Understanding Your First-Year Financial Obligations After Trade License Registration
In the first year of the business after getting the trade license registered with all authorities, you have the following things to do as the main source of income. Main income means that you have income only from a trade license.
Social Tax
- Monthly Payments: In the first year of your business, you pay social tax deposits every month, and the monthly minimum social tax deposit is 3,210 CZK per month in 2024. This is the minimum amount of social tax deposit that should be paid even if your income is 0 CZK.
- Fixed Amount: This minimum deposit doesn't change based on how much you earn every month. So, whether you make 0 CZK some months or 1 million CZK in others, you still pay the same minimum amount of social tax deposit in the first year of business.
- Recalculations in the Second Year: This payment is not the final but a minimum deposit for the first year. In the second year of your business, depending on your income and your final recalculations, you might pay balances for the previous year. If you pay a balance or minimum deposit will cover social tax, will depend on your income in the first year of the business.
Health Insurance
- Monthly Payments: In the first year of your business, you pay health insurance deposits every month, and its monthly minimum health insurance deposit is 2,968 CZK per month in 2024. This is the minimum amount of monthly health insurance deposit that should be paid even if your income is 0 CZK.
- Fixed Amount: The health insurance deposit amount is not set depending on your monthly income. That means, you still have to pay a minimum deposit every month if your income is 0 in some month or 1 million CZK in another month.
- Recalculations in the Second Year: This payment is not final but a minimum deposit for the first year. In the second year of your business, depending on your income and your final recalculations, you might pay balances for the previous year. If you pay a balance or minimum deposit will cover social tax, will depend on your income in the first year of the business.
Income Tax
- Annual Payment: Income tax is paid to the Czech financial tax office from the income of your trade license business, and it is paid once a year. You only pay income tax after submitting an income tax declaration for the previous year.
- No Monthly Payments in the First Year: In the first year of your business, you don’t pay any monthly income tax or deposits. In the second year, after submitting your income tax report, you'll pay income tax depending on your income from the previous year.
Light VAT
- EU Transactions: In case you work with companies registered in the EU but not in the Czech Republic, you should get registered for VAT and do monthly VAT reports.
You should be registered for Light VAT in 8 days after invoicing the company registered in the EU. You charge and pay 0 VAT while invoicing the company registered in the EU. If you are not a Pexpats client, please, contact us and we will set up registrations and Tax subscription
Summary
To sum up, in the first year of your business, you only pay monthly social tax and health insurance minimum deposits. In the second year, you'll pay income tax for the previous year. After obtaining your trade license, handle your monthly social tax and health insurance deposits, and annually pay income tax after filing your tax declaration.
If you work with EU companies, consider registering for VAT and doing monthly VAT reports.
Get Support from Pexpats
Pexpats is an agency that replaces all other agencies and offers comprehensive services. If you are looking for help or support with business registration, accounting, taxation, and VAT administration, please feel free to contact us.