How to Report Income and File Czech Income Taxes
In most cases if living and working in the Czech Republic, both Czechs and foreigners, must file Czech tax returns; here’s when & how.
Filing Czech Tax Returns - A Complete Guide for Foreigners
Anybody living and working in the Czech Republic has the obligation to pay income tax once every year. The tax return (“daňové přiznání” in Czech) is common practice for those with an active trade license (Živnostenský). However, it isn’t only freelancers and the self-employed who must file income tax returns. It’s also employees, pensioners, and students.
In 2023, this obligation covered all self-employed persons and entrepreneurs. It also extended to students holding more than one part-time job or doing self-employed business. Some received tax-exempt status, while those with no exemption had to file a tax return for 2022.
Completing a Czech tax return takes into account many factors, from tax benefits and tax rebates to calculating net wage. Filers can also reduce the tax base through charitable donations. If filers own property, they should be aware of how to properly charge real estate tax, or calculate rental income. There can be many variables (and documents) to get right, some which might particularly confuse foreigners and first-time filers.
To learn more, read on for our complete guide to filing Czech taxes. We’ll share who has to file, when to do it, and how to file Czech income taxes properly.
Who has to file Czech taxes?
With so much to cover, let’s break down Czech tax reports for the taxpayer. Who has to file taxes in the Czech Republic?
- Active trade license holders (self-employed, in Czech “Živnostenský list”)
- Employees with self-employment, capital gains, rent or other taxable income exceeding CZK 6,000 per month
- Those working simultaneously for two employers in any one month when both jobs paid income tax in advance
- Unemployed persons with capital gains, rental or other income over CZK 15,000 annual
- Students who work more than one part-time job or doing self-employed business
- Retired entrepreneurs on pension
Filing deadline for tax returns
The date for filing tax returns in the Czech Republic does not change from one taxpayer to the next. Self-employed persons, as well as employees, pensioners, students, and anybody responsible for reporting taxes all have the same deadline. For submitting the personal income tax report for 2022, this deadline was 1 April 2023.
Typically, tax season and collecting documents for most begins in March. This can change (as we saw over the course of the pandemic), but tends to be around this time of the year. Taxpayers report income, health & social contributions, and deductibles or tax credits to calculate the remaining balance to pay in taxes.
If submitting tax returns electronically, the deadline extends by one month. In 2023, this extended the deadline to 1 May. Taxpayers submit reports (whether by mail, in-person or digitally) to the Czech Financial Administration. However, only taxpayers who have income from dependent activities can use the two-page tax form.
Which tax form to use?
There are two types of tax forms in the Czech Republic:
- the standard four-page tax form, and;
- a simplified two-page tax form.
Download either of these forms from the Financial Administration website, just as in previous years. Keep in mind the simplified tax form is only for those with income from dependent activities. Beyond using one of these forms, taxpayers might also need to collect some important documents.
Important documents to collect
Which documents you need to file taxes will vary depending on whether you’re employed, have a trade license, or both. If you are employed, you need to get a certificate of taxable income from the employer. This is more straightforward than filing taxes as a freelancer, who should compile all invoices from the given tax period.
Trade license holders must file taxes according to flat-rate expenses or real expenses. Apply these as expenses related to your business, which will later be deducted from the remaining balance owed in taxes. When choosing to file using flat-rate expenses, there is no obligation for filers to keep records of invoices or receipts.
If filing taxes using real expenses, which is sometimes more advantageous, there’s documentation to do. The person filing should keep records of all costs paid for the entire year. They must keep receipts for at least 3 years. Anything related to conducting business can apply as an expense, however with numerous exceptions.
What can you write off as business expenses?
Some costs you can write-off as real expenses include:
- Vehicle expenses (under certain conditions, e.g. road tax registration)
- Management service fees
- Interest charges to foreign affiliates
- Technology you purchase to use in your business (e.g. work computer)
- Office rental for conducting your business
The Czech company will have to prove these costs meet general rules for tax deductibility, however.
Exceptions to real business expenses
What doesn’t count as real expenses when reporting taxes in the Czech Republic?
- Cost of food
- Beverages and refreshments
- Dining at restaurants
- Advances to Social Security
- Contributions to Health Insurance
Note: social and health advances cannot be written off as business expenses. This is because all taxpayers must prove their advances to pension insurance and to health insurance. This information is available through the respective offices at the end of the year.
Health insurance providers tend to send this automatically, while Social requires access via an e-identity / e-portal system.
Most common deductibles
Now, when filing, you’ll also want confirmation of deductions. The most common deductions are mortgage interest, donations, pension insurance, and life insurance. Filers can prove payment to any of these via confirmation from a bank, insurance provider, or other means. Other common deductibles include the following.
- Dependent children or child (claimable by only one of the parents)
- Deductions for a non-working spouse (whose income does not exceed a certain limit)
- Payments for kindergartens (up to appx. CZK 1,200/month, with limits so you cannot for example deduct the entire cost of a private kindergarten)
Submitting Czech taxes electronically
While it’s possible to submit taxes via post or in person, taxpayers can also submit personal income tax returns electronically. Electronic filing in the Czech Republic requires you to have a bank identity or an e-identity (like Databox). Using this secure log-in, filers can access public administration and tax portals to submit their return.
How to submit an Employee tax return
Employees over the course of a tax calendar year must file a tax return if they had:
- Income from self-employment;
- Capital income;
- Rental income, or;
- Other taxable income exceeding CZK 6,000/month (see note below).
Note: You must submit a tax return even if working for two different employers who both pay advance income tax. (If income exceeds CZK 6,000, the employee must file a tax return.)
Examples of employee tax returns
To avoid any confusion, we’ll share some examples of who should file an employment tax return in the Czech Republic. If any of these match your situation, you will not be able to apply for an employer annual tax statement.
1 - Were you employed with a brigade?
If you worked for a brigade earning income throughout the year from more than one company, you may have to file. For example, say you worked for employers AB on a classic employment contract. These employers paid a gross monthly salary of CZK 40,000. Then, to earn additional income, you work on contract for employers CD, whose pay you receive on top of AB’s. At this point, if you earn taxable income from more than one employer in the same month, you must file. You cannot apply to any of the employers for an annual tax settlement.
2 - Have you been self-employed for part of the year?
Next, say you conducted self-employed business for only part of the year, from January to November. Your business began in December, giving you only one month with very minimal, taxable income, say CZK 10,000. In this case, you cannot apply for the annual tax settlement from the previous employer. You must file a Czech tax return for any income from self-employment.
3 - Did you do any part-time work?
If you worked for two part-time employers in the Czech Republic, you are obliged to file a tax return. Now, because this income comes from dependent activities only, you can use the simplified two-page tax form. This is according to § 6 of the Income Tax Act. To complete the tax return, you will however need a certificate of taxable income from both employers.
4 - Were you employed and with rental income?
In addition to employment income, if you earn anything from rentals (i.e. an apartment), you file a tax return. In this case, you will need to use the standard 4-page tax form as well as appendix number two of the return. Here, rental income according to § 9 of the Income Tax Act can be reported along with employment income.
5 - Are you an entrepreneur while on pension?
If yes, here we need to get into some numbers. Say, for example, a retired pensioner was self-employed for the taxable year at an annual income of CZK 450,000. All expenditures apply at a 60% flat rate, bringing the annual tax base to CZK 180,000. On this 180,000, the entrepreneur must pay taxes. However, it will be excluding contributions to social and health as well as any tax bonuses or discounts.
In this specific case (in 2022), the basic discount available to all taxpayers was CZK 30,840. This number changes from year-to-year, but let’s use it for example. The tax discount decreases tax liability, which before the discount is 15% for this entrepreneur. If income tax before applying the discount is equal to or less than the rebate, annual tax liability becomes zero. And here, it is. This means you won’t have to pay any personal income tax, but you still must submit and fill in a tax return.
How to calculate personal income tax
There are two tax brackets in the Czech Republic:
- 15% income tax rate for those earning below approximately CZK 1 935 552.
- 23% income tax rate for those earning above approximately CZK 1 935 552.
There are also non-taxable items (tax deductibles) to reduce the tax base if certain legal conditions are met. Most commonly, these include: gifts, housing interest, advance deposits on pension insurance savings, or life insurance. For the lower tax base, each CZK 1,000 in rebates amounts to CZK 150 in savings. While for the higher tax base, it’s up to CZK 230 per 1000.
Want to get an estimate on your taxable income and what you’ll be paying? Try Pexpats’ free tax calculators!
Tax rebates to reduce income tax
If you’re entitled to any tax deductions, deduct these from your calculated personal income tax for the year. For 2022, each taxpayer had a taxpayer discount of CZK 30,840. Beyond this, other discounts include:
- Spouses with independent income not exceeding CZK 68,000 (discount of CZK 24,840 in 2022)
- Also spouses with independent income under CZK 68,000 holding a ZTP / P card (49,680 crowns)
- For students (CZK 4,020 in 2022)
- First and second-degree disabilities (CZK 5,040)
- ZTP / P card holders (16,140 crowns)
- Nursery school fees (CZK 15,200)
Also, parents can claim tax benefits for their children. In this case, the annual benefit allowance for 2022 was CZK 15,204 for the first child. For the second, it was 22,320 crowns, while for the third and subsequent children CZK 27,840. If the child also holds a ZTP / P card, then you can apply for double the tax benefit.
Note: All exact amounts are for the previous calendar year of 2022 and subject to change from year-to-year. Always check the exact amounts for the calendar tax year you are filing.
Who is eligible to receive the tax bonus?
Taxpayers claiming benefits for children are not required to pay income tax, and even receive money from the state. This money comes in the form of a tax bonus, but only when the tax benefit exceeds the calculated income tax.
Example of tax bonus entitlement
Say you’ve earned a gross annual profit of CZK 500,000 and claim a tax benefit for 3 children. The benefit in this case comes to a total of CZK 65,364 (15,204 + 22,320 + 27,840). Now, here, you will claim only the basic taxpayer rebate along with the aggregate discount for the three children. You cannot claim any other rebate or non-taxable item, however.
The income tax calculation will thus come to CZK 75,000 (500,000 x 15%). After deductions for the taxpayer discount, CZK 44,160 remains (75,000 - 30,860). Now, apply the benefits for the three children, and you’re entitled to CZK 21,204 (44,160- 65,364).
Should I register for VAT or Light VAT?
Anybody whose annual turnover exceeds CZK 2 million must register as a VAT payer. Value Added Tax (VAT), or in Czech “daň z přidané hodnoty” (DPH), is officially known as the European Reverse Charge. What this means is that you will not charge European-business clients VAT. It does not mean that you will pay any additional VAT.
Also, if you invoice any EU-business client who pays VAT, you must register for Light VAT. VAT Light (“identifikovaná osoba”, in Czech) must be applied for through the local tax office (finanční úřad).
Flat tax rate - advantages and disadvantages
Now, in 2023 the Czech government introduced a flat tax rate (“paušální daň”). Taxpayers who apply for the flat rate pay only a monthly advance (in 2023, CZK 6 208 CZK). This amount covers both social and health insurance, as well as CZK 100 advance to income tax. There is no filing at the end of each calendar year and typically less hassle overall. VAT payers, full-time employees, and those with self-employed activities cannot apply for the flat rate.
For foreigners, applying for a flat tax rate isn’t always advantageous, however. For one, tax assessment for filing taxes with a home country is impossible. This is because no annual statement is filed, making it extremely complicated to prove income to foreign authorities. It also makes it impossible to obtain tax residency status, and in some cases avoid double taxation from countries requiring it.
Still, have questions? Get professional tax assistance!
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