Self-employed for secondary activities: how to deal with taxes and levies

Running a business as a sideline is an ideal option for anyone who wants to earn extra money for their studies, employment or even maternity leave. Compared to your main gainful activity, it brings a number of advantages - you pay lower taxes and often do not even have to pay social security and health insurance contributions. What are the other specifics of self-employed secondary activities?

Conditions of a secondary trade

You can run your business in the Czech Republic as a main or secondary self-employed activity (SVČ). In the case of a main activity, the business is usually the dominant source of income, while a secondary self-employed activity serves more as a side business. They differ mainly in terms of the conditions for compulsory contributions and advances, which are discussed later in this article.

How to determine whether a business is a secondary trade? According to the law, a VET business is considered to be secondary if:

  • you are an employee (and your employer pays the insurance premiums for you);
  • you are a student under the age of 26;
  • you are entitled to maternity leave or parental allowance; or you care for a person who is dependent on the care of others;
  • you receive an old-age or invalidity pension;
  • you are performing military service in the armed forces of the Czech Republic.

If your business meets any of the conditions, you can run your business as a secondary activity.

Secondary activity of self-employed persons - tax obligations

You are required to pay tax and file an annual tax return while you are carrying on a side business. As with your main business, you are only taxed on the difference between your income and expenses at a rate of 15%.

You have the choice of using your actual expenses to calculate your tax base or opting for a flat rate. In addition to these two options, you may also encounter a flat-rate tax, which you cannot use as a self-employed person for a secondary activity. Read more in our article on how to tax the income of self-employed workers.

Flat-rate expenses

With a flat-rate expense, expenses are calculated as a percentage of your income for tax purposes. It does not depend on the amount of your actual expenses. The percentage depends on the type of business, as a self-employed person the following rates apply to you:

  • 80 % of income applies to craft trades, agriculture and forestry;
  • 60 % of income for other trades (free, tied and licensed);
  • 40 % of income from activities for which you do not have a trade licence (for example, income from copyright or from freelance work and business under special regulations - lawyer, notary, tax adviser, etc.).

Actual expenditure

The second option is to claim actual expenses. This is particularly useful in situations where your actual expenses exceed your flat-rate expenses (this often happens, for example, when you sell goods). However, when using this option, the law also requires you to keep tax records, which is not necessary for flat-rate expenses.

Secondary activity - social insurance

When you run a secondary business, the situation with regard to social insurance is relatively easy. You are only covered by social security if you earn more income. Every self-employed person, irrespective of the amount of income, must also calculate and submit an annual income and expenditure report to the Social Insurance Institution.

What are the specific conditions?

  • You don't have to pay social insurance for a secondary trade if your partial tax base (the difference between your annual income and expenses) is lower than the so-called decisive amount - this amount was CZK 96,777 in 2023, and the limit of CZK 105,521 applies in 2024. It applies to you if you are in business for the whole year - it is lower if you are in business for a shorter period.
  • If you exceed the threshold amount, you must pay social security. In the first year of your business, you do not make any advance payments - you pay the insurance to the Social Security Agency in one lump sum.
  • In the following years, if you earn more than the threshold amount, you pay a minimum monthly deposit. The minimum advance payment for social insurance for secondary activities in 2024 is CZK 1,413. The difference is then settled when you submit your tax return (depending on your actual income, you either pay the premium or the CSSA reimburses you for the overpayment).
  • You can also register for social insurance voluntarily.

Secondary activity and health insurance

Unlike social security, you must always pay health insurance for secondary activities, even if you earn little. You also have to fill in an income and expenditure statement with your health insurance company every year to calculate the difference between the premiums you have paid and the amount of insurance you have to pay based on your earnings. Other obligations depend on whether you are a state insured person or an employed business.

Health insurance for state insured persons

If you are running a business while you are studying, on maternity leave or retired, you do not have to pay a deposit in the first year of your business. You submit a statement of income and expenses to your insurer at the beginning of the following year and pay the amount of insurance in one lump sum. Based on the statement, the insurance company will calculate the amount of the advance for the following year. The amount is based on the income you actually earn and does not apply to the minimum levies that apply to your main occupation.

Health insurance for employees who run a business

If you run a business while working and your employer pays the minimum health insurance contributions for you, you do not pay any monthly contributions at all. You only have to report your income and expenses to your health insurance company once a year and pay the premiums at once according to your actual income.

In a nutshell: the do's and don'ts of self-employed secondary activities

Running a sideline business is a great way to supplement your studies, employment or parental leave. Unlike a sole trader, you don't have to pay mandatory minimum deposits (except for high incomes) and you only pay contributions based on your earnings. In addition, if you earn a low income, you are not obliged to pay social insurance on the income from the SVČ.

What to remember in the first year of business?

  • Notify the tax office, the health insurance company and the Social Insurance Institution (however, this will usually be done by the trade licensing office on the basis of a single registration form submitted when setting up the trade).
  • You do not have to pay advance payments for social security and health insurance - you pay the insurance in one lump sum on the basis of the income and expenditure statements.
  • At the beginning of the following year, submit your tax return and income and expenditure statements to the health insurance office and the CSSA.

Set up a business without worrying

You already have a clear idea of the tax, social security and health insurance situation for self-employed people working in a side business. Have you decided to go into business and need help setting up a trade? Contact us - we will be happy to advise you and sort out all the paperwork.

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