Flat-rate tax

One monthly payment therefore takes care of your business obligations for the year and saves you the trouble of filing a tax return and insurance statements. If you meet the flat-rate tax conditions, those obligations no longer apply. Although it sounds very simple, the reality is, as always, rather complicated. That is why I decided to write another article summarising all the flat-rate tax conditions, including those that are not obvious at first glance.

General conditions

• The self-employed person is not a VAT payer (except for an identified person)
• The self-employed person is not employed (except under a DPP agreement up to CZK 10,000 or a DPČ agreement up to CZK 3,999 subject to withholding tax, i.e. they must not have signed a taxpayer’s declaration!)
• The self-employed person is not an insolvent debtor (insolvency proceedings have not begun)
• The self-employed person is not a partner in a general partnership or a general partner in a limited partnership
• in the previous year, income did not exceed the selected flat-rate tax band (maximum possible income in the previous year was CZK 2 million)

Questions I frequently discuss with clients

• flat-rate tax is available during maternity and parental leave
• flat-rate tax is available while receiving a disability or old-age pension
• income subject to Czech withholding tax (DPP and DPČ agreements under the conditions above, profit distributions, interest on a non-business account) does not count towards band limits
• income subject to foreign withholding tax (dividends, profit distributions) counts towards the limits
• interest on a business account and bonuses for holding a business account count towards band limits
• income that is tax-exempt (e.g. proceeds from selling securities up to CZK 100,000/year, selling gold, gifts from family) does not count towards band limits – but be extremely careful here: income is exempt only under certain conditions (value, holding period), and it is better to discuss it with someone experienced
• income from capital assets (Czech dividends, interest on a non-business account), rent (movable and immovable property) and other income that is not tax-exempt must not in total exceed CZK 50,000 for the year and does not count towards band limits

Which band do you belong in?

 

note A: An advantage for business owners whose total income is between CZK 1 and 1.5 million: if 75% of this income falls into categories eligible for 60% or 80% lump-sum expense deductions, they can continue paying the lowest available flat-rate tax.

note B: An advantage for business owners whose total income is up to CZK 2 million: if 75% of this income falls into the category eligible for an 80% lump-sum expense deduction, they can continue paying the lowest available flat-rate tax.

note C: An advantage for business owners whose total income is up to CZK 2 million: if 75% of this income falls into categories eligible for 60% or 80% lump-sum expense deductions, they can continue paying a lower flat-rate tax.

Paying flat-rate tax

Amounts valid for 2024. Due by the 20th day of the month.

Joining the flat-rate tax scheme

Self-employed people already in business:

If you decide this is an ideal, straightforward option for you, you must notify the tax office that you are joining the flat-rate scheme by the 10th day of the tax period; the current deadline is therefore 10 January 2024.

Self-employed people who are only about to start their business:

If you are only about to start your activity, this deadline does not apply; you must notify the tax office that you are joining the flat-rate scheme by the date your activity starts – in other words, you start your trade and on that same day you must register for the scheme. However, you must meet the flat-rate tax conditions throughout the calendar year! Typically, for example, you cannot switch from employment to self-employment partway through the year and immediately join the flat-rate tax scheme. You must first start your business using the usual lump-sum expense deduction and join the flat-rate tax scheme only the following year. ☹️

Whether switching is financially worthwhile depends on your individual circumstances and the amount of tax you owe. Please do not hesitate to contact us and we will discuss together whether it is the right option for you.