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

The flat tax promises less administration for businesses from 2021 - but it will only pay off for some of them. The following lines will help you find out if you're one of them.

What is a flat tax?

Flat-rate tax is a special type of tax that self-employed people can volunteer for. It is a flat monthly amount that includes a payment for income tax and compulsory social security and health insurance contributions. Sole traders in the flat-rate tax scheme don't have to pay the minimum compulsory deposits because they pay them as part of the flat-rate - and in most cases they don't file a tax return, which saves them the hassle of paperwork.

However, you can't claim expense allowances or tax credits under the flat-rate scheme. 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 around CZK 700,000-2,000,000 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:

  • Your annual business income does not exceed CZK 2 million.
  • You are not a VAT payer.
  • You do not have a job alongside your business where your wages are taxed by advance tax (typically a salaried job). As an employed self-employed person, you can apply the flat-rate tax only if you have withholding tax deducted from your wages - this is usually deducted from small earnings, for example, a DPP with a monthly income of up to CZK 10,000 (unless you sign a taxpayer's declaration).
  • Your other income does not exceed CZK 50 000 per year. This limit applies to income from capital assets (interest on bonds, etc.), rents and other income under §8-10 of the Income Tax Act.
  • You are not a partner in a public partnership or a general partner in a limited partnership.

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 much will I pay in flat-rate tax?

The amount of the flat-rate tax for self-employed persons varies from year to year - it is based on the current average wage. Initially, the tax was a single fixed amount common to all taxpayers. However, at the beginning of 2023, an amendment to the law came into force which introduced 3 bands of flat tax.

The main criterion for entry into each band is the amount of income from business activities 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 the row.

Type of band Amount of business income
Band I up to 1 mill. CZK (regardless of the type of activity) up to CZK 1.5 million, if at least 75% of this income comes from activities to which the 80% or 60% flat-rate expenditure applies up to CZK 2 million, if at least 75% of such earnings are derived from activities to which the 80% expenditure flat rate applies
Band II up to CZK 1.5 million (regardless of the type of activity) up to CZK 2 million, if at least 75% of this income comes from activities to which the 80% or 60% expenditure flat rate would apply
Band III up to CZK 2 million (regardless of the type of activity)

TIP: Not sure which flat rate applies to your business? We summarise everything for you in our article on how to tax the income of self-employed persons.

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 have to pay.
  • If, on the other hand, you earn less and qualify 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 flat-rate tax 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 of the year).

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

Overview of monthly flat-rate tax advances in 2024

Type of band Income tax Social insurance Health insurance Total flat tax per month
Band I CZK 100 CZK 4 430 CZK 2 968 CZK 7 498
Band II CZK 4 963 CZK 8 191 CZK 3 591 CZK 16 745
Band III CZK 9 320 CZK 12 527 CZK 5 292 CZK 27 139

Model example: is the flat tax worth it?

Miroslav is a freelance IT specialist. He earns CZK 1.2 million a year. Currently, he calculates his expenses at a flat rate of 60% of his income (IT activities are free trades). He applies only the taxpayer's rebate when calculating tax. He does not want to overpay on taxes, so he is thinking about signing up for a flat tax.

Under the current regime, Miroslav would pay a total of CZK 12,822 per month in tax and levies. If he opts for a flat tax, he will fall into the 1st tax bracket, as he earns up to CZK 1.5 million per year. His activities are still subject to 60% flat-rate expenses. He will therefore only pay CZK 7,498 per month under the flat-rate scheme - and will save CZK 5,324 each month compared to before.

Comparison of monthly levies on an income of CZK 1.2 million. CZK from a freelance business

Item Lump sum expenses (60%) Flat tax (Band I)
Income tax CZK 3 430 CZK 100
Social insurance CZK 6 424 CZK 4 430
Health insurance CZK 2 968 CZK 2 968
Total CZK 12 822 CZK 7 498

However, if Miroslav had earned only half of the original amount, i.e. CZK 600,000, he would have paid CZK 6,610 per month in the classic scheme. However, he would still pay the flat tax of CZK 7 498, so in this case the change would not be worthwhile.

Are you considering whether it is worth switching to a flat tax? Calculate it in the tax calculator.

How do I sign up for a flat-rate tax?

Signing up for a flat rate tax is easy. If you meet the legal conditions, you just need to notify the tax office in time. The fastest way to do this is via Mojedane.cz - in the Personal Income Tax section you will find the form Notification of entering the flat-rate scheme.

The deadline for submitting the application for the flat-rate scheme is always 10 January of the year you intend to enter it (i.e. if you apply by 10 January 2024, you will be a flat-rate tax payer from 2024). The exception is for sole traders who are just starting their business. They can file a notification by the date of starting self-employment (you must also register for personal income tax by this date).

Once you have registered, you start making monthly lump-sum tax payments (see the table below for the amounts) 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.

Please note: You always pay the full amount of the flat-rate tax for the whole month - even if you do not enter the flat-rate tax scheme until, for example, the 10th day of the month.

Flat-rate tax and tax returns

You usually don't have to file a tax return under the flat-rate 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 in a year from your business, 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, general partner in a limited company or a VAT payer, or if your income exceeds CZK 2 million in a year, you must opt out of the flat-rate tax after submitting your tax return.

Opt-out rules: You automatically remain in the flat-rate tax scheme until you opt out - either compulsorily or voluntarily. The deadline for voluntarily opting out of the flat-rate tax is the same as for opting in, i.e. by 10 January of the year in question. If you find out during the year that your flat-rate tax is not payable, you must continue to pay it until that date - voluntary withdrawal during the year is not possible.

Don't be on your own when it comes to administration

Do you need help with your taxes and bookkeeping, or are you just considering setting up a business? Our specialists will be happy to advise you. Just leave them a message in the form below.

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