Changes to flat-rate tax from 2023

Updated 22.12.2022

What is flat-rate tax?

I have already described what flat-rate tax is and how it works on the blog. I have also covered entering or leaving the scheme and the subsequent obligations. In 2022 flat-rate tax is CZK 5,994 — made up of CZK 3,267 social security, CZK 2,627 health insurance and CZK 100 income tax.  

The new form of flat-rate tax 

Following the increase in the VAT threshold to CZK 2 million, the limit for using the flat-rate tax scheme is also planned to increase to CZK 2 million. As this covers quite a broad income range, the Ministry of Finance has announced that flat-rate tax will operate in 3 bands. Each band will have a different flat-rate tax amount, again made up of social security, health insurance and income tax. Your band is to depend on your income and type of activity. Yes, things are getting complicated again. 😀

The income divisions are:

• up to CZK 1 million,
• CZK 1–1.5 million,
• up to CZK 2 million.

For expense percentages, we use the established income tax categories:

• 80% expenses — craft trades and agricultural activity
• 60% expenses — licensed trades (most business owners)
• 40% expenses — other activities (for example, doctors, lawyers and artists)
• 30% expenses — rental income

note A: A concession for business owners whose total income is between CZK 1 and 1.5 million: if 75% of that income falls into the 60% and 80% lump-sum expense groups, they can continue paying the lowest possible flat-rate tax.

note B: A concession for business owners whose total income is up to CZK 2 million: if 75% of that income falls into the 80% lump-sum expense group, they can continue paying the lowest possible flat-rate tax.

note C: A concession for business owners whose total income is up to CZK 2 million: if 75% of that income falls into the 60% and 80% lump-sum expense groups, they can continue paying a lower flat-rate tax.

What the bands mean 

Your band directly determines your monthly flat-rate payment:

In band 1 the flat-rate payment will be CZK 6,208 a month. It is again to include CZK 100 income tax, together with the minimum health-insurance advance and an increased minimum social-security advance. 

In band 2 the flat-rate payment will be CZK 16,000 a month. It will include CZK 4,963 income tax, CZK 7,446 social security and CZK 3,591 health insurance. 

In band 3 the flat-rate payment will be CZK 26,000 a month. It will include CZK 9,320 income tax, CZK 11,388 social security and CZK 5,292 health insurance. 

Naturally, even in this form flat-rate tax may not benefit every self-employed person, so it is worth doing the sums carefully. 🙂 

What is still unclear

Since the Ministry of Finance has announced the changes only in an article on its website, answers to some of the questions these flat-rate tax bands will undoubtedly raise are still unclear. 

What is clear, however, is that business owners in the flat-rate scheme will have a new obligation to record income in connection with these new bands.

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I think we have plenty of fun ahead of us. :-)))

If you are unsure, do not hesitate to get in touch and we will look at it together. 🙂