With the arrival of entrepreneurs from Ukraine in the Czech Republic, the question arose as to whether these persons must have a trade license in the Czech Republic if they have a similar license in Ukraine and continue to provide their services remotely only to persons from Ukraine. These persons are staying in the Czech Republic under temporary protection and do not intend to offer their services in the country. They must also determine how to meet their tax and insurance obligations in the Czech Republic.

Download article as PDF

What if a third-country foreigner is in the Czech Republic but has a business license from another country?

We have frequently encountered the issue of whether our clients need a trade license if they reside in the Czech Republic but do not intend to conduct business within the country.

These are typically persons with temporary protection who came to the Czech Republic due to the war in Ukraine but continue to work remotely for their clients in Ukraine. They have the appropriate Ukrainian business license for this activity.

Often, for example, these are IT specialists who simply do not need to offer their services here. All they need is their existing clients and remote work. Such a situation can be relevant also in the case of the so-called “nomads” who can stay in the Czech Republic for a longer period, but still provide remote services only to their country of origin.

Although these individuals do not offer their services to clients in the Czech Republic, they are still physically present in the country and conduct their business activities here. The assessment of this situation under Act No. 455/1991 Coll., on Trade Licensing (Trade Licensing Act) is not entirely clear. It is not clear from the Trade Licensing Act whether these persons must have a trade licence under the Trade Licensing Act or not.

According to Section 2 of the Trade Licensing Act, a trade is considered to be: “a continuous activity carried out independently, in one’s own name, on one’s own responsibility, for the purpose of making a profit and under the conditions set out in this Act.

Section 5(5) of the Trade Licensing Act further states that: “a foreign natural person who intends to carry on a trade in the Czech Republic and who is obliged to have a permit for residence in the Czech Republic under a special law must submit a document proving the granting of a visa for a stay of over 90 days or a long-term residence permit to the registration of the trade and to the application for a concession.

It follows from the above provisions that a trade licence will be required for a foreign person who:

From the definition, it is no longer clear what exactly is meant by the term “intends to carry on a trade in the territory of the Czech Republic“. The question is whether a person who resides in the Czech Republic but provides services exclusively to the country of origin according to local business rules, falls under the Trade Licensing Act, and thus the obligation to have a trade license. That is, a person who does not intend to do business here in the sense of offering their services in the territory.

Statement of the Ministry of Industry and Trade

With a request for an interpretation of the term “to carry on a trade in the territory of the Czech Republic” referred to in Section 5(5) of the Trade Licensing Act, we turned to the Ministry of Industry and Trade (MIT). The Ministry of Industry and Trade states that if a foreign national from a third country resides in the Czech Republic and continues their business activities connected only to their country of origin, they must still have a registered trade license under the Czech Trade Licensing Act.

According to the MIT, such activity fulfils the characteristic of continuity. If a foreigner resides in the territory of the Czech Republic and carries out business activities to such an extent that the sign of systematic activity is met, he/she should have a trade license according to the Trade Licensing Act, pursuant to the statement of the Ministry of Industry and Trade.

From our point of view, this is a rather strict interpretation, as we see no reason why an activity that is performed by a foreign entity for foreign entities should be regulated by Czech legislation just because a foreign person with a computer is physically present in the Czech Republic. However, out of caution, we recommend applying for a trade license in the Czech Republic. The process is not very much complicated. If necessary, we will be happy to help you with it.

Under what circumstances can third-country nationals do business in the Czech Republic?

For those who, based on the above, decide to obtain a business license under the Trade Licensing Act, we provide a brief summary of the necessary requirements below.

If a foreign national from a third country resides in the Czech Republic, he/she can conduct business in the Czech Republic under similar conditions as citizens of the Czech Republic:

For third-country nationals, it is not necessary to have a special type of residence such as a long-term visa for business purposes in order to obtain a business license. They can also apply for a business permit with other forms of long-term residence, e.g. permanent residence or an employee card, while the original purpose of the stay, such as study or employment, must be observed. The key point is that the foreigner must have a long-term residence permit in the Czech Republic.

We recommend deciding in advance which fields of free trade you will carry out and report only these, rather than declaring all of them.

Extract from the criminal record of persons under temporary protection

Generally, the criminal record must be issued by the country of which the foreign national is a citizen. The statement must not be older than 3 months. It must be duly certified and translated by an official translator. Verification generally means superlegalisation. If the country in question is a signatory to the Hague Convention, an apostille is sufficient. The Czech Republic has a bilateral agreement with some countries, which may stipulate that special verification is not necessary at all.

However, for persons under temporary protection, different rules apply to proof of good conduct than for other persons from third countries. Although some trade licensing offices may not be informed of this, persons with temporary protection do not have to provide an extract from the Ukrainian criminal record.

The reason for this is Section 32 of Act No. 221/2003 Coll., on the Temporary Protection of Foreign Nationals, according to which a foreigner enjoying temporary protection is considered to be – for the purposes of self-employment – a foreigner with a permanent residence permit under the Act on the Residence of Foreign Nationals in the Territory of the Czech Republic.

According to Section 6 (3) of the Trade Licensing Act, a clean criminal record is proven in the same way for persons with permanent residence in the Czech Republic as for citizens of the Czech Republic. In the case of citizens of the Czech Republic, a clean criminal record is proven only by an extract from the Czech Criminal Register. The Trade Licensing Office is entitled to request an extract from the Czech Criminal Register itself.

It follows from the above that persons with temporary protection should not be forced to submit an extract from the criminal record from their country of origin to trade licensing offices.

Residence in the Czech Republic for the purpose of doing business

Finally, we would like to emphasize the connection between the foreigner’s residence and their business in the Czech Republic. As far as residency is concerned, a business can serve as one of the purposes for which a long-term residence permit or visa is issued. Foreigners typically first apply for a long-term visa for the purpose of doing business at an embassy. This visa is issued for a maximum period of one year. Before its end, foreigners can apply for a long-term residence permit in the Czech Republic for the same purpose.

In general, however, obtaining long-term visas for business purposes is problematic. Not only does it require careful documentation of the purpose of stay, but embassies often set quotas for the number of applications received per year, which can make it impossible in practice to submit the application itself.

Tax and insurance obligations in the Czech Republic

The extent of the tax liability affects tax residency. A tax resident taxes his/her worldwide income in the relevant country (or applies a method of avoiding double taxation), a tax non-resident only income from sources in the given country. In any case, an activity performed physically from the Czech Republic on the basis of a trade license is considered to be income from self-employment taxable and insurable in the Czech Republic. As part of the process of obtaining a trade license, it is also possible to make the relevant registrations/notifications of the commencement of business activities to the relevant institutions.

Income from self-employment is then taxed on an annual basis through personal income tax returns and insurance statements. Alternatively, the taxpayer can opt for a flat-rate tax regime. If the business is the main source of income for the payer, it is obliged to pay advances on insurance premiums in the minimum amount from the start of the business.ce on the matter and do not represent a customized professional advice. Furthermore, because the legislation is changing continuo

Conclusion

The issue of persons with temporary protection, such as entrepreneurs from Ukraine in the Czech Republic doing business remotely to the country of origin raises questions about the need for a Czech trade license. The interpretation of the Ministry of Industry and Trade implies a strict statement on the requirement of a trade licence for business activities carried out in the Czech Republic, even if they are focused exclusively on the foreigner’s country of origin. This is also associated with the obligation to register and pay taxes and insurance premiums in the Czech Republic.

We recommend that foreigners from third countries, not only with temporary protection, who continue to conduct business remotely with their country of origin, consider obtaining a trade license in the Czech Republic. If necessary, we are happy to assist you with analysing your situation, arranging a trade license, and settling tax and insurance obligations.

Personal income tax returns (hereinafter referred to as “tax returns”) can be submitted in three dates. Do you know what the deadlines are for filing tax returns and what the rules are?

Download article as PDF

Deadlines for submitting 2023 tax returns

Form Person serving Deadline for submission and payment of tax Time limit for refund of tax overpayment
Paper and electronic

tax advisor, taxpayer

2 April 2024

2 May 2024

Electronic

taxpayer

2 May 2024

3 June 2024

Electronic

tax advisor

1 July 2024

1 August 2024

The basic tax return filing deadline is 3 months after the end of the tax period. In connection with the automatization in tax administration, an additional deadline for submitting the tax return was introduced, within 4 months after the end of the tax period, if the tax return is submitted electronically.

The deadline may be extended on 6 months after the end of the tax period if the tax return is prepared and filed by a tax advisor based on the power of attorney granted. This power of attorney had to be documented to the tax administrator by the standard deadline for submitting a tax return (until April 1) in past. But nowadays, the power of attorney can be documented to the tax administrator up to the “extended” deadline for submitting the tax return.

How to file a tax return?

The tax return can be submitted in person at the tax office, by post (confirmation of delivery is recommended) or electronically. Electronic filing can be done, for example:

Please note that if the taxpayer has a data mailbox set up by law, he is obliged to submit the tax return using the data mailbox. Failure to comply with the electronic form of submission is subject to a penalty of CZK 1,000.

Tax underpayments

If the taxpayer incurs a tax underpayment on the basis of the tax return, it is possible to pay the tax underpayment in cash at the cash desks of the tax offices, by bank transfer or by money order. Payment by bank transfer or money order may take longer, so we recommend making the payment in advance. The arrears are due within the deadline for submitting the return.

Tax overpayments

In the event of tax overpayment, the tax administrator has a 30-day period after the deadline for submitting the tax return. With the effect of the amendment, the threshold below which the tax overpayment is not refunded was also increased. The tax administrator returns overpayments exceeding the amount of CZK 200.

Penalties for late filing of tax returns

Without penalties, it is possible to submit the tax return within 5 working days after the deadline for submission. However, payment of the tax due must be made within 4 calendar days at the latest.

Deadlines for submission of overviews of self-employed persons

If the tax return is filed within the deadline: Deadline for submission of self-employed reports Deadline for documenting CSSA* power of attorney Deadline for documenting HIC* power of attorney
2 April 2024

2 May 2024

2 May 2024

3 June 2024

1 July 2024

1 August 2024

1 August 2024

2 May 2024

* CSSA – Czech Social Security Administration; HIC – Health Insurance Company

In general, the deadline for submission of self-employed reports is set within 1 month from the date on which the tax return should have been submitted, i.e. by 2 May 2024, or by 3 June 2024 in the case of electronic submission. If the tax return is submitted by a tax advisor and the tax return is submitted within an extended period, the deadline for submitting the self-employed reports is until 1 August 2024.

If an additional payment for the insurance premium arises on the basis of the reports, it is necessary that the additional payment be paid no later than 8 days from the submission of the report, or possibly from the latest date, i.e. by 9 August 2024.

The day when the payment reaches the account of the relevant institution is counted as the day of payment of the additional payment. We therefore recommend making the payment in advance.

Everyone who was self-employed during the tax period, even if only for part of the year, must submit the report (except lump-sum tax payers). The obligation also applies to entrepreneurs who did not receive any income during the tax period if they did not pause or terminate their self-employment activity.

Starting from the month following the submission of the overviews, the entrepreneur must set a new amount of monthly premium payments.

We will be happy to help you with your tax return, do not hesitate to contact us.

As part of the amendment to the legislation in connection with the development of the financial market, the Czech Income Tax Act was also amended, which changes the moment of taxation of employee income from ESOPs in the Czech Republic. When shares are granted on preferential terms, such advantage is considered an income from dependent activity, which is subject to income tax and social security and health insurance premiums. Prior to the amendment, such income was taxed at the time of acquisition of the share or exercise of the option. From 1 January 2024, this income is taxable when:

This change affects not only legal but also economic employers.

The moment of taxation and premium payments for ESOPs in the Czech Republic

Unfortunately, the legislation in the field of social security and health insurance premiums have not been amended. Therefore, the moment of taxation changes only for income tax, and the moment of income tax payments and the moment of insurance premiums payments diverge (if the income is taxed through the payroll). According to insurance premiums legislations, it is necessary to make insurance premium payments at the time of transfer of the share to the employee or when the option is exercised, i.e. insurance premium payments occur before income tax payments. According to information from the Ministry of Finance, the postponement of obligations in the field of insurance premiums legislations will be regulated in the nearest amendments.

On the employer’s side, this amendment brings a significant administrative burden, i.e. they will have to monitor when one of the moments of taxation above occurred. Employees will have the obligation to notify the employer when they sell shares/options, change of residence, etc.

It is necessary to mention that this change does not affect the moment of taxation of the sale of shares or dividends received, as well as the eventual exemption of income from the sale of shares under the conditions set by the Czech Income Tax Act.

The amendment brought a number of practical ambiguities, which is why its next amendment is expected, or issuance of a methodological instruction. We will continue to monitor this area for you and provide you with an update in our future articles.

The deadline for filing a personal income tax return for 2023 is approaching. Below you may find a summary of the situations where a natural person – taxpayer of personal income tax – is obliged to file a personal income tax return (hereinafter referred to as “tax return”).

Download article as PDF

Income assessed from the point of view of filing a tax return

In general, anyone whose annual income subject to personal income tax exceeding the amount of 50,000 CZK is obliged to file a tax return. This limit does not include:

If you have received any income and are considering whether or not you are required to file a tax return, you must first consider whether this income is subject to personal income tax. Testing this criterion is likely to be fairly straightforward. The subject of the tax is, in principle, everything by which the taxpayer’s property increases , with the exception of a few cases exhaustively listed in Act No. 586/1992 Coll., on income taxes (hereinafter referred to as “ITA”). E.g. these are credits and loans received, income resulting from the expansion or narrowing of the spouses’ joint assets, au pair income, etc.

The obligation to file a tax return does not arise if you only received income which are tax exempt. for example from the sale of movable property, from the sale of real estate (if the conditions for exemption have been met), income in the form of benefits and services from health insurance, from pension insurance (up to a set limit), state social support, etc.

However, in the event that any of your tax-exempt income exceeds the amount of CZK 5 million, you must comply with the notification obligation according to Sec. 38v ITA. This fact needs to be reported to the tax administrator within the deadline for filing the tax return.

You do not have to file a tax return if you have earned extra income through an occasional activity. This is mainly the lease of movable property. However, the total amount of remuneration for all occasional activities may not exceed the amount of CZK 30,000 per year.

Income from dependent activity and filing a tax return

You are not required to file a tax return if you only received income from dependent activity from one employer or several employers in a row. The condition is that your other income (i.e. income from business, capital income, rental income, other income) did not exceed the sum of CZK 20,000 in total for the year 2023. Again, this limit does not include income subject to withholding tax and exempt income – see above. Another condition is that the taxpayer – the employee – has signed the taxpayer’s declaration for income tax with his employer (all his employers) according to Sec. 38k par. 1 ITA.

If the above conditions are met, your tax obligations are settled through the annual tax reconciliation carried out by your employer. You can request your employer to process the annual tax reconciliation by no later than February 15 of the following calendar year (i.e. by February 15, 2024 in the case of tax obligations for the year 2023). If you do not request the annual tax reconciliation, your tax obligations are settled by tax advances.

You are obliged to submit a tax return in the case of concurrent income from dependent activities from multiple employers or work abroad, or with other secondary income.

A Czech tax non-resident is also required to file a tax return if he meets the conditions for applying tax benefits, e.g. tax benefits other than the basic taxpayer relief or tax allowance on children.

Income from self-employment and filing a tax return

Of course, the obligation to file a tax return does not arise if you are a self-employed person who has not received any income or discontinued the business. We recommend reporting the relevant fact to the relevant tax administrator in a timely and proper manner.

Furthermore, you do not submit a tax return if you have registered for the flat-rate tax regime and continue to meet all the necessary conditions.

If you have income from self-employment, you can claim the related expenses in the actual amount or in a flat amount against the received income. As a self-employed person, you are also obliged to file a tax return if you incur a tax loss.

Income from abroad

You are not required to submit a tax return if you are a Czech tax resident and you only received income from a dependent activity abroad, where it was taxed. These incomes are exempt from taxation in the Czech Republic in accordance with Sec. 38f ITA.

We are happy to help you with your tax return. If you are interested, please do not hesitate to contact our experts.

According to Government Regulation No. 286/2023 Coll. the average wage for 2024 will amount to CZK 43,967. What impacts has the average wage on premiums paid by entrepreneurs?

Download article as PDF

From 2024, the following applies:

1. The minimum annual assessment base for the payment of premiums on social security has been increased from the current 50% to 55% of the tax base.

E.g. in the event that the self-employed person received total income of CZK 500,000 for 2023 and claims 60 % lump-sum expenses, the tax base will be CZK 200,000. The minimum annual assessment base for the deduction of premiums for social security is therefore CZK 110,000 and the minimum monthly base is CZK 9,167. Since these amounts are lower than the amounts set by law, the self-employed person will pay the insurance premiums from the set minimum assessment base.

2. The minimum monthly assessment base for self-employed persons performing their main gainful activity will gradually increase from the current 25% of the average wage to 40% (30% in 2024, 35% in 2025 and from 2026 to 40%).

  2023 2024 2025 2026
Min. assessment base

25%

30%

35%

40%

Assessment base

50%

55%

55%

55%

3. For self-employed persons who are newly starting their main gainful activity and have not performed this activity in the past 20 years, the monthly assessment base is 25% of the average wage valid for the given calendar year, for the first 3 years from the start of the business (supporting start-up entrepreneurs).

4. The monthly assessment base for self-employed persons performing secondary income-gainful activity was increased from 10 % to 11% of the average wage.

5. Furthermore, there is a change in the obligation to pay advance payments for social security premiums in a new minimum amount as of January 1 of the given calendar year. I.e. if the entrepreneur pays minimum advances, he will have to change them already when paying the advance in January 2024 and not after submitting the overview, as was the case until now.

  Amount of deposit
Self-employed (MA) – min. deposits

CZK 3,852

Self-employed (MA) – newly starting, min. deposits

50%

Self-employed (MA) – other, non-paying min. deposits

According to the overview for the year 2023

For social insurance, the maximum assessment base is an amount equal to 48 times the average wage. In 2024, it should therefore increase to CZK 2,110,416 (48 x 46,967). The minimum advances for social insurance for the self-employed should then be increased to the amount of CZK 3,852 (29.2 % x 13,191) for the main activity and CZK 1,413 (29.2 % x 4,837) for the secondary activity.

For newly starting self-employed persons performing their main gainful activity, the minimum social security advances amount to 3,210 CZK per month. Advances for social insurance are payable by the last day of the calendar month for which the premium is paid. I.e. for January 2024, a deposit of CZK 3,852 is due by January 31, 2024.

In the case of health insurance, the minimum advance payments for health insurance for the year 2024 should amount to CZK 2,968. The advance for health insurance is payable for the given month by the 8th of the following month, i.e. for January 2024, the advance in the amount of CZK 2,968 is payable by February 8, 2024.

  2023 2024
Average wage

CZK 40,324

CZK 43,967

Max. assessment base

CZK 1,935,552

CZK 2,110,416

Min. monthly assessment base (MA)

CZK 10,081

CZK 10,992 (for self-employed beginners)

CZK 13,191 (for other self-employed persons)

Min. monthly assessment basis (SA)

CZK 4,033

CZK 4,837

Min. annual assessment base (MA)

CZK 120,972

CZK 131,904 (for starting self-employed persons)

CZK 158,292 (for other self-employed persons)

Min. annual assessment base (SA)

CZK 48,396

CZK 58,044

Min. monthly advance for social insurance for the self-employed (MA)

CZK 2,944

CZK 3,210 (for self-employed beginners)

CZK 3,852 (for other self-employed persons)

Min. monthly advance for social insurance for the self-employed (MA)

CZK 2,722

CZK 2,968

Min. monthly advance for social insurance for the self-employed (SA)

CZK 1,178

CZK 1,413

If you have any questions, please do not hesitate to contact us. We will be happy to assist you!

From 1 January 2024, the minimum wage in the Czech Republic will increase by CZK 1,600 to CZK 18,900 per month. This applies to employees with a weekly standard working time of 40 hours. The minimum hourly wage will increase from CZK 103.80to CZK 112.50.

Download article as PDF

The average monthly wage will increase from CZK 40,324 to CZK 43,967 in 2024.

  2024 2023
Minimum wage CZK 18,900.00 CZK 17,300.00
Average wage

CZK 43,967.00

CZK 40,324.00

Lowest levels of guaranteed wage 2024 (in CZK)

The increase in the minimum wage will affect the lowest levels of the guaranteed wage. The lowest guaranteed wage will range from CZK 18,900to CZK 37,800 per month, or from CZK 112.50to CZK 225.00 per hour in 2024 depending on the work group.

The following table shows the guaranteed wages for 2024 according to the length of the weekly standard working time of 40 hours / 37.75 hours / 38.5 hours.

Work group Guaranteed wage per MONTH Guaranteed wage per HOUR
40 hours per week 38.75 hours per week 37.5 hours per week
1 18,900.00 112.50 116.10 120.00
2 19,500.00 116.10 119.90 123.80
3 21,300.00 126.80 130.90 135.30
4 21,800.00 129.80 134.00 138.50
5 24,100.00 143.30 147.90 152.90
6 26,600.00 158.20 163.30 168.80
7 29,400.00 174.70 180.30 186.40
8 37,800.00 225.00 232.30 240.00

Other effects of the increase in the minimum and average wage

Minimum wage

Average wage

If you’d like to to learn more about the taxes in the Czech Republic and calculate your indicative net salary, take a look at our 2024 payroll calculator for the Czech Republic.

Evolution of minimum wage in the Czech Republic during the past years

2024
CZK 18,900.00

%
2023
CZK 17,300.00

%
2022
CZK 16,200.00

%
2021
CZK 15,200.00

%
2020
CZK 14,600.00

%
2019
CZK 13,350.00

%
2018
CZK 12,200.00

%
2017 
CZK 11,000.00

%

If you have any questions, please do not hesitate to contact us. We will be happy to assist you!

The Czech Labour Code (Act No. 262/2006 Coll.) does not establish an obligation for the employer to contribute to the employee’s meals, but only an obligation to provide a break for food and rest, no later than after 6 hours of work. The employer can therefore provide meal contributions in the Czech Republic to his employees in any amount.

According to the Act on Income Taxes (Act No. 586/1992 Coll.), meal allowance on the part of the employee is exempt from tax up to 70% of the upper limit of the per diems, which can be provided to employees during a business trip lasting 5 to 12 hours.

Decree No. 398/2023 Coll. sets this year’s per diems rates for the non-business sector for a business trip lasting 5 to 12 hours at a maximum of CZK 166. On the employee’s side, the meal allowance is thus exempt from tax and insurance premiums up to CZK 116.20. (We provide more information on travel reimbursements in our NewsFlash.)

As of 2024, as a result of the Czech consolidation package, the conditions for exempting the employer’s contribution for all three forms of employee meals (monetary meal allowance, meal vouchers or the option to visit own facility – canteen) will be unified. In order for the contribution to be tax-free for an employee, the following conditions must be met:

For employees who work more than 11 hours, it is possible to provide double the amount.

For tax deductibility for the employer, the entitlement has to arise based on the internal regulation, collective agreement or employment contract.

Example: An employer provides employees with a meal voucher in the amount of CZK 200.

  2023 2024
Exempt income CZK 200 CZK 116.20
Taxable income CZK 0 CZK 83.80
Non-deductible expense of the employer CZK 110 CZK 0

The amendment to the Czech Code of Civil Procedure and the Code of Execution brings a reduction of the penalty for unpaid health and social insurance premiums from 1 January 2022.

On 30 July 2021, the Collection of Laws No. 286/2021 Coll. published an act amending Act No. 592/1992 Coll., on public health insurance premiums, and Act No. 589/1992 Coll., on social security premiums.

Until now, interest on arrears in the payment of health insurance and social security premiums was 0.05% for each day of delay and thus 18.25% per year. From 1 January 2022, this will be reduced.

The taxpayer will be sanctioned with statutory interest, which is 8% plus the repo rate set by the Czech National Bank (further „CNB“) for the first day of the calendar half-year in which the taxpayer began to owe. As in case of the interest on tax arrears, the amount of interest is newly derived from the Civil Code.

If the penalty was incurred before 1 January 2022, the interest remains at 0.05% per day.

Example: calculation of interest on arrears

The taxpayer owes CZK 10,000 on premiums from July 2020. The penalty for 2021 is CZK 5 per day (0.05% of CZK 10,000), i.e. a total of CZK 1,825. However, interest on arrears for 2022 will be only CZK 825 (8% + 0.25%).

This amendment unifies the calculation of interest on arrears in the payment of premiums with the calculation of interest on arrears of the payment of taxes.The calculation of interest on tax arrears was revised by a recent amendment to the Tax Code – from 1 January 2021, it arises from the 4th day following the original tax due date to the date of its payment. This is also derived from the Civil Code and it also corresponds annually to the repo rate set by the CNB for the first day of the calendar half-year in which the delay occurred, increased (since 2021) by 8 percentage points (previously 14 points).

Development of the CNB repo rate

Valid from:

%

3.5.2019 2,00
7.2.2020 2,25
17.3.2020 1,75
27.3.2020 1,00
11.5.2020 0,25
24.6.2021 0,50
6.8.2021 0,75

On 27 July 2021, Act No. 285/2021 Coll., amending Act No. 117/1995 Coll., on state social support and Act No. 586/1992 Coll., on income taxes (further „ITA“), was published in the Collections of Laws of the Czech Republic.

The amendments to the ITA are as follows:

Tax allowance on children

Families with two or more children will receive higher tax relief for their offspring. Tax allowance on the second child increases from CZK 19,404 to CZK 22,320 per year, and in case of the third and following child, it then increases from CZK 24,204 to CZK 27,840 per year.

The increase in tax allowance on children will be applied already for the tax period 2021 i.e. the increase will be applied retroactively from January 2021 but only after the end of the taxable period via annual tax reconciliation or a personal income tax return.Based on the transitional provision, the increase in the tax allowance will not be reflected in the monthly settlement of wages during the year.

Abolition of the maximum limit for monthly tax bonus payment per child

Employees may currently claim a tax bonus of up to CZK 5,025 per month. If they are entitled to a higher monthly tax bonus, they may claim the rest during the annual tax reconciliation.

Tax allowance on children During 2021 Annual tax reconciliation / Personal income tax return
Month Year Month Year
1 child CZK 1,267 CZK 15,204 CZK 1,267 CZK 15,204
2 children CZK 1,617 CZK 19,404 CZK 1,860 CZK 22,320
3 and more children CZK 2,017 CZK 24,204 CZK 2,320 CZK 27,840

In case of questions, please do not hesitate to contact us. We will be happy to help you.

Tax package 2021 was published on 31 December 2020 in the Act no. 609/2020 Coll. What impacts does it have on taxation of natural persons in practice?

Download article as PDF

Abolition of the super-gross wage and introduction of the second tax rate

The abolition of the super-gross wage reduces the base which is used to calculate the income tax of employees. The income tax is now calculated as a product of the tax rate and the gross wage, the tax base is no longer increased by employer’s contributions to social security and health insurance (known as super-gross wage). This leads to a reduction in the effective taxation of the employees.

The abolition of the super-gross wage also results in the elimination of solidarity tax increase and introduces a second personal income tax rate. The rate of 15% will be applied to the tax base up to 48 times the average wage (2021: CZK 1,701,168 per year / CZK 141,764 per month) and the rate of 23% will be applied to income exceeding this limit.

Furthermore, in 2021, the basic tax relief per taxpayer increases from CZK 24,840 to CZK 27,840.

At first, it may seem that the abolition of the super-gross wage and the increased taxpayer’s relief give rise to a significant reduction in the taxpayer’s tax burden. However, it is important to emphasize that the second tax rate also applies to the entire tax base i.e. to rental income, sale of securities, sale of real estate, etc. The eliminated solidarity tax increase was applied only to income from employment and business activities. As a result, for employees with other types of income, the tax burden may significantly increase.

Example 1: An employee who signed a taxpayer’s declaration for 2021 receives a gross salary of CZK 150,000.

  2020 2021
Gross salary CZK 150,000 CZK 150,000
Health insurance – employer (9%) CZK 13,500 CZK 13,500
Social security – employer (24.8%) CZK 37,200 CZK 37,200
Tax base CZK 200,700 CZK 150,000
Income tax (basic tax rate 15%) CZK 30,105 CZK 21,265
Income tax (second tax rate 23%) CZK 0 CZK 1,894
Solidarity tax increase (7%) CZK 746 CZK 0
Tax advance CZK 30,851  CZK 23,159
Health insurance – employee (4.5%) CZK 6,750 CZK 6,750
Social security – employee (6.5%) CZK 9,750 CZK 9,750
Taxpayer’s relief CZK 2,070  CZK 2,320
Tax advance after taxpayer’s relief CZK 28,781 CZK 20,839
Net salary CZK 104,719 CZK 112,661

Example 2: The employee also rents out a real estate, from which he receives income in the amount of CZK 20,000 per month, and claims expenses using the fixed rate of 30%: In addition, he sold a property in the amount of CZK 5 mil., which he acquired for CZK 2 mil. but does not meet the conditions for exemption.

  2020 2021
Partial tax base Section 6 CZK 2,376,676 CZK 1,800,000
Partial tax base Section 9 CZK 168,000 CZK 168,000
Partial tax base Section 10 CZK 3,000,000 CZK 3,000 000
Tax base CZK 5,544,676 CZK 4,968,000
Income tax (basic tax rate 15%) CZK 831,690 CZK 255,176
Income tax (second tax rate 23%) CZK 0 CZK 751,372
Solidarity tax increase (7%) CZK 8,955 CZK 0
Total tax liability CZK 840,645 CZK 1,006,548

Meal allowance (monetary)

Employers can now provide employees meal allowance in cash. It is a substitute to the provision of meals in non-monetary forms, especially to meal vouchers widely used in practice. The aim for the introduction of this option is to reduce related costs of the employers (especially to save on commissions). It also favourable for employees who do not have to check whether or not the establishments accept meal vouchers and monitor the validity of meal vouchers.

The employer’s financial contribution is tax-exempt up to 70% of the maximum value of meal allowance for a business travel lasting 5-12 hours, which amounts to CZK 75.60 for 2021. This amount corresponds to 55% of the employer’s contribution to meal vouchers. Employees can be provided with a meal allowance or a meal voucher, not both benefits at the same time.

It is necessary to point out the different tax regimes in case of provision of meal allowance or meal vouchers that exceeds the limit stipulated by law.

In the case of meal allowance, the value of the entire contribution is tax deductible for the employer. The restriction is only for exemption on the part of the employee. Amounts exceeding the limit are subject to income tax and premiums to social and health insurance. If the employer contributes a higher amount to the employees i.e. CZK 100 / day, the amount of CZK 75.60 is exempt from income tax and insurance premiums. However, the amount of CZK 24.40 is subject to income tax and insurance premiums (paid by employees and employers).

On the contrary, in case of meal vouchers, only 55% of the value of the meal voucher is considered a tax deductible expense for the employer, max. CZK 75.60 (for 2021). There is no restriction on exemption on the part of the employee, i.e. the meal voucher is tax-exempt regardless of its value.

The provision of meal vouchers will not be advantageous for those employers who provide employees with meal vouchers without the employee’s participation i.e. partial amount of the meal voucher is withheld from their wages, or meal vouchers with an above-limit nominal value.

Example 3: A meal allowance in the amount of CZK 100 or a meal voucher of CZK 100.

  Meal voucher (without employee’s contribution) Meal allowance
Value CZK 100 CZK 100
Tax deductible cost for the employer CZK 55 CZK 100
Tax non-deductible cost for the employer CZK 45 CZK 0
Tax impact of the tax non-deductible cost CZK 11 CZK 0
Taxable income of the employee CZK 0 CZK 24.40

Even if employees were provided meal allowance, they do not have to worry that this income would be subject to distraint and deductions on wages. Only wages and income listed in Section 299 of the Code of Civil Procedure are subject to deductions from wages. The meal allowance is not considered a wage, nor is it listed in the Code of Civil Procedure.

Flat tax for freelancers

Entrepreneurs may now register for the flat tax regime. The entrepreneur may apply by notifying the tax administrators before the 10th day of the relevant tax period (for the year 2021 until 11 January 2021) or at the beginning of their freelancing activities.

The aim of this amendment is to simplify the administrative burden for both taxpayers and tax administrators through a single monthly payment to the tax administrator in the amount of CZK 5,469. This amount consists of an advance on income tax of CZK 100, social security premiums of CZK 2,976 and health insurance premiums of CZK 2,393. This payment is due on the 20th day of each calendar month.

The entrepreneurs in this regime will not have to pay income tax advances, file tax returns, social and health insurance overviews, pay social and health insurance advances and reconcile these advances annually. To be eligible for this tax regime, the entrepreneur must meet the following conditions:

In addition to income from independent activities up to CZK 1 mil., it is possible for the taxpayer to receive only the following income:

Whether a flat tax is advantageous for entrepreneurs depends primarily on the situation of each entrepreneur, whether the entrepreneur applies tax reliefs, tax allowance or whether he applies fixed rate of expenses i.e. as a percentage of income.

Example 4: A self-employed person with an income of CZK 800,000 per year who claims expenses as a fixed rate of income (80%) and does not claim any tax benefits (tax relief on spouse, tax allowance on children, etc.).

  80% Flat tax
Taxpayer’s basic tax relief CZK 27,840 X
Tax relief on spouse X X
Tax relief on children X X
Income tax CZK 24,000 CZK 1,200
Social security premiums (minimum) CZK 31,056 CZK 35,712
Health insurance premiums (minimum) CZK 28,716 CZK 28,716
Total income tax and premiums CZK 59,772 CZK 65,628

Example 5: A self-employed person with an income of CZK 800,000 per year who claims expenses as a fixed rate of income (60%) and does not claim any tax benefits (tax relief on spouse, tax allowance on children, etc.).

  60% Flat tax
Taxpayer’s basic tax relief CZK 27,840 X
Tax relief on spouse X X
Tax relief on children X X
Income tax CZK 48,000 CZK 1,200
Social security premiums (minimum) CZK 31,056 CZK 35,712
Health insurance premiums (minimum) CZK 28,716 CZK 28,716
Total income tax and premiums CZK 79,932 CZK 65,628

If you have any questions, please do not hesitate to contact us. We will be happy to assist you!

downloadcross