Find out who should make advance payments on Czech income taxes, how to calculate deposits, and advance tax payment deadlines.
What is an advance income tax payment?
Advance income tax involves making payments on personal income taxes in advance for a specific financial year. In the Czech Republic, this obligates the taxpayer to make deposits towards their income taxes either semi-annually or quarterly. This is even if the taxpayer cannot calculate their tax liability in advance. The taxpayer will then settle any balance remaining minus the advanced payments after the end of the tax period.
But, who should make income tax advance payments in the Czech Republic? How much are advance tax deposits, and what happens if you fail to pay? Read ahead for answers to our clients’ most frequent questions about advance income tax. You’ll find if you should make advance payments, how to do so, and common mistakes to avoid when making deposits.
Who does not need to make advance tax payments?
Let’s start with taxpayers who have no obligation to make deposits towards Czech personal income tax. In the Czech Republic, you do not need to make advance tax payments if:
- You are a taxpayer who paid CZK 30,000 or less in the previous financial year.
- Your business or other self-employed activities are in the first year.
- You have full-time employment in which case the employer pays the advances.
- You’re registered to pay flat-rate taxes.
Note: The flat tax in the Czech Republic is a special tax regime which self-employed freelancers register for voluntarily. It involves making fixed monthly payments which cover mandatory contributions to social security, health insurance, and income taxes. These amounts update from year-to-year, and in some cases can greatly simplify tax reporting. However, flat taxes do have both advantages and disadvantages, so consider consultation with a professional tax advisor before registering.
Who should make advance tax deposits?
If you had to pay over CZK 30,000 income tax last year, you should make advance tax deposits. This limit is after any tax relief, discounts, and bonuses you were eligible to claim. The amount of the advance deposits and the payment due dates then depend on the amount of your most recent tax liability. Again, this is how much you paid in personal income taxes after all deductions and discounts.
How much are the advanced tax deposits?
The amount of advance deposits towards income tax falls into two categories in the Czech Republic. These include tax payment thresholds according to total tax liability, and their corresponding advance tax rates. The two advance tax deposit categories are:
- Semi-annual advance deposits are for if you paid more income tax than CZK 30,000 but less than CZK 150,000. If this is the case, advance deposits will be 40% of your tax obligation, and you pay these twice per year.
Quarterly advance tax payments are for if you paid higher than CZK 150,000 income tax in the previous financial year. In this case, you pay 25% of your tax obligation four times per year.
Semi-annual tax deposit example
Let’s simplify this further:
- You paid CZK 100,000 income tax last year.
- This obligates you to make income tax deposits in advance semi-annually (2x per year).
- The amount of the semi-annual deposit is then 40% of the original income tax paid, so CZK 40,000.
CZK 40,000 x 2 payments (subject to payment due dates) = CZK 80,000 total tax advance payment for the year.
Quarterly tax advance payment example
For an example of quarterly tax advance payments, say:
- You paid in total CZK 200,000 income tax last year.
- This is over the CZK 150,000 threshold, obligating you to make payments 4 x per year.
- The amount of the quarterly deposit is then 25% of the original income tax paid, so CZK 50,000.
CZK 50,000 x 4 payments (subject to payment deadlines) = CZK 200,000 total tax advance payments for the year.
What to do if you had so-called “other income”?
So-called “other income” on the tax report does not go into tax advance payment calculations. This could be for example the sale of real estate, winning a lottery, or other one-time sources of income. Income such as this does not repeat itself each year, and thus is only part of your annual tax liability. It does not affect advance tax deposits.
When are advance tax deposits due?
Deadlines to make tax advance deposits depend on if you make semi-annual or quarterly payments. These payment deadlines are:
- 15 June and 15 December (for semi-annual advance tax payments)
- 15 March, 15 June, 15 September, 15 December (for quarterly payment deadlines)
What if you also earn income from employment?
If earning income both from your own business (or self-employed activities) and also from employment, the following applies:
- You do not pay any tax advance if your partial tax base was mostly from employment (over 50%).
- You pay half the amount (semi-annually or quarterly) if your partial tax base from employment was between 15% and 50%.
You make deposits in full if your partial tax base from employment is less than 15%
Penalties of missed payments
It’s important to be aware of the strict terms for advance tax payments in the Czech Republic. Delays in payment amount to penalties. It’s as simple as that. Moreover, penalties can quickly add up. Penalties apply for every day of the delay in payment until the date you pay. This amount is calculated by the annually established rate of the Czech National Bank increased by 14%. It applies to the 5th day of the delayed payment, up to 5 years maximum.
Disadvantage to making tax advance payments
One downside to having to make advance tax payments is that you determine the deposits by your previous year’s performance. Thus, if the year following is less successful than the first, you might find yourself at a disadvantage. However, keep in mind that if your real income tax is lower than your advanced payments in total, you’ll be entitled to a refund.
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