The Czech Republic, a country in the heart of Europe, known as the majestic city of Prague. What else does it have to offer in terms of business?
Well, if you consider your job “a freelance activity” or you are simply a digital nomad, consultant, salesperson, dropshipper, marketing or IT freelancer and your current tax contributions are not the most pleasant, then do keep reading…
Czech Republic offers Trade licenses of unlimited period for citizens of all EU and EHP countries and at the same time offers one of the best freelance taxation models in Europe.
Freely available taxation models for ALL freelancers are as below;
- 60/40
- Flat Tax
- Real expenses
Before we introduce you to the taxation models, let us inform you also about the frequency of tax paperwork submission. Freelancers in Czechia declare and file taxes only 1 time per year.
Considering that, we now believe we have your attention, so let’s elaborate further…
- The 60/40 method guarantees an allowance of 60% of your gross income, which will be considered your “business expenses”. But no worries, you do not need to provide any invoices concerning your expenses or show your bank account statements, etc. You just get this allowance from the government as a hard working freelancer. It’s that SIMPLE!After you deduct 60% from your gross income, the remaining 40% will be the only taxable part aka “clean income”. Freelance income tax rate is 15% and has the advantage of no progressive structure, so the formula is 15% out of your “clean income” + you can use tax discounts if applicable.
There are some limitations, which are:
You can apply the 60/40 method only for gross income under 2 million CZK and every penny generated over this limit is fully part of your “clean income”.
If after the usage of 60/40 your “clean income” resulted in more than 1‘935‘552 CZK, you are using a 23% tax rate on the amount which went over that limit.
- The Czech Ministry of Finance came up with a new solution and from 01.01.2021, the Czech trade license holders can use the method of The Czech flat tax amount, which is 6 208 CZK monthly for the year of 2023.Monthly Czech flat tax amount covers the public health insurance, social tax and income tax, and brings NO tax paperwork.
Sounds too good to be true!
As an exchange for this life saving opportunity, the Czech Ministry of Finance wants you to fulfill following condition:
- Your annual income shall not exceed 2 million CZK
3. Real Expenses – Not convenient in the field of the businesses mentioned at the beginning of our article, since these “professions” have super low business expenses and are also not convenient due to the paperwork needed through freelancing.Simply put – If you are not able to generate more than 60% of actual business expenses per year, you can consider this taxation method as not valuable.
What are the freelancers’ obligations, besides income taxation?
- Public health insurance registration and monthly payments
- Social security registration and monthly payments
- Light VAT registration and monthly reporting (applicable ONLY if you are invoicing a company registered in the EU)
Monthly freelance payments in 2023 – Applicable for 60/40 users
Public health insurance = 2.722 CZK
recalculates every year according to income
Social security = 2.944 CZK
recalculates every year according to income
Feel free to Contact us and talk to one of our professional team members to see how they can assist you today.