How to calculate personal income tax?

As an entrepreneur, you file a tax return every year to calculate how much money you have to pay to the government in income tax. We will advise you on how to correctly determine the tax base and the tax itself.

Add up all your income

You may have a total of 5 types of income. Each type of income forms its own sub-base and each is governed by a different section of the Income Tax Act, so different rules apply. These are:

• Income from employment (Section 6 of the Income Tax Act),
• income from self-employment (Section 7 of the Income Tax Act),
• income from capital assets (§ 8 ITA),
• rental income (§ 9 ITA),
• other income (§ 10 ITA).

Let's look at them in more detail.

§ Section 6: Income from dependent activities

It consists of earnings from employment, both on the main employment relationship and agreements. This category also includes income from work as a partner and member of a cooperative or remuneration for the managing director. Tax on this income is most often calculated on your gross salary and you do not claim expenses in this case.

The amount of income from employment is evidenced by a certificate of taxable income issued by your employer.

§ Section 7: Income from self-employment

This is your income from your business (main and secondary activities) or from your authorship. You can tax income from self-employment in a number of ways, which we describe in detail in the article on self-employment taxation.

In short, you have the following options: either you record only your income and apply the so-called expenditure lump sums in your tax return, or you report your actual expenses. In this case, however, you must also keep tax records or accounts and document your expenses.

Another alternative is to enter the flat-rate tax regime, but if the conditions are met, you do not file a tax return at all.

§ Section 8: Income from capital assets

These include, for example, shares in the profits of corporations, income from deposits or interest on securities.

Two situations can arise here:

§ Section 9: Rental income

You tax income from renting real estate or movable property (a car, construction machinery, or manufacturing equipment, for example) similarly to income from a business (but unlike a business, you do not pay taxes on it).

Income from renting within the community of property is taxable to only one of the spouses, regardless of the number or type of items rented, and it is by mutual agreement between them who will report this income on their returns.

You can claim a flat rate of 30% of the income on the rental income, or you can report the actual expenses related to the rental (typically depreciation or interest on a loan) on your tax return.

§ Section 10: Other income

The other income section includes, for example, gains from the sale of shares, cars and property (unless they are exempt income), earnings from the sale of cryptocurrencies and winnings from lotteries, betting or other gambling. However, they are only taxable if they exceed the limits set by the Income Tax Act.

For these assets, if the income from the sale is not exempt from tax (for example, if you do not meet the so-called time test - 3 years for shares and cryptocurrencies, 5 years for shares), you can claim the expenses incurred for their acquisition against it in your tax return. Base this on specific information from your investment manager (e.g. crypto exchange, investment platform, etc.).

Other income also includes income from casual activities, which you are taxed on if the total amount exceeds CZK 50,000 in a calendar year.

Put aside tax-exempt income

Check whether you have any income that is exempt from tax - if you do, then don't include it in your tax base or include it on your tax return.

For example, the following income may be exempt:

• Sale of the property - if you have lived in the property for at least 2 years before selling it, bought it more than 10 years ago, or use the money from the sale to buy your own home. For more on this topic, see our article on the exemption from property sales tax.
• Gift - from relatives in the direct or collateral line, from persons who have lived in the same household with you for at least one year before the gift, or if it is an occasional gift up to an aggregate amount of CZK 50,000 per year.
• Occasional earnings - these are incidental and one-off income, such as the sale of an old bicycle at a second-hand market. You don't pay tax on them if their total amount does not exceed CZK 50,000 per year.
• Inheritance - this is always treated as exempt income.
• Winnings from lotteries and betting up to CZK 50,000 - while for lotteries this limit applies to each individual win, for betting your annual profit is assessed.
• Maintenance, pension or other benefits - for example, maternity allowance, parental allowance, retirement pension (up to three times the annual minimum wage) and other social benefits.

Deduct the corresponding expenses

Once you have identified all taxable income, proceed to deduct the expenses that can be claimed for that type of income:

Calculate your tax base

You can now calculate your tax base, which you will find as the difference between your income and your expenditure.

The tax base is made up of several sub-bases. Why? Many people have several types of income that need to be distinguished on their return. The so-called partial tax bases are therefore calculated separately for each type of income (employment, business, etc.). At the end, they are added together to form the total tax base from which you calculate the tax amount.

Reduce the tax base by deductions and deductible items

Once you know your tax base, you can reduce it by taking deductions and other deductible items. You will find these on your tax return as non-taxable parts of your tax base. These include:

• Interest on a mortgage or building society loan;
• donations for public benefit;
• contributions to pension savings and life insurance;
• union membership fees.

Calculate your income tax

The personal income tax rate is 15% of the tax base. However, if your tax base exceeds three times the annual average wage (for 2024 the limit is CZK 1,582,812, and for income in 2025 it is CZK 1,676,052), you will be taxed at a higher rate, the so-called progressive 23% tax.

Apply the maximum tax relief

Does the calculated tax seem high to you? You can reduce it with tax credits. Every individual, including the self-employed, is entitled to a basic tax credit of CZK 30,840 per year - this is always applied in full, even if you are gainfully employed for only part of the year.

You can claim other discounts - for example for a spouse, children, disability or for a disabled person with a disabled person's card - if you meet the legal conditions. These allowances are pro-rated only for the months when you have met all the requirements for claiming them.

Sort out your tax arrears/overpayments

After deducting tax credits, your income tax will come out. You must pay this on time and in full or you will face late payment penalties.

If you have overpaid tax, you should apply directly to the tax office that records the overpayment for a refund. The easiest way is to apply via the My Taxes portal.

Not sure if you have calculated your income tax correctly?

It may not be clear when you fill it in. If you don't want to worry about your taxes yourself, have our specialists prepare your tax return straight away. Just write to us using this form: