health insurance, which also requires monthly advances from the cooperating person.
Limits on transferring income to a cooperating person
According to the Income Tax Act, if you transfer part of your income to a cooperating person, you must transfer the same percentage of expenses.
For a simple example: if you transfer 40% of your income, you must also transfer 40% of your expenses.
The Income Tax Act also stipulates maximum limits for the spouse or other cooperating persons. These are:
- For a cooperating spouse, the maximum transfer limit of income and expenses is up to 50%, to a maximum of CZK 540 000.
- If cooperating with a non-spouse, the maximum transfer limit is 30% of income and expenses, up to a maximum of CZK 180 000.
Note: You can have more than one business partner. However, if you have more than one cooperating person, you can transfer a maximum of 30% across multiple cooperating persons.
A practical example of reporting a cooperating person
For example, let’s take the tax report of Adam, a self-employed entrepreneur. Adam will report his spouse Eva as a cooperating person.
- Adam earned CZK 800 000, and he applied the 60-40 method to his taxes.
- Adam’s expenses are therefore CZK 480 000, with a profit of CZK 320 000.
- Adam applies the basic taxpayer’s discount (CZK 30 840), so he pays CZK 17 160 remaining to pay in taxes.
However, Adam decides to use a cooperating person. And, because the cooperating person is Adam’s spouse, he can transfer 50% of his income and expenses to her.
- Adam transfers CZK 400 000 of his income and CZK 240 00 of his expenses to his spouse Eva.
- Adam’s tax return becomes the exact same as Eva’s.
- They both now have an income of CZK 400 000, expenses at CZK 240 000, a profit of CZK 160 000, with a remaining 15% income tax to pay of CZK 24 000.
- Adam and Eva both apply the basic taxpayer’s discount of CZK 30 840, meaning they now have zero tax liability.
In this case, Adam and Eva both pay zero income tax. Adam reduces his tax burden by claiming Eva as a cooperating person. Meanwhile, Eva’s profit likewise isn’t high enough for any tax liability.afad