Flat Tax
Extended flat-rate taxes for self-employed persons with income up to 2 million per year:
Above lump-sum reserves of annual income and lump-sum expenditure for the year 2024
Please be aware that the flat tax in the Czech Republic has undergone several changes in 2024. These include: the division of tax rates into tax rate bands according to annual income and deductible expenses, an increase in the total income limit, and a change in the payment amount for each tax bracket.
Tax Rates vs Tax Bands vs Tax Brackets
- A tax rate band is the amount of income which will be taxed at a particular percentage (tax rate). The current tax rates are 40%, 60%, and 80%
- Example: the 60-40 tax reporting method is the most common. Using this method, the taxpayer deducts 60% of annual income, and pays tax on the remaining 40%
- Each tax bracket is a range of income with a different tax rate.
- In the Czech Republic, flat tax brackets are divided into earners up to 1 000 000 CZK, up to 1 500 000 CZK, or up to 2 000 000.
- The flat tax rate bands are further divided by the taxpayer’s reported deductible expenses: either at 40%, 60%, or 80%.
Tax Rates: 40%, 60%, and 80%
The amount of flat-rate expenses depends on the type of trade business. In other words, we calculate expenses as a percentage of revenue, depending on the area of business. We subtract:
- 80% of income from agricultural production, forestry and water management and income from craft trades; however, you can claim expenses up to the amount of 1 600 000 CZK
- 60% of income from trade business; however, you can claim up to 1 200 000 CZK
- 40% of other income from independent activities (with the exception of income according to paragraph 1 letter. (d) and paragraph 6), however, you can claim up to CZK 800 000
- 30% of rental income from commercial property; however, expenses up to CZK 600 000 can be claimed at most.
Flat Tax Rate Band 1
- For annual income up to CZK 1 million, no matter where the income derives from; or
- Annual income up to CZK 1,5 million if at least 75% of income is from self-employment that can be reported using the 80-20 or 60-40 method; or
- Annual income up to CZK 2 million if at least 75% of income is from self-employment in which a tax rate of 80% can be applied
Monthly payment for flat tax rate band 1: CZK 7,498 (covering monthly installments for income tax at CZK 100; social insurance at CZK 4,430; and health insurance at CZK 2,968)
Flat Tax Rate Band 2
- For annual income up to CZK 1,5 million, no matter of the activity which the income derives from; or:
- Annual income up to CZK 2 million if at least 75% of income is from self-employment that can be reported using the 80-20 or 60-40 method
Monthly payment for flat tax rate band 2: CZK 16,745 (covering monthly installments for income tax at CZK 4,963; social insurance at CZK 8,191; and health insurance at CZK 3,591)
Flat Tax Rate Band 3
- For annual income up to CZK 2 million, no matter of the activity which the income derives from
Monthly payment for flat tax rate band 3: CZK 27,139 (covering monthly installments for income tax at CZK 9,320; social insurance at CZK 12,527; and health insurance at CZK 5,292)
Switching Between Regular and Flat Tax
You have the option to choose between regular tax and flat tax once a year. This means you can switch from the regular tax method to the flat tax method, or vice versa. However, there are specific rules for when you can make this change:
- Changes can only be made once a year.
- You can make these changes from January 1st to January 11th.
- You must wait until the end of the tax year to make any changes.
Advantages and disadvantages to flat tax reporting
Keep in mind that the flat tax reporting method isn’t always advantageous to the taxpayer. In fact, the flat tax regime usually makes more sense for single entrepreneurs. This is because they often have fewer discounts and bonuses to claim. Take for example those for an unemployed spouse, or for having children.
Sure, there is less paperwork involved with the flat tax, and certainly less legwork and headache. But, if taking on the flat tax regime, there is no access to additional relief, discounts, and bonuses. Signing up for the flat tax can also complicate mortgage applications, and, in some cases, make it impossible to get Czech visa extended.
If ever in any doubt, reach out to Pexpats for professional help with taxes in the Czech Republic.