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eu and permanent residents

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Who do I have to inform of being a freelancer?

After you get the trade licence with an IČO (Identifikační číslo = Identification Number) from the Trade Licence Register, you are able to trade, but you are still not registered completely in the Czech system. You need to inform the Financial Office, Social Security Administration office and health insurance company about opening the trade licence and whether your business is a main or extra activity.

When applying for a trade licence, you may ask the officer at the Trade Licensing Office to fill out a form (Jednotný registrační formulář) that will enable you to be automatically signed into the social security system, the Financial Office, your health insurance company. The Trade Licensing Office will then inform these institutions about the commencement of your business activities. These institutions will regard you as a business entity from that day.

Nevertheless, you will need to visit the Social Security Administration office and your health insurance company in person and present your ID. This has two benefits: you are given your registration number on the spot and you get all the details about the exact payments – if and how much must be paid and to what account.

Do I have to pay monthly fees to the social security administration?

Yes.

Everyone with a Czech trade licence, regardless of nationality, is required to make monthly social security contributions to the social security system (pension, unemployment).

The amount paid is based on the individual’s income, with a minimum of 2,388 CZK/month (2019). In the first year of the trade licence, everyone starts off by paying the minimum social security contribution, independent of the (expected) income. The amount for the next year is calculated according to the business profit in the previous year.

Additional social security contributions (beyond the compulsory contributions earmarked for the pension fund), called premiums, are not included in the standard social security contributions and are not required for the proper functioning of a trade licence.

The premiums pay out a certain (rather modest) sum in the case of long-term illness/inability to work. They also entitle you to state support in the first phase of maternity leave, although any pay-out during the first part of maternity leave will require suspending the trade licence.

It is up to you to decide whether it is beneficial to pay the premiums at all. In most cases, the state support is so small that it makes more sense to keep your trade licence active and send out a few more invoices.

How do I calculate the social security contributions?

When filing your income tax return for 2019, you or your accountant will calculate if the minimum social security contributions you paid were enough to cover the income that you made that year, or whether you must pay extra.

Also, based on your income in 2019, you will be informed by the Social Security Administration of the new monthly social security contributions for 2020, or that you will continue to pay the (annually adjusted) minimum contribution.

The amount that a freelancer pays into the social security fund is determined by the profit achieved in the previous year. The assessment base for calculation of social security insurance is 50% of the profit (total gross income minus expenses equals profit), with the minimum being 98,100 CZK in a year (2019).

The social security contribution is 29.2% of the assessment base. In most cases (where the lump sum for expenses is 60%) this effectively amounts to about 5.8% of the total gross income.

If the actual assessment base is lower than the minimum calculation basis, then the minimum monthly advance (2,388 CZK/month in 2019) must be paid. The maximum assessment base above which no additional social security contributions are paid is 1,569,552 CZK/year (2019).

The social security contribution must be paid before the 20th of each month for the previous month. Social security contributions are sent to the Social Security Administration office account with your IČO as the variable code.  Not paying the social security contribution may result in trouble when extending your residency permit.

Social Security Administration office in Brno:

  • Městská správa sociálního zabezpečení Brno: website
    • Veveří 5, 660 20 Brno
    • +420 541 516 111
    • posta.bm@cssz.cz
    • Pension Fund account number: 1011-7929621/0710
    • IBAN: CZ5107100010110007929621
Do I have to pay monthly fees to the health insurance?

Yes.

Contributions to the public health care are made by all EU citizens and citizens of Macedonia, Montenegro, Serbia, Turkey, Israel and Japan; as well as non-EU nationals with a permanent residence permit.

The amount paid in contributions depends on your profit (it amounts to about 2.7% of profit), but the minimum is 2,208 CZK/month (2019). In the first year of their trade licence, everyone starts with the minimum health care contribution, regardless of the (expected) annual income.

How do I calculate the health insurance contributions?

Similarly to the social security contributions, when your income tax return is being prepared after the end of the year, you or your accountant will also calculate whether the minimum health care contributions were enough or whether you must pay extra.

Also, based on the income from the previous year, you will be informed by your accountant of the new monthly health care contribution for the current year.

The amount of the public health care contribution that a self-employed person pays to the insurance company is determined by the profit achieved in the previous year. The assessment base for calculation of health insurance is 50% of the profit (gross income minus expenses equals profit). The health care contribution is 13.5% of the assessment base. In most cases – where the lump sum for expenses is 60% – this effectively amounts to about 2.7% of the income.

If the actual assessment base is lower than the minimum calculation basis, then the health care contribution is set at the minimum monthly advance (2,208 CZK/month).

Public health insurance must be paid before the 8th of the current month for each previous month.

The contributions must be sent to the account of the health insurance company you have selected (from a total of six that are officially credited), with your IČO number as the variable code.

Not paying the health insurance may result in troubles with the legality of your stay in the Czech Republic.

How much income tax do I have to pay?

You must file an income tax return at the end of each (calendar) year.

This combines income from employment, income via a trade licence, capital gains, rental income and any other sources of local and foreign income.

As a tax resident in the Czech Republic, you have the obligation to file your global income, not just what you’ve made in the Czech Republic.

Your trade licence income can be filed in two ways, either by listing your real income minus your real business expenses, or by following the 60/40 rule. The latter method is almost always used: it allows you to claim a 60% expense deduction on your income (even if the real percentage of expenses is much lower), with the remaining 40% being the amount that forms your tax base. an income tax of 15% is calculated on this tax base, which effectively taxes your overall income by only 6%.

The tax base (i.e. gross income minus business expenses) may be further lowered for “tax allowances” (gifts to charities, interest on mortgages, private pension savings, life insurance, union fees…); in this way, you then arrive at an “adjusted tax base”. Now the income tax (15%) is calculated on this “adjusted tax base”, and from the result you may make further discounts for “tax relief” (a spouse at home, children, kindergarten, studies, disability…).

Consult an accountant or tax adviser for the best tax optimization.

The tax return form must be submitted to the local Financial Office (determined according to your registered address as stated in your trade licence) by the end of March.

This may be postponed to the end of July if you have given a power of attorney to a professional tax consultant to file your tax return (for this he will charge a fee). There are five Financial Offices in Brno: Brno I, Brno II, Brno III, Brno IV and Brno Venkov.

For accounting and tax consulting the Brno Expat Centre can recommend Michael Hajek, a certified, English-speaking tax adviser:

Bell Consulting

Bell Consulting provides comprehensive financial and tax services for any business. Their services include: bookkeeping, payroll, personnel administration, legal services and tax advice.

How do I issue my first invoice?

You can issue your invoice in print or send it electronically.

If you are a VAT non-payer:
Invoice has to include the serial number (of your choice), your name, address,  IC number (your business license number), a content of the sale/service, price, and date of issue. The date of the job performance/sale and the deadline for the payment can be included too. For invoice over  CZK 10 000 you have to specify details (name, address) about the client too.

If you are a VAT payer:
Invoice has to labeled “daňový doklad” and include the serial number (of your choice), your name, address,  IC number (your business license number), DIC number (your tax number), a content of the sale/service, price, tax rate, date of delivery and date of issue. The date of the job performance/sale and the deadline for the payment can be included too. For invoice over  CZK 10 000 you have to specify details (name, address) about the client and specify the price without the tax and with the tax.

Invoice template as .xls file.

If you are “Identified Person” providing your services abroad, you need to issue an invoice as a VAT payer but without specifying the tax rate or price with/out tax (since you don’t charge that).

When do I have to register and pay for a VAT?

First of all, you need to determine if you really need to be registered for VAT (Value Added Tax or DPH – Daň z přídané hodnoty), and if so, in what way. There are a number of indicators that point to an obligation to register for VAT.

Situations determining VAT duty:

  • Your income from Czech sources is more than 1,000,000 CZK in past 12 months.
  • You inherit a business of a VAT payer

Situations determining an obligation to become an identified person (identifikovaná osoba):

  • You sell services (not goods) to EU clients outside the Czech Republic.
  • You send goods to EU clients outside of the CR (e-shop)
  • You buy services from EU or 3rd country outside the Czech Republic (the seller requires your VAT number).
  • You import from another EU country goods exceeding a value of 326,000 CZK or cars, tobacco, alcohol, fuel.

It is also possible to register voluntarily for VAT, for example, if you have not yet reached the 1,000,000 CZK income limit but have major expenses in the Czech Republic and want to claim back the VAT.

VAT registration: full registration vs. “VAT-light”

A full VAT registration means that you will have to file a VAT report every month, for a period of two years, even in months when you did not conduct any business. In addition, if you sell to EU clients outside the Czech Republic, you will have to file EC Sales Lists (see below).

If you have an income in the Czech Republic that is under 1,000,000 CZK and few expenses in the country (a situation in which you are not obliged to register for VAT), but invoice sporadically to EU clients (which requires a VAT number), you might want to consider a “VAT-light” registration – Osoba identifikovaná k dani.

The benefit, in this case, is that you only need to file in the months when a transaction with an EU client took place (not every month, as with a full VAT registration).

The downside, however, is that you cannot claim any VAT back for expenses. To put it simply: outside the Czech Republic, this behaves like a regular VAT registration, but inside the Czech Republic, it is like not having a VAT number at all.

As of January 2016, all VAT registered entities (but not “identifikovaná osoba”) have the duty to submit monthly- or every three months in case of trade licence – reports to the Ministry of Finance giving detailed information about invoices they have issued; these are termed kontrolní hlášení.

Do I have to have an online cash register?

Probably.

From December 2016 every bill issued to a customer has to be registered in an online application linked to the Ministry of Finance termed the elektronická evidence tržeb (electronic record of receipts).

This obligation will be extended gradually to all sectors, starting with the gastronomy and accommodation industries.

There are many exceptions to the rule, though. Please, consult an accountant to make sure what exactly applies to your trade.

How do I extend the validity of my “zivnost” along with my visa?

It is crucial to watch the validity of both your residence permit and your trade license.

Your trade licence must be renewed before it expires – this is sometimes due even before you renew your visa, so be sure to make a note of its expiration date – never let your trade licence expire! We can’t stress this enough.

Foreiners who have a visa or long-term residence permit must always apply for renewal of the trade licence even before their visa/residence permit expires. You should be aware of the expiry dates of your trade licence and your residence permit: mark the expiration date of your trade licence in your calendar well in advance!

If the trade licence expires, you must start from scratch and reapply for a new trade licence. So, it is extremely important not to let this happen!

A) Business visa/residence permit renewal (Immigration Office)

This is a long process and one that requires more and different documents than the original business visa application. It is advisable to start the visa extension and trade licence renewal process 3 to 4 months before the expiration date of the visa/residence permit because it is quite complicated, and a lot of papers from the authorities are required. an application for a long term residence permit renewal may be filed 4 months at the earliest and 14 days at the latest before the expiration of the old visa, or on the last day of the residence permit.

B) Trade licence renewal (Trade Licensing Office)

The application for the trade licence renewal may be filed on the last date of validity of the licence.  If the expiration date of your trade licence is approaching but your visa/permit renewal is still pending, you may ask the Trade Licensing Office – in the form of a simple letter of request – for a temporary extension of the licence and “waiting period” for the process of visa/permit renewal to be finished. Always visit the Trade Licensing Office before the expiration of your licence and ask them what to do next. Arriving even a day after the trade licence has expired is considered too late: you lose your license and have to apply from scratch ( have to get a new extract from the criminal record, etc.).

Who do I have to inform of being a freelancer?

After you get the trade licence with an IČO (Identifikační číslo = Identification Number) from the Trade Licence Register, you are able to trade, but you are still not registered completely in the Czech system. You need to inform the Financial Office, Social Security Administration office and health insurance company about opening the trade licence and whether your business is a main or extra activity.

When applying for a trade licence, you may ask the officer at the Trade Licensing Office to fill out a form (Jednotný registrační formulář) that will enable you to be automatically signed into the social security system, the Financial Office, your health insurance company. The Trade Licensing Office will then inform these institutions about the commencement of your business activities. These institutions will regard you as a business entity from that day.

Nevertheless, you will need to visit the Social Security Administration office and your health insurance company in person and present your ID. This has two benefits: you are given your registration number on the spot and you get all the details about the exact payments – if and how much must be paid and to what account.

Do I have to pay monthly fees to the social security administration?

Yes.

Everyone with a Czech trade licence, regardless of nationality, is required to make monthly social security contributions to the social security system (pension, unemployment).

The amount paid is based on the individual’s income, with a minimum of 2,388 CZK/month (2019). In the first year of the trade licence, everyone starts off by paying the minimum social security contribution, independent of the (expected) income. The amount for the next year is calculated according to the business profit in the previous year.

Additional social security contributions (beyond the compulsory contributions earmarked for the pension fund), called premiums, are not included in the standard social security contributions and are not required for the proper functioning of a trade licence.

The premiums pay out a certain (rather modest) sum in the case of long-term illness/inability to work. They also entitle you to state support in the first phase of maternity leave, although any pay-out during the first part of maternity leave will require suspending the trade licence.

It is up to you to decide whether it is beneficial to pay the premiums at all. In most cases, the state support is so small that it makes more sense to keep your trade licence active and send out a few more invoices.

How do I calculate the social security contributions?

When filing your income tax return for 2019, you or your accountant will calculate if the minimum social security contributions you paid were enough to cover the income that you made that year, or whether you must pay extra.

Also, based on your income in 2019, you will be informed by the Social Security Administration of the new monthly social security contributions for 2020, or that you will continue to pay the (annually adjusted) minimum contribution.

The amount that a freelancer pays into the social security fund is determined by the profit achieved in the previous year. The assessment base for calculation of social security insurance is 50% of the profit (total gross income minus expenses equals profit), with the minimum being 98,100 CZK in a year (2019).

The social security contribution is 29.2% of the assessment base. In most cases (where the lump sum for expenses is 60%) this effectively amounts to about 5.8% of the total gross income.

If the actual assessment base is lower than the minimum calculation basis, then the minimum monthly advance (2,388 CZK/month in 2019) must be paid. The maximum assessment base above which no additional social security contributions are paid is 1,569,552 CZK/year (2019).

The social security contribution must be paid before the 20th of each month for the previous month. Social security contributions are sent to the Social Security Administration office account with your IČO as the variable code.  Not paying the social security contribution may result in trouble when extending your residency permit.

Social Security Administration office in Brno:

  • Městská správa sociálního zabezpečení Brno: website
    • Veveří 5, 660 20 Brno
    • +420 541 516 111
    • posta.bm@cssz.cz
    • Pension Fund account number: 1011-7929621/0710
    • IBAN: CZ5107100010110007929621
Do I have to pay monthly fees to the health insurance?

Yes. But not to the public system, but to a commercial health insurance provider.

As a nonEU citizen with an active trade licence as a main economic activity, you cannot register with or make monthly payments to the public health care system unless

  1. you have permanent residence card
  2. you have previously worked as an employee in the EU,
  3.  are working in the Czech Republic as an employee,
  4.  your country (Macedonia, Montenegro, Serbia, Turkey, USA, Israel and Japan) has a bilateral agreement with the Czech Republic. In these cases, you will be included in the Czech public health care system (an change the filter here for EU).

Most foreigners with a long-term visa or residence permit do not pay monthly public health care contributions, but instead prepay commercial health insurance, the price of which depends on gender and age, not on income.

There are no special rates on health insurance for foreigners with a trade license, you do not have to tell your commercial insurance company about your business activity. Non-EU nationals (without employment or permanent residency) need to prepay the commercial health insurance for the full period of their expected stay regardless of their actual income or profit.

See the guide on Health insurance for contacts to all officially recognized commercial insurance companies.

How much income tax do I have to pay?

You must file an income tax return at the end of each (calendar) year.

This combines income from employment, income via a trade licence, capital gains, rental income and any other sources of local and foreign income.

As a tax resident in the Czech Republic, you have the obligation to file your global income, not just what you’ve made in the Czech Republic.

Your trade licence income can be filed in two ways, either by listing your real income minus your real business expenses, or by following the 60/40 rule. The latter method is almost always used: it allows you to claim a 60% expense deduction on your income (even if the real percentage of expenses is much lower), with the remaining 40% being the amount that forms your tax base. an income tax of 15% is calculated on this tax base, which effectively taxes your overall income by only 6%.

The tax base (i.e. gross income minus business expenses) may be further lowered for “tax allowances” (gifts to charities, interest on mortgages, private pension savings, life insurance, union fees…); in this way, you then arrive at an “adjusted tax base”. Now the income tax (15%) is calculated on this “adjusted tax base”, and from the result you may make further discounts for “tax relief” (a spouse at home, children, kindergarten, studies, disability…).

Consult an accountant or tax adviser for the best tax optimization.

The tax return form must be submitted to the local Financial Office (determined according to your registered address as stated in your trade licence) by the end of March.

This may be postponed to the end of July if you have given a power of attorney to a professional tax consultant to file your tax return (for this he will charge a fee). There are five Financial Offices in Brno: Brno I, Brno II, Brno III, Brno IV and Brno Venkov.

For accounting and tax consulting the Brno Expat Centre can recommend Michael Hajek, a certified, English-speaking tax adviser:

Bell Consulting

Bell Consulting provides comprehensive financial and tax services for any business. Their services include: bookkeeping, payroll, personnel administration, legal services and tax advice.

How do I issue my first invoice?

You can issue your invoice in print or send it electronically.

If you are a VAT non-payer:
Invoice has to include the serial number (of your choice), your name, address,  IC number (your business license number), a content of the sale/service, price, and date of issue. The date of the job performance/sale and the deadline for the payment can be included too. For invoice over  CZK 10 000 you have to specify details (name, address) about the client too.

If you are a VAT payer:
Invoice has to labeled “daňový doklad” and include the serial number (of your choice), your name, address,  IC number (your business license number), DIC number (your tax number), a content of the sale/service, price, tax rate, date of delivery and date of issue. The date of the job performance/sale and the deadline for the payment can be included too. For invoice over  CZK 10 000 you have to specify details (name, address) about the client and specify the price without the tax and with the tax.

Invoice template as .xls file.

If you are “Identified Person” providing your services abroad, you need to issue an invoice as a VAT payer but without specifying the tax rate or price with/out tax (since you don’t charge that).

When do I have to register and pay for a VAT?

First of all, you need to determine if you really need to be registered for VAT (Value Added Tax or DPH – Daň z přídané hodnoty), and if so, in what way. There are a number of indicators that point to an obligation to register for VAT.

Situations determining VAT duty:

  • Your income from Czech sources is more than 1,000,000 CZK in past 12 months.
  • You inherit a business of a VAT payer

Situations determining an obligation to become an identified person (identifikovaná osoba):

  • You sell services (not goods) to EU clients outside the Czech Republic.
  • You send goods to EU clients outside of the CR (e-shop)
  • You buy services from EU or 3rd country outside the Czech Republic (the seller requires your VAT number).
  • You import from another EU country goods exceeding a value of 326,000 CZK or cars, tobacco, alcohol, fuel.

It is also possible to register voluntarily for VAT, for example, if you have not yet reached the 1,000,000 CZK income limit but have major expenses in the Czech Republic and want to claim back the VAT.

VAT registration: full registration vs. “VAT-light”

A full VAT registration means that you will have to file a VAT report every month, for a period of two years, even in months when you did not conduct any business. In addition, if you sell to EU clients outside the Czech Republic, you will have to file EC Sales Lists (see below).

If you have an income in the Czech Republic that is under 1,000,000 CZK and few expenses in the country (a situation in which you are not obliged to register for VAT), but invoice sporadically to EU clients (which requires a VAT number), you might want to consider a “VAT-light” registration – Osoba identifikovaná k dani.

The benefit, in this case, is that you only need to file in the months when a transaction with an EU client took place (not every month, as with a full VAT registration).

The downside, however, is that you cannot claim any VAT back for expenses. To put it simply: outside the Czech Republic, this behaves like a regular VAT registration, but inside the Czech Republic, it is like not having a VAT number at all.

As of January 2016, all VAT registered entities (but not “identifikovaná osoba”) have the duty to submit monthly- or every three months in case of trade licence – reports to the Ministry of Finance giving detailed information about invoices they have issued; these are termed kontrolní hlášení.

Do I have to have an online cash register?

Probably.

From December 2016 every bill issued to a customer has to be registered in an online application linked to the Ministry of Finance termed the elektronická evidence tržeb (electronic record of receipts).

This obligation will be extended gradually to all sectors, starting with the gastronomy and accommodation industries.

There are many exceptions to the rule, though. Please, consult an accountant to make sure what exactly applies to your trade.

Who do I have to inform of being a freelancer?

After you get the trade licence with an IČO (Identifikační číslo = Identification Number) from the Trade Licence Register, you are able to trade, but you are still not registered completely in the Czech system. You need to inform the Financial Office, Social Security Administration office and health insurance company about opening the trade licence and whether your business is a main or extra activity.

When applying for a trade licence, you may ask the officer at the Trade Licensing Office to fill out a form (Jednotný registrační formulář) that will enable you to be automatically signed into the social security system, the Financial Office, your health insurance company. The Trade Licensing Office will then inform these institutions about the commencement of your business activities. These institutions will regard you as a business entity from that day.

Nevertheless, you will need to visit the Social Security Administration office and your health insurance company in person and present your ID. This has two benefits: you are given your registration number on the spot and you get all the details about the exact payments – if and how much must be paid and to what account.

Do I have to pay monthly fees to the social security administration?

Probably not.

If you have a job as an employee, your employer is paying the social security contributions for you. You are using the trade licence for a secondary income, and you are not required to pay any monthly advance payment in the first year.

The social security contribution and monthly advance payments are calculated according to the business profit and calculated as part of the annual tax return overview after the end of the year (before the end of March).

How do I calculate the social security contributions?

When filing your income tax return for 2019, you or your accountant will calculate if the minimum social security contributions you paid were enough to cover the income that you made that year, or whether you must pay extra.

Also, based on your income in 2019, you will be informed by the Social Security Administration of the new monthly social security contributions for 2020, or that you will continue to pay the (annually adjusted) minimum contribution.

The amount that a freelancer pays into the social security fund is determined by the profit achieved in the previous year. The assessment base for calculation of social security insurance is 50% of the profit (total gross income minus expenses equals profit), with the minimum being 98,100 CZK in a year (2019).

The social security contribution is 29.2% of the assessment base. In most cases (where the lump sum for expenses is 60%) this effectively amounts to about 5.8% of the total gross income.

If the actual assessment base is lower than the minimum calculation basis, then the minimum monthly advance (2,388 CZK/month in 2019) must be paid. The maximum assessment base above which no additional social security contributions are paid is 1,569,552 CZK/year (2019).

The social security contribution must be paid before the 20th of each month for the previous month. Social security contributions are sent to the Social Security Administration office account with your IČO as the variable code.  Not paying the social security contribution may result in trouble when extending your residency permit.

Social Security Administration office in Brno:

  • Městská správa sociálního zabezpečení Brno: website
    • Veveří 5, 660 20 Brno
    • +420 541 516 111
    • posta.bm@cssz.cz
    • Pension Fund account number: 1011-7929621/0710
    • IBAN: CZ5107100010110007929621
Do I have to pay monthly fees to the health insurance?

Probably not.

If you have a job as an employee, your employer pays the health insurance for you. You are using the trade licence for a secondary income, and you are not required to pay any monthly advance payments.

The contribution for the past year depends on the total business profit and is calculated as part of the annual tax return overview after the end of the year (before the end of March).

How do I calculate the health insurance contributions?

Similarly to the social security contributions, when your income tax return is being prepared after the end of the year, you or your accountant will also calculate whether the minimum health care contributions were enough or whether you must pay extra.

Also, based on the income from the previous year, you will be informed by your accountant of the new monthly health care contribution for the current year.

The amount of the public health care contribution that a self-employed person pays to the insurance company is determined by the profit achieved in the previous year. The assessment base for calculation of health insurance is 50% of the profit (gross income minus expenses equals profit). The health care contribution is 13.5% of the assessment base. In most cases – where the lump sum for expenses is 60% – this effectively amounts to about 2.7% of the income.

If the actual assessment base is lower than the minimum calculation basis, then the health care contribution is set at the minimum monthly advance (2,208 CZK/month).

Public health insurance must be paid before the 8th of the current month for each previous month.

The contributions must be sent to the account of the health insurance company you have selected (from a total of six that are officially credited), with your IČO number as the variable code.

Not paying the health insurance may result in troubles with the legality of your stay in the Czech Republic.

How much income tax do I have to pay?

You must file an income tax return at the end of each (calendar) year.

This combines income from employment, income via a trade licence, capital gains, rental income and any other sources of local and foreign income.

As a tax resident in the Czech Republic, you have the obligation to file your global income, not just what you’ve made in the Czech Republic.

Your trade licence income can be filed in two ways, either by listing your real income minus your real business expenses, or by following the 60/40 rule. The latter method is almost always used: it allows you to claim a 60% expense deduction on your income (even if the real percentage of expenses is much lower), with the remaining 40% being the amount that forms your tax base. an income tax of 15% is calculated on this tax base, which effectively taxes your overall income by only 6%.

The tax base (i.e. gross income minus business expenses) may be further lowered for “tax allowances” (gifts to charities, interest on mortgages, private pension savings, life insurance, union fees…); in this way, you then arrive at an “adjusted tax base”. Now the income tax (15%) is calculated on this “adjusted tax base”, and from the result you may make further discounts for “tax relief” (a spouse at home, children, kindergarten, studies, disability…).

Consult an accountant or tax adviser for the best tax optimization.

The tax return form must be submitted to the local Financial Office (determined according to your registered address as stated in your trade licence) by the end of March.

This may be postponed to the end of July if you have given a power of attorney to a professional tax consultant to file your tax return (for this he will charge a fee). There are five Financial Offices in Brno: Brno I, Brno II, Brno III, Brno IV and Brno Venkov.

For accounting and tax consulting the Brno Expat Centre can recommend Michael Hajek, a certified, English-speaking tax adviser:

Bell Consulting

Bell Consulting provides comprehensive financial and tax services for any business. Their services include: bookkeeping, payroll, personnel administration, legal services and tax advice.

How do I issue my first invoice?

You can issue your invoice in print or send it electronically.

If you are a VAT non-payer:
Invoice has to include the serial number (of your choice), your name, address,  IC number (your business license number), a content of the sale/service, price, and date of issue. The date of the job performance/sale and the deadline for the payment can be included too. For invoice over  CZK 10 000 you have to specify details (name, address) about the client too.

If you are a VAT payer:
Invoice has to labeled “daňový doklad” and include the serial number (of your choice), your name, address,  IC number (your business license number), DIC number (your tax number), a content of the sale/service, price, tax rate, date of delivery and date of issue. The date of the job performance/sale and the deadline for the payment can be included too. For invoice over  CZK 10 000 you have to specify details (name, address) about the client and specify the price without the tax and with the tax.

Invoice template as .xls file.

If you are “Identified Person” providing your services abroad, you need to issue an invoice as a VAT payer but without specifying the tax rate or price with/out tax (since you don’t charge that).

When do I have to register and pay for a VAT?

First of all, you need to determine if you really need to be registered for VAT (Value Added Tax or DPH – Daň z přídané hodnoty), and if so, in what way. There are a number of indicators that point to an obligation to register for VAT.

Situations determining VAT duty:

  • Your income from Czech sources is more than 1,000,000 CZK in past 12 months.
  • You inherit a business of a VAT payer

Situations determining an obligation to become an identified person (identifikovaná osoba):

  • You sell services (not goods) to EU clients outside the Czech Republic.
  • You send goods to EU clients outside of the CR (e-shop)
  • You buy services from EU or 3rd country outside the Czech Republic (the seller requires your VAT number).
  • You import from another EU country goods exceeding a value of 326,000 CZK or cars, tobacco, alcohol, fuel.

It is also possible to register voluntarily for VAT, for example, if you have not yet reached the 1,000,000 CZK income limit but have major expenses in the Czech Republic and want to claim back the VAT.

VAT registration: full registration vs. “VAT-light”

A full VAT registration means that you will have to file a VAT report every month, for a period of two years, even in months when you did not conduct any business. In addition, if you sell to EU clients outside the Czech Republic, you will have to file EC Sales Lists (see below).

If you have an income in the Czech Republic that is under 1,000,000 CZK and few expenses in the country (a situation in which you are not obliged to register for VAT), but invoice sporadically to EU clients (which requires a VAT number), you might want to consider a “VAT-light” registration – Osoba identifikovaná k dani.

The benefit, in this case, is that you only need to file in the months when a transaction with an EU client took place (not every month, as with a full VAT registration).

The downside, however, is that you cannot claim any VAT back for expenses. To put it simply: outside the Czech Republic, this behaves like a regular VAT registration, but inside the Czech Republic, it is like not having a VAT number at all.

As of January 2016, all VAT registered entities (but not “identifikovaná osoba”) have the duty to submit monthly- or every three months in case of trade licence – reports to the Ministry of Finance giving detailed information about invoices they have issued; these are termed kontrolní hlášení.

Do I have to have an online cash register?

Probably.

From December 2016 every bill issued to a customer has to be registered in an online application linked to the Ministry of Finance termed the elektronická evidence tržeb (electronic record of receipts).

This obligation will be extended gradually to all sectors, starting with the gastronomy and accommodation industries.

There are many exceptions to the rule, though. Please, consult an accountant to make sure what exactly applies to your trade.

How do I extend the validity of my “zivnost” along with my visa?

It is crucial to watch the validity of both your residence permit and your trade license.

Your trade licence must be renewed before it expires – this is sometimes due even before you renew your visa, so be sure to make a note of its expiration date – never let your trade licence expire! We can’t stress this enough.

Foreiners who have a visa or long-term residence permit must always apply for renewal of the trade licence even before their visa/residence permit expires. You should be aware of the expiry dates of your trade licence and your residence permit: mark the expiration date of your trade licence in your calendar well in advance!

If the trade licence expires, you must start from scratch and reapply for a new trade licence. So, it is extremely important not to let this happen!

A) Business visa/residence permit renewal (Immigration Office)

This is a long process and one that requires more and different documents than the original business visa application. It is advisable to start the visa extension and trade licence renewal process 3 to 4 months before the expiration date of the visa/residence permit because it is quite complicated, and a lot of papers from the authorities are required. an application for a long term residence permit renewal may be filed 4 months at the earliest and 14 days at the latest before the expiration of the old visa, or on the last day of the residence permit.

B) Trade licence renewal (Trade Licensing Office)

The application for the trade licence renewal may be filed on the last date of validity of the licence.  If the expiration date of your trade licence is approaching but your visa/permit renewal is still pending, you may ask the Trade Licensing Office – in the form of a simple letter of request – for a temporary extension of the licence and “waiting period” for the process of visa/permit renewal to be finished. Always visit the Trade Licensing Office before the expiration of your licence and ask them what to do next. Arriving even a day after the trade licence has expired is considered too late: you lose your license and have to apply from scratch ( have to get a new extract from the criminal record, etc.).

Who do I have to inform of being a freelancer?

After you get the trade licence with an IČO (Identifikační číslo = Identification Number) from the Trade Licence Register, you are able to trade, but you are still not registered completely in the Czech system. You need to inform the Financial Office, Social Security Administration office and health insurance company about opening the trade licence and whether your business is a main or extra activity.

When applying for a trade licence, you may ask the officer at the Trade Licensing Office to fill out a form (Jednotný registrační formulář) that will enable you to be automatically signed into the social security system, the Financial Office, your health insurance company. The Trade Licensing Office will then inform these institutions about the commencement of your business activities. These institutions will regard you as a business entity from that day.

Nevertheless, you will need to visit the Social Security Administration office and your health insurance company in person and present your ID. This has two benefits: you are given your registration number on the spot and you get all the details about the exact payments – if and how much must be paid and to what account.

Do I have to pay monthly fees to the social security administration?

Probably not.

If you have a job as an employee, your employer is paying the social security contributions for you. You are using the trade licence for a secondary income, and you are not required to pay any monthly advance payment in the first year.

The social security contribution and monthly advance payments are calculated according to the business profit and calculated as part of the annual tax return overview after the end of the year (before the end of March).

How do I calculate the social security contributions?

When filing your income tax return for 2019, you or your accountant will calculate if the minimum social security contributions you paid were enough to cover the income that you made that year, or whether you must pay extra.

Also, based on your income in 2019, you will be informed by the Social Security Administration of the new monthly social security contributions for 2020, or that you will continue to pay the (annually adjusted) minimum contribution.

The amount that a freelancer pays into the social security fund is determined by the profit achieved in the previous year. The assessment base for calculation of social security insurance is 50% of the profit (total gross income minus expenses equals profit), with the minimum being 98,100 CZK in a year (2019).

The social security contribution is 29.2% of the assessment base. In most cases (where the lump sum for expenses is 60%) this effectively amounts to about 5.8% of the total gross income.

If the actual assessment base is lower than the minimum calculation basis, then the minimum monthly advance (2,388 CZK/month in 2019) must be paid. The maximum assessment base above which no additional social security contributions are paid is 1,569,552 CZK/year (2019).

The social security contribution must be paid before the 20th of each month for the previous month. Social security contributions are sent to the Social Security Administration office account with your IČO as the variable code.  Not paying the social security contribution may result in trouble when extending your residency permit.

Social Security Administration office in Brno:

  • Městská správa sociálního zabezpečení Brno: website
    • Veveří 5, 660 20 Brno
    • +420 541 516 111
    • posta.bm@cssz.cz
    • Pension Fund account number: 1011-7929621/0710
    • IBAN: CZ5107100010110007929621
Do I have to pay monthly fees to the health insurance?

Probably not.

If you have a job as an employee, your employer pays the health insurance for you. You are using the trade licence for a secondary income, and you are not required to pay any monthly advance payments.

The contribution for the past year depends on the total business profit and is calculated as part of the annual tax return overview after the end of the year (before the end of March).

How much income tax do I have to pay?

You must file an income tax return at the end of each (calendar) year.

This combines income from employment, income via a trade licence, capital gains, rental income and any other sources of local and foreign income.

As a tax resident in the Czech Republic, you have the obligation to file your global income, not just what you’ve made in the Czech Republic.

Your trade licence income can be filed in two ways, either by listing your real income minus your real business expenses, or by following the 60/40 rule. The latter method is almost always used: it allows you to claim a 60% expense deduction on your income (even if the real percentage of expenses is much lower), with the remaining 40% being the amount that forms your tax base. an income tax of 15% is calculated on this tax base, which effectively taxes your overall income by only 6%.

The tax base (i.e. gross income minus business expenses) may be further lowered for “tax allowances” (gifts to charities, interest on mortgages, private pension savings, life insurance, union fees…); in this way, you then arrive at an “adjusted tax base”. Now the income tax (15%) is calculated on this “adjusted tax base”, and from the result you may make further discounts for “tax relief” (a spouse at home, children, kindergarten, studies, disability…).

Consult an accountant or tax adviser for the best tax optimization.

The tax return form must be submitted to the local Financial Office (determined according to your registered address as stated in your trade licence) by the end of March.

This may be postponed to the end of July if you have given a power of attorney to a professional tax consultant to file your tax return (for this he will charge a fee). There are five Financial Offices in Brno: Brno I, Brno II, Brno III, Brno IV and Brno Venkov.

For accounting and tax consulting the Brno Expat Centre can recommend Michael Hajek, a certified, English-speaking tax adviser:

Bell Consulting

Bell Consulting provides comprehensive financial and tax services for any business. Their services include: bookkeeping, payroll, personnel administration, legal services and tax advice.

How do I issue my first invoice?

You can issue your invoice in print or send it electronically.

If you are a VAT non-payer:
Invoice has to include the serial number (of your choice), your name, address,  IC number (your business license number), a content of the sale/service, price, and date of issue. The date of the job performance/sale and the deadline for the payment can be included too. For invoice over  CZK 10 000 you have to specify details (name, address) about the client too.

If you are a VAT payer:
Invoice has to labeled “daňový doklad” and include the serial number (of your choice), your name, address,  IC number (your business license number), DIC number (your tax number), a content of the sale/service, price, tax rate, date of delivery and date of issue. The date of the job performance/sale and the deadline for the payment can be included too. For invoice over  CZK 10 000 you have to specify details (name, address) about the client and specify the price without the tax and with the tax.

Invoice template as .xls file.

If you are “Identified Person” providing your services abroad, you need to issue an invoice as a VAT payer but without specifying the tax rate or price with/out tax (since you don’t charge that).

When do I have to register and pay for a VAT?

First of all, you need to determine if you really need to be registered for VAT (Value Added Tax or DPH – Daň z přídané hodnoty), and if so, in what way. There are a number of indicators that point to an obligation to register for VAT.

Situations determining VAT duty:

  • Your income from Czech sources is more than 1,000,000 CZK in past 12 months.
  • You inherit a business of a VAT payer

Situations determining an obligation to become an identified person (identifikovaná osoba):

  • You sell services (not goods) to EU clients outside the Czech Republic.
  • You send goods to EU clients outside of the CR (e-shop)
  • You buy services from EU or 3rd country outside the Czech Republic (the seller requires your VAT number).
  • You import from another EU country goods exceeding a value of 326,000 CZK or cars, tobacco, alcohol, fuel.

It is also possible to register voluntarily for VAT, for example, if you have not yet reached the 1,000,000 CZK income limit but have major expenses in the Czech Republic and want to claim back the VAT.

VAT registration: full registration vs. “VAT-light”

A full VAT registration means that you will have to file a VAT report every month, for a period of two years, even in months when you did not conduct any business. In addition, if you sell to EU clients outside the Czech Republic, you will have to file EC Sales Lists (see below).

If you have an income in the Czech Republic that is under 1,000,000 CZK and few expenses in the country (a situation in which you are not obliged to register for VAT), but invoice sporadically to EU clients (which requires a VAT number), you might want to consider a “VAT-light” registration – Osoba identifikovaná k dani.

The benefit, in this case, is that you only need to file in the months when a transaction with an EU client took place (not every month, as with a full VAT registration).

The downside, however, is that you cannot claim any VAT back for expenses. To put it simply: outside the Czech Republic, this behaves like a regular VAT registration, but inside the Czech Republic, it is like not having a VAT number at all.

As of January 2016, all VAT registered entities (but not “identifikovaná osoba”) have the duty to submit monthly- or every three months in case of trade licence – reports to the Ministry of Finance giving detailed information about invoices they have issued; these are termed kontrolní hlášení.

Do I have to have an online cash register?

Probably.

From December 2016 every bill issued to a customer has to be registered in an online application linked to the Ministry of Finance termed the elektronická evidence tržeb (electronic record of receipts).

This obligation will be extended gradually to all sectors, starting with the gastronomy and accommodation industries.

There are many exceptions to the rule, though. Please, consult an accountant to make sure what exactly applies to your trade.

General info

The trade licence (Živnostenské oprávnění) brings with it not only the right to carry out business, issue invoices and receive money but also a number of legal obligations. Sole proprietors (also called self-employed people = freelancers = business people) usually pay:

  • income tax,
  • social security contributions,
  • and health insurance.

This guide explains your obligations relating to the Trade Licensing Office, Immigration Office, Social Security Administration, health insurance company, and Financial Office.

Whether you have to pay any monthly minimum fees and how much depends on whether the business is your main economic activity or extra activity. If you are employed and your employer pays monthly social security and health insurance fees (ask them), you don’t have to pay that again, and your business is considered an extra activity.

If the income from your business is the main source of money and nobody is paying health insurance and social security fees for you – business is your main activity and there are monthly minimum fees to be paid.

In this context, we use the term “EU citizens” to include all citizens of the EU, EEA and EFTA countries.

If you have permanent residency, please choose the “EU” option above as the same rules apply to you as to EU citizens when it comes to being self-employed.