How to Check and Resolve Debt in the Czech Republic

Debt Collection and Repayment in the Czech Republic

Debt investigation in the Czech Republic is fairly common practice. Often, it occurs when renting an apartment to someone, buying a used car, or checking debt before leaving the country. Debt is any unpaid obligation, typically monetarily, including:

• Unpaid service fees (e.g. travel expenses, rent, utilities, phone, internet, etc.);

• Not contributing to obligatory payments defined by legal authorities in full and on-time (social security, health insurance, taxes);

• Borrowing money;

• Overdrafts from debit or credit cards that aren't paid according to contractual conditions;

• Guaranteeing a loan for someone who doesn’t fulfill their obligations to the bank.

Even if somebody else created the debt, there are implications. Debt can pass down from relatives who live or lived with you. It can transfer to you from a spouse as so-called shared assets, even if you don’t live together. In any of these cases, outstanding debt then goes to collection, at which point you may be confronted by an executor. 

Unfortunately, there is no central database to check debts across all Czech authorities, organizations, and commercial companies. In fact, you might not even be aware you have debt when the collectors come knocking. 

You might learn about your debts when, for example, applying for a loan, a mortgage, or renewing a residency permit. It may be when trying to sell a used car, or applying to rent a flat or an office. In none of these cases do you want to learn, last-minute, you have outstanding debt (and penalties) to repay first. 

To find out if you owe anything, you need to conduct your own investigation. And for this, you need to know where to look, starting with the types of debt in the Czech Republic. 

When paying Czech taxes as a company or freelancer (zivno trade license holder), you deal with the financial authorities. Again, there is no central database in the Czech Republic. You must report earnings and contributions through the Finance, Social and Health Offices respectively.

To find out if you owe anything, you have to go through each office individually. On request, each can provide Proof of No Debt (Bezdlužnost). For Health and Social, reports cover obligatory monthly contributions, while the Finance Office is responsible for income and tax declaration.

All Authorities, Contribution Offices and Tax Offices set payment deadlines, which differ in format and in penalties. Deadlines are set either according to deposit payments, or by final balance with a final due date for payment received. Penalties occur in events such as late or overdue payments on taxes, health or social contributions.

The penalties for each Czech authority are as follows.

• The Finance Office (Taxes) - 0.05% penalty on tax amount owed for each day after the due date of the tax repayment deadline

• Social Security - from 0.025% to 0.05% fine on social contribution or attached to yearly balance for each day after due date

• Health Insurance - 0.0322% penalty on monthly contribution or from annual balance remaining each day after payment deadline

Be sure to always pay penalties in a timely manner, especially when moving to or from Prague. Penalties accrue at a daily rate and do not disappear until you repay your debts in the Czech Republic. Confirmation of Indebtedness can be applied for in-person at each authority, and authorities have 30-day deadlines to proceed with applications.

If renewing residency for the purpose of business or obtaining permanent residency, applicants must provide Proof of No Debt. The same is true for trade license (zivno) holders and those running a business (s.r.o) in the Czech Republic. Potvrzení o bezdlužnost (in Czech) states you have no debt with a particular authority. 

Applicants must collect this document from each authority: the Financial Tax Office, Social Security, Health Insurance, and the Czech Ministry of Interior. If running a company, applicants must also provide Proof of No Debt for the company from each office.

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Beyond official Czech authorities, other debts can occur from a range of services, fees, fines and even misunderstandings. These include:

• Unpaid bills to phone or internet providers (the most common occurring with 24-month contracts that signers can’t break.)

• Fines for transportation, parking, and speeding 

• Late credit card repayments

• Outstanding bank credit debts

Any of these debts in the Czech Republic can remain on central bank records for years. They can also negatively affect your chances of getting a mortgage, credit card, car lease, etc.

If you don’t repay debts, debt collection involves numerous steps. In the first, a creditor contacts a lawyer specialized in debt collection. In most cases, the creditor pays the lawyer’s fees, and the lawyer is responsible for collection from the indebted party.

If the lawyer is unsuccessful in resolving the dispute, the process goes into cash collection. In this event, the debtor inherits all lawyer and collector fees in addition to their debt. Often, this amounts to much more than the debt itself. Thus, indebted parties should do everything possible to prevent their debt going into cash collection.

How do expats avoid getting into debt in the Czech Republic? Let’s do a quick check-list, starting with some of the most important tips.

• Beware of late payment penalties. (Even if you didn’t borrow any money, late penalties amount to debt. Pay penalties on time. Each institution has its own percentage they add to late fees, and each accrues over time.)

• Be careful of phone and internet contracts. (Consider if it makes sense to get that discount modem or phone when it comes with a 24-month plan. There’s often no way to break your subscription without paying the remainder of months owed.)

• Conduct your own debt investigation when buying a used car. (Check the seller isn’t in debt and has not put the vehicle up as collateral. Even if you manage to transfer car ownership, cash collectors can later come to seize the asset from the buyer.)

• Document personal possessions when renting out an apartment. (If leaving behind any possessions in an apartment you rent, document what’s yours. Should the tenant find themselves in debt, collectors can seize property from their place of residence.)

• Include spousal debt responsibility in your marriage contract. (You can protect your spouse and yourself if either of you are in debt going into the marriage. Remember that debt collectors can seek to seize assets from either party for the one’s debt.)

• Arrange monthly installments to repay fines you can’t handle immediately. (Agree with authorities on a debt repayment installment plan rather than letting late penalties take you further into debt.)

At Pexpats, we specialize in keeping expats legal, living and working in Prague and the Czech Republic. To get assistance with debt investigation, whether your own somebody else’s, just reach out. Our professional team can guide you through the process to get the results you need, quick and free of hassle.