What’s Involved In Setting Up A Czech Trade Licence?
Get detailed instructions on how to register a trade license in the Czech Republic, including important information on freelancing and taxes.
How to Get a Czech Trade License (Zivno)
A Czech trade license (“živnostenský list,” or “živno” for short) registers you to work freelance (self-employed) in the Czech Republic. All entrepreneurs (both self-employed and companies) need a trade license to legally carry out and operate certain business activities.
The trade license provides the entrepreneur a tax identification number, and enters them into the local tax system. This entails both the same rights and responsibilities which registered companies have in the country.
In order to start a trade license, the entrepreneur must submit an official application, and provide documentation to relevant offices. Requirements for this process vary and depend on the applicant’s nationality, residency status, and the type of trade license.
Read ahead for detailed instructions on how to register your business license, step-by-step. You’ll find the trade license requirements for EU vs non-EU citizens, including important information on income taxes for freelancers.
Types of Czech Trade License
In the Czech Republic, there are two categories of the trade license. One is for general business activities, and the other is for professional trade certification.
A general trade license is easier to obtain, and certifies an individual to:
Provide services from a list of 80 common business activities
Perform a trade often without any proof of specialized education or university degree
Work in jobs such as graphic design, IT, teaching in a foreign language, photography services, event management, and general consulting
The professional trade license is regulated by the government, and it involves:
Proving relevant competence through special practice or education
Obtaining an official permit to conduct relevant business activities
Work in jobs such as taxi cab driving, trades like butchers, bricklayers, or licensed activities: distillery, production, transport, etc
Trade License Requirements
To be eligible for a trade license, an applicant must:
Be above 18 years old (of full autonomy and able to carry out legal activities)
Have no criminal record (providing proof for some nationalities)
Also, applicants will need to submit different supporting documents depending on their nationality and residency status.
EU Citizens will need to submit only a valid passport or identity card. There is no requirement to submit a criminal clearance report, or to have temporary residency.
UK Citizens must submit both the valid passport or ID card, and the criminal clearance report. Find more info about obtaining the UK criminal clearance report here.
Non-EU Citizens (with long-term residency) need to submit their passport, residency permit, and criminal clearance report from their country of origin. Note: For US citizens, an affidavit replaces the report.
Non-EU Citizens (with permanent residency or a partnership visa) submit only their passport and residency permit.
Czech Income Tax
As a freelancer in the Czech Republic, you have different tax reporting options, and the tax rates are quite reasonable. A tax rate of 15% applies to income under CZK 1 935 552, while 23% applies to earnings over this threshold. Every taxpayer also receives the standard taxpayer’s discount of CZK 30 840. This together with various forms of tax relief and deductibles (if applicable) can further reduce the tax burden.
Usually, the most common method of reporting taxes when freelancing is the “60/40 method.” The 60/40 method provides an expense allowance of 60% of gross annual income, with the remaining 40% taxable. It is then possible to apply multiple tax discounts and bonuses to the tax base, such as for children or an unemployed spouse. In this way, the tax burden is minimal. The freelancer also does not need to keep payment receipts or invoices to prove their expenses.
A Quick Income Tax Example
Take the example of Alex, a freelancer whose gross income last year was CZK 300,000. Using the 60/40 tax reporting method, Alex would file as follows:
CZK 300,000 * 60% = CZK 180,000 (fixed expenses)
CZK 300,000 - 180,000 = 120,000 (net income)
CZK 120,000 * 15% tax rate = 18,000 (tax base)
CZK 18,000 - 30,840 (automatic taxpayer’s discount) = zero owed to income tax
In this way, Alex owes zero in personal income tax. This method is both convenient and generally the best solution for EU citizens and their family members (partnership visa holders).
Important Tax Information
You can only use the 60/40 method if your annual income is less than CZK 2 million.
As soon as your gross income exceeds 2 million, you must register for VAT.
If you invoice any EU-registered business, you must register for Light VAT.
Keep in mind that for some applicants, proof of funds will be required if you earn below a certain threshold.
Czech Income Tax Advance Payments
Understand that some taxpayers will have the obligation to make income tax advance payments in the Czech Republic. These are deposits which a taxpayer makes in advance either semi-annually or quarterly. This advance goes towards their expected annual income tax for a specific financial year. Meanwhile, the taxpayer settles any balance remaining minus the deposits at the end of the taxable period.
Note: You will not need to make deposits in advance towards income tax if:
You paid CZK 30,000 or less income tax the previous financial year.
It is the first year of your business or freelancing.
You have full-time employment (in which the employer pays the advances).
You’re a registered flat-tax payer.
The obligation to make tax advance payments arises only when you pay over CZK 30,000 income tax. How much you pay in deposits and when then falls into two categories. Each takes into account overall tax liability, and the corresponding income tax rates. These are:
For income tax over CZK 30,000 but less than CZK 150,000, taxpayers make deposits semi-annually ( 2x per year) at 40% of the original tax obligation.
Income tax payments over CZK 150,000 obligate the taxpayer to make deposits quarterly (4x per year) at 25% of the original tax obligation.
Public Health Insurance
For trade license holders, it’s mandatory to register for public health insurance. In 2023, the minimum payment for freelancers paying health insurance is CZK 2,722 each month.
Trade license holders with the following statuses are able to get public health insurance:
Expats with permanent residency in the Czech Republic
Citizens of the US and Albania, Israel, Tunisia, Turkey, Northern Macedonia, Serbia, Syria, Monte Negro, Japan
Note: If you are not one of the above who are eligible to apply for public health insurance, you must take out private health insurance.
Social Security Payments
It is also necessary to register with the Czech Social Security on activation of a trade license. In 2023, the minimum monthly contribution to social security is CZK 2,944 per month. At the end of the year, you may then need to pay a balance depending on the amount of income earned.
Social security will require 29.2% from half of annual clean income. Thus, if your earnings are higher than what the minimum deposits cover, it’s advisable to pay higher deposits voluntarily. This will help to offset any final balance remaining at the end of the year.
Flat-Rate(Paušál) Expense Allowances
The amount of flat-rate expenses depends on the type of trade business. In other words, we calculate expenses as a percentage of revenue. This percentage then depends on rates specific to different business activities. These rates are:
80% - income from agricultural production, forestry, water management, or craft trades (up to CZK 1 600 000)
60% - income from trade business (up to CZK 1,200,000 CZK)
40% - other income from independent activities (up to CZK 800,000, with the exception of income according to paragraph 1 letter. (d) and paragraph 6)
30% - income from a rental or commercial property (up to CZK 600,000)
Note: The above limits correspond to the maximum amount of expenses that you can deduct using this method. If the percentage of expenses exceeds the thresholds, only the higher limit (CZK 1,200,000) applies. The income tax base then becomes the difference between the real income and the maximum of the percentual expenses.
The advantage in this is that if your actual expenses do not reach the percentage limit, you will save money on taxes. This is typically the case for creative professions that do not have that many expenses. Otherwise, if your actual expenses are higher, you will be taxed more for no reason. This is why you need to seriously consider the transition to flat-rate taxes in advance.
Business and Tax Identification
Every Czech company and trade license holder has a unique business identification number. In Czech, this is the “identifikační číslo osoby,” or IČO for short. Businesses use this number when creating and receiving invoices.
The tax identification number is the “daňové identifikační číslo (DIČ).” This number you receive from the tax office after registering a trade license. It usually consists of the prefix “CZ” + your IČO number, or “CZ” + birth number for trade license holders. If you don’t have a birth number, the Czech tax office will generate a Taxpayer ID number on trade license activation.
However, note that having a DIČ does not mean you have registered as a full or light VAT payer. If you plan to invoice EU companies outside the Czech Republic, you must register for light VAT. This registration must take place within 15 days of the receipt of your first payment.
IČO activation and validity
If you are a non-EU citizen without a residency permit, you can register your trade license, but cannot activate the Zivno. This means that while you have registered in the system, you still do not have an IČO (business ID) to legally perform self-employed business activities.
In order to activate the trade license, you will need to first apply for and obtain the Zivno Visa. On approval, you will receive a visa sticker that registers you with the foreign police in your passport. You can then use this to activate your trade license under an IČO at the trade office.
Keep in mind that registration of a non-IČO trade license is only valid for 180 days. This means that if you do not arrange a Czech visa within this period, the trade license registration will no longer be valid. At this point, you will need to restart the entire registration process.
Trade License While Full-Time Employee
If you have a full-time job and want to earn side income, you should apply for a trade license. However, as your employer covers both health and social, you won’t need to make any additional payments in the first year. At the end of the year, you will need to request an annual statement from the employer to see if you need to settle any remaining balance.
This will depend on your main source of income, and the tax base from your trade license. If your trade license as a side business is the same activity as your main job, you must seek permission from the employer. In this case, also check the employment contract and discuss its details with the employer before applying for a trade license.
On activation of the trade license, you will still be able to apply the 60/40 tax method. However, if you are claiming tax bonuses or discounts through full-time employment, you will pay full income tax from the taxable amount.
Social Tax For Students, Pensioners, and Women on maternity stay
You only pay social tax if your net annual income (which is 40% of your gross income) goes under 96,777 CZK.
If your net income goes over 96,777 CZK, as a trade license holder, you must pay the full social tax amount and start paying the monthly deposits.
Czech Flat Tax - 2024
Freelancers may also take advantage of the flat tax option to simplify tax reporting even further. As of 2023, the minimum flat tax amount in the Czech Republic is CZK 7,498 monthly. This amount covers health insurance, social insurance, and income tax – with no paperwork and minimal legwork involved.
The flat tax limit is up to a maximum of 2 000 000 CZK, divided into three bands, and depending on gross income level. However, keep in mind that sometimes it is not advantageous to take on a flat tax reporting regime.
Paying a flat tax makes more sense for single entrepreneurs. This is because these taxpayers often have few discounts, and no tax bonuses from children. Thus, if you have children, or can claim other relief and discounts, other tax reporting methods will be more advantageous.
Thus, remember to always consider professional tax consultation before signing up for the flat tax. You might even start by trying our online freelance payment calculator to get an idea of payments and taxes under different regimes for yourself.
Part of your income is also transferable to a cooperating person to further reduce a business’ tax burden. However, a cooperating person as defined by law must:
Help the self-employed person with business activities (e.g. administration, accounting, invoicing, customer orders, communication, etc)
Reside and work in the same household, or participate in a joint “family business” as in Section 700 of the Labour Code
Be a partner or spouse on parental leave, or in some cases a retired parent, or a child over 18 who is enrolled in school
Keep in mind that if the cooperating person is not on parental leave, their main source of employment must come from cooperation in the business. In other cases where the cooperating person is on parental leave or otherwise employed, their cooperation falls under secondary, independent earnings. This particular case makes it less advantageous to claim a cooperating person due to additional health and social insurance contributions.
How to Report a Cooperating Person
To report a cooperating person, you must inform the tax office, social security, and health insurance. The cooperating person must also register for income tax, and possess a registered Tax ID number. They will then be able to arrange a variable symbol with social security and health insurance to make monthly advance payments.
Limits on reporting shared income
According to the Income Tax Act, taxpayers must transfer the same percentage of income and expenses to the cooperating person. This means that if you transfer 50% income, you must also transfer 50% of your expenses.
In addition to this, the Tax Act sets maximum transfer limits of:
50% income and expenses (maximum CZK 540,000) for a cooperating spouse
30% income and expenses (maximum CZK 180 000) for a non-spouse
Also note, it is possible to have more than one business partner. However, if there is more than one cooperating person, only 30% total of income and expenses can be transferred across cooperating persons.
Advantages of Reporting Shared Income
As a self-employed entrepreneur, it can be advantageous for example to declare a spouse as a cooperating person. Let’s look at a practical example:
Say you earned CZK 800,000 without declaring a cooperating person, and you file taxes using the 60/40 method.
Your expenses in this case are CZK 480,000, with a net income of CZK 320,000.
After the basic taxpayer’s discount (CZK 30,840), you owe CZK 17,160 for the 15% income tax rate.
However, if declaring a spouse as a cooperating person, the calculation involves the following.
You transfer 50% of your income and expenses to your spouse (whose main employment is from your business).
Both tax returns become the same: CZK 400 000 profit, CZK 240 000 expenses, with an income tax of CZK 24 000 to pay.
CZK 24,000 - 30,840 (basic taxpayer’s discount) = zero income tax to pay for both you and your spouse.
In this way, you not only reduce your tax burden. You also ensure your spouse’s income does not exceed the taxable base after discounts. Thus, both persons have zero tax liability.
Gift Tax in the Czech Republic
Since 2014, the Income Tax Act has abolished both gift tax and inheritance tax in the Czech Republic. However, now taxpayers must declare all donations together within their regular income tax report. Within, freelancers pay a 15% tax rate, while legal companies pay 19%.
Note: Assets from donations are subject to zero gift tax, and taxpayers file these under gratuitous income. This income is then taxed at the same rate as all other income from one subsequent tax year to the next.
Exemptions Income Tax on Gifts
Gift which are exempt from income tax in the Czech Republic include:
Gifts from a spouse or direct relatives (children, parents, grandparents, grandchildren)
Donations from a collateral line of kin (siblings, nieces, nephews, uncles, aunts; children’s spouses; spouse’s children, spouse’s parents, parent’s spouses)
Gifts from somebody who lived with the beneficiary, donor, or testator for at least 1 year before the transfer or death of the testator in a joint household. This person was thus either a caretaker of the joint household, or was once a dependent of the beneficiary, donor, or testator for maintenance purposes.
Note: Any donation which does not exceed CZK 15 000 per year (tax period) is exempt from income tax. This stands regardless of the donor.
Taxes on Transfer of Real Estate
The same rules above apply for the transfer of real estate. Real estate is exempt for gift taxes, but it instead falls under income tax. That is, unless you are one of the groups above, in which case the real estate is exempt from taxes.
Donation can be one of the easiest and most inexpensive ways to transfer real estate. If not exempt, freelancers will pay 15%, while legal companies pay 19%. This amount also falls under gratuitous income, and will have subsequent tax rates from one year to the next.
Professional Tax & Trade License Services
Ready to start a trade license and begin saving on taxes? Our professional accountants at Pexpats can advise on everything from freelancing to generating side income as a full-time employee.
Our agents help self-employed entrepreneurs and professional businesses alike to register for and file taxes - accurately, hassle-free, and with maximum savings.
Just reach out and request assistance. We’ll investigate your case and suggest the best tax regime for you, including your eligibility for tax relief, discounts, and bonuses.
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