Employment Contract Calculator
Not sure which type of employment to choose, full-time or freelance? This calculator compares net income from salaried work on a full-time employment contract versus freelancing in the Czech Republic. Calculate what’s best for you: working as an employee, or receiving pay on a trade license (Živnostenský List). Simply input your expected gross salary to calculate net income after contributions to social security, health insurance, and income tax.
What are the benefits of freelancing on a trade license vs full-time employment?
Although not without downsides, there are several advantages to working on a trade license (živno) rather than as an employee. For one, freelancers can deduct more costs from their income tax report (usually 60% of their revenue). Trade license holders also tend to pay less for social security and health insurance. Further, you can have a Živnostenský list and be a normal employee at the same time. You can pause the živno anytime, and your visa does not expire when you lose a client, unlike with full-time employment. Invoicing clients in the CZ and in foreign countries is also less complicated than creating employment contracts.
What are the downsides of freelancing on a Czech trade license?
Many companies offer higher salaries to freelance workers to cover their social security and health insurance contributions. However, trade license activities can entail several downsides. First, freelance workers have less job security. They also give up sick days, paid holidays, bonuses, company benefits, high social security, maternity, and social benefits. There is the need for an accountant for annual income tax returns, or VAT returns. Freelancers as well are responsible for paying their own social security and health insurance.
What are the requirements to become a freelancer in the Czech Republic?
The process to obtain a Czech trade license depends firstly on your country of origin and current visa status. In general, it is easier for expats from EU countries and for Czechs to become legally self-employed. EU citizens can even manage to get a Czech trade license sometimes in 5 to 7 business days without holding temporary residency. People from non-EU countries will need either a long-term visa or a residence permit. It is then necessary to register at a Trade Office in the Czech Republic, declaring your type of business activities. Your freelance work can then officially begin after approval and after registering for social and health insurance.
Should I file an employee tax return as a full-time employee?
In most cases of employment, the employer is responsible for the annual tax return of the employee. However, in the Czech Republic, there are cases when an employee must file an employee tax return. It might be to declare capital gains, rental income, or other taxable revenue. In other cases, it can even be advantageous to voluntarily report your taxable income. These include declaring additional tax discounts, tax bonuses, or tax relief which employers have no responsibility to declare.
I have full-time employment but want to take a side job. How do I start?
If you have full-time employment and want to earn income on the side, you must apply for a Czech trade license. However, note that your employer pays your monthly social and health insurance payments. This means you will not make any additional payments in the first year. After the end of this year, you must request an annual statement from the employer to see if you need to settle any remaining balance. The balance will depend on income from employment and the tax base from your trade license.
Need to calculate your income tax from employment and freelancing? Estimate how much you’ll pay in taxes with our Side Income Tax Calculator.
What does the 60/40 method mean?
The 60/40 tax reporting method declares an expense allowance of 60% from gross annual income. In this way, you simply deduct 60% from gross income, and the remaining 40% is taxable. There is no need to provide invoices proving expenses. However, the 60/40 method is only for earners under CZK 2 million.
What happens if my income from freelancing is over CZK 2 million?
If your gross annual income from freelancing exceeds CZK 2 million, you can not use the 60/40 method to declare taxable income. Instead, you must pay 15% or 23% income tax, depending on the total clean income. For example, if your gross income is CZK 2 100 000, your income tax calculation would be:
2,000,000 - 60%= 800 000 - 15% tax
100, 000 - 15%
Here, you cannot deduct any expense as you already used method 60/40.
What is the deadline to file Czech income taxes?
The deadline to file Czech income taxes for the current year is always March of the following year. For work in 2022, March 31 of 2023 is the deadline.
What can Pexpats do to assist?
Pexpats has been assisting expats from around the world adjust to their new lives in the Czech Republic. We offer services such as obtaining temporary residency cards, registering for parking permits, and arranging Czech trade licenses. We also provide a range of free tools and calculators to help with all of your invoicing and accounting needs. Curious to learn more? Reach out to see what our professional, certified tax accountants and relocation advisors can do for your business.