Full-time employment or Trade License (contractor)?
If you are hiring or looking for work in the Czech Republic, there are always questions regarding types of job contracts. Some companies prefer to hire someone under the Zivnostensky list while others prefer to hire people as full-time employees. Both types of employment have advantages, disadvantages, or even offer tax relief.
Czech employment taxes and taxes for freelancers
Typical full-time employee taxes, social security, and health insurance rates are higher than for Czech freelancers. To understand how this works, you must understand the three types of salaries: super-gross, gross, and clean.
The difference between the super-gross and clean salary is 45%. Taxes, social security, and health insurance from super-gross salary ( 34% ) is paid by the employer, and the gross salary ( 11%) is paid by the employee.
For example, if your clean salary is 55 000 CZK per month, then your super-gross salary is 100 000 CZK per month. Here is the detailed percentage of expenses of employees and employers:
A freelancer’s tax, social, and health insurance payments are much less than the payments for full-time employees. Minim Social tax for trade license holders in 2023 is 2 944 CZK monthly, and the minimum public health insurance for trade license holders is 2 722 CZK per month.
Czech trade license holders have a choice of different types of tax methods. Income tax is 15% of net income, and there is a 24 840 CZK tax discount for trade license employees.
The 60/40 calculation method is the most common among freelancers in the Czech Republic. The collection of payment receipts or invoices from expenses is not necessary. This method means that you have a fixed 60% cost allowance and 40% income.
For example, if your total gross income last year was 300 000 CZK, then you calculate 300 000 – 60% cost allowance (fixed expenses) = 120 000 clean income. You will pay 15% tax on the 120 000 CZK, which calculates to 120 000 -15%= 18 000 (tax amount)- 30 840 (tax discount) = 0 CZK (final tax amount).
The advantage of hiring a freelancer with the Zivnostensky list is that the employer can completely deduct the salary payments from the taxes. At the same time, the employer can pay freelance workers a higher salary, as the employer won’t pay 35% of tax, social security, and health insurance from the super-gross salary. Most employers offer higher salaries to freelance workers to support their social tax and health insurance payments.
After a three-month trial period, full-time employees are protected by Czech employment laws. All Czech employment taxes, social security payments, health insurance, and paperwork are then the full-time employer’s responsibility. The employee gets their clean salary after all tax deductions and isn’t responsible for regular tax paperwork. Though full-time employees work for only one employer, they can also register a trade license for a side business, in addition to their full-time job.
Trade license holders do their own bookkeeping, pay their own social security and health insurance each month, and are responsible for calculating and filing for their annual tax refund. Unlike a traditional full-time employee, Zivno holders can have multiple partners or employers, as the working relationship between the employer and Zivnostensky list holder is more like a partnership. These contracts aren’t protected by employment law, and either side can cancel the cooperation at any time without any sanctions.
Czech trade license as a side income
If you decided to have a trade license as a side business and keep your full-time employment. You shouldn’t pay social security and health insurance deposits the first year. Your trade license side income taxes and contribution balances are calculated from your gross salary for the full previous year. For arranging your trade license tax return and calculating your final tax and contribution balances you should propose to form your employer the document called Potvrzení o zdanitelných příjmech ze závislé činnosti.
Getting a mortgage, Czech maternity stay, and paternity bonuses
Getting a mortgage is easier for full-time Czech employees than for Zivno holders. Most banks view full-time employees as more trustworthy, as they have a full-time jobs and stable incomes, while trade license holders can lose their work contracts or partners more easily.
Full-time employees have the right to 28 days of paid maternity leave. The amount of monthly financial support can range from 30 to 100% of their salary from the previous 12 months. In most cases, Zivnostensky list holders don’t have the right to maternity leave, a few of them pay sickness insurance.
Czech employee card or freelancer visa?
Czech freelancer visa holders pay for their own social taxes, health insurance, and income tax. As expats, these Zivno holders may not understand the Czech social insurance and tax system and can face some problems with late payments, wrong payments, and accrued debts on insurance.
For that reason, visas are issued only in specific cases or when there is a high demand for freelancers within an industry, like for Native English-speaking teachers with TEFL certificates. Freelancer visa holders can qualify for a different type of visa if they find full-time employment and receive an employee card, or if they begin studying and get a student visa.
The Czech employee card is the better option for Czech visa applicants who are employed full-time with their company. Their tax and insurance payments are paid by their employer, so the employee has no monthly tax responsibilities. However, it is not possible to switch your Czech employee card to a freelancer or business visa without staying in the Czech Republic continuously for five years.
If you are employed or have a trade license and you are curious about the net salary or taxes. We have a perfect solution for you. You can use our calculators which can help you to check real income and expenses for both freelancers and employees.