Flat-rate tax in a nutshell: conditions, terms, amounts

The flat tax is still a relative novelty in the Czech Republic. It promises less administration for entrepreneurs - but it pays off only for some. The following lines will help you determine if you are one of them.

What is a flat tax?

Flat tax is a special type of tax that self-employed people can voluntarily pay from 2021. It is a flat monthly amount that includes a payment for income tax and compulsory social and health insurance contributions. Sole traders who choose to enter the flat-rate tax regime do not have to pay the minimum compulsory payments (they pay them as part of the flat-rate) and in most cases do not have to file a tax return.

However, under the flat-rate scheme , you cannot claim expenditure allowances or tax credits. We therefore recommend that you consider the switch to a flat-rate tax carefully, as it will only save money for some sole traders. Typically, those who earn CZK 600,000-2,000,000 per year and apply a minimum of tax rebates.

Who can use the flat tax?

To enter the flat-rate tax scheme, you must meet the following conditions:

Note: You automatically become a VAT payer if your income for 12 consecutive months exceeds CZK 2 million. However, this period does not necessarily coincide with the calendar year - that is why the law states two different criteria in this respect.

How to apply for a flat-rate tax?

Registering for the flat-rate tax is easy. If you meet the legal criteria for entering the flat-rate tax scheme, you just need to notify the tax office in time. The quickest way to do this is via Mojedane.cz - in the Personal Income Tax section you will find the form Notification of entry into the flat-rate scheme. The deadline for submitting the application is always 10 January of the year in which you intend to enter the flat-rate scheme.

The exception is for sole traders who start their business after this date. They can submit the notification by the date of commencement of self-employment (you must also register for personal income tax by this deadline).

Once you have registered, you will start making monthly payments to the local tax office. You can find the account numbers of the regional offices in our guide: how to pay your tax. The amount is always due by the 20th day of the month for which you pay the lump sum.

Note: You always pay the full amount of the flat-rate tax for the whole month - even if you don't enter the flat-rate tax scheme until the 10th day of the month, for example.

How much will I pay in flat rate tax?

The amount of the flat-rate tax for self-employed workers varies from year to year - it is based on the current average wage. Until recently, the tax took the form of one fixed amount common to all taxpayers. However, at the beginning of 2023 an amendment to the law came into force, which introduces 3 bands of flat tax.

The main criterion for entry into each band is the amount of your business income for the previous tax year. However, the field of your activity also plays a role.

The conditions for entering the tax bands are summarised in the table below. To enter the relevant band, you only need to meet at least one of the conditions in that row.

Your tax band is based on your annual income for the previous tax year. If you exceed the limits for your chosen band during the year, you must notify the tax authorities using a special form. The tax office will then tell you how much tax you must pay. Otherwise, if you earn less and meet the conditions for a lower band, the procedure is similar. You will then notify the office of the different amount of tax and get back the overpayment.

We will add that the band cannot be changed during the year, the adjustment can only be made within the deadline for entering the flat-rate scheme (i.e. by 10 January).

If you know which band you belong to, you can easily deduce the amount of your monthly advance:

Are you considering whether it is worth switching to a flat tax? Calculate it on the official calculator of the Ministry of Finance of the Czech Republic.

Flat-rate tax and tax returns

You don't usually have to file a tax return under the flat-rate tax scheme. The exception is if you breach one or more of the criteria for entering the flat-rate scheme during the tax year.

So, for example, if you earn more than CZK 2 million from your business in a year, you will not have to file a tax return. Read how to file a tax return under the flat-rate tax regime.

Don't forget that if you have become a partner in a limited company, a general partner in a limited partnership or a VAT payer, or if your annual income exceeds CZK 2 million, you must also opt out of the flat-rate tax regime when you submit your tax return.

Need help with your taxes and accounting? Or are you just considering setting up a business? Our experts will be happy to advise you. Just leave them a message in the form below.