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:
- Your annual business income does not exceed CZK 2 million.
- You are not a VAT payer.
- You do not also have a job alongside your business where your wages are subject to advance tax (typically a salaried job). As an employed self-employed person, you can only apply the flat-rate tax if your wages are subject to withholding tax. This is usually deducted on small earnings, for example on 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 criterion 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 limited liability company 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 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.
|Type of band||Amount of business income|
|Band I||up to 1 million. CZK ( regardless of the type of activity)||up to CZK 1.5 millionCZK, if at least 75% of this income comes from activities for which an 80% or 60% flat-rate expenditure could be applied||up to CZK 2 million. CZK 2,000 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. CZK (regardless of the type of activity)||up to CZK 2 millionCZK, 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 millionCZK ( regardless of the type of activity)|
Not sure which flat rate applies to your activity? We summarise everything for you in our article on self-employed income tax.
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:
|Overview of monthly advance payments for the flat-rate tax|
|Type of band||Total lump sum payment||Income tax||Social insurance||Health insurance|
|Band I||6 208 CZK||100 CZK||3 386 CZK||2 722 CZK|
|Band II||16 000 CZK||4 963 CZK||7 446 CZK||3 591 CZK|
|Band III||26 000 CZK||9 320 CZK||11 388 CZK||5 292 CZK|
Model example: is the flat tax worth it?
Miroslav makes his living as a freelance IT specialist, earning CZK 1.2 million a year. He currently claims a flat rate of 60% of his income in his tax return (IT activity is a free trade). In calculating the tax, he applies only a taxpayer's discount. He does not want to overpay on taxes, so he is now considering entering the flat-rate tax regime.
Under the current regime, Miroslav would have paid a total of CZK 11 992. If he opts for the flat-rate tax, he will fall into tax band I, as he earns up to CZK 1.5 million a year. His activities are still subject to 60% flat-rate expenses. He will thus pay only CZK 6,208 per month - and save CZK 5,784 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-rate tax (Band I)|
|Income tax||3 430 CZK||100 CZK|
|Social insurance||5 840 CZK||3 386 Kč|
|Health insurance||2 722 CZK||2 722 Kč|
|Total||11 992 Kč||6 208 Kč|
However, if Miroslav earned only half of the original amount, i.e. CZK 600,000, he would pay CZK 6,096 per month in the non-franchise mode. However, he would still pay the flat-rate tax of CZK 6 208, so in this case the change would not be worthwhile.
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.
Reminder: You automatically remain in the flat-rate tax scheme until you withdraw from it - whether compulsorily or voluntarily.
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