Cancellation and its obligations

If you decide to stop trading and cancel your trade licence, you must first send a cancellation notice to the trade licensing office. You must also notify the institutions responsible for health and social insurance. You can use the unified registration form sent to the trade licensing office, ticking the boxes requesting that your health insurer and the Social Security Administration are notified at the same time. In my experience with deregistering for personal income tax, you need to let the calendar year finish, file your income tax return and only then deregister the tax.

And what if you decide to return to business? You will face the same administrative rounds as when you first registered your trade. Cancelling a trade licence is free; registering a new one costs CZK 1,000.

Suspension and its benefits

If you are thinking of simply putting your business on hold and believe you will return to it in the future, then suspension is the ideal option. You choose a fixed suspension period, which can even extend several decades into the future. Of course, you can resume your trade earlier than originally planned.

Suspension is reported in the same way as cancellation. 

However, resuming your trade is easier in this case, especially if you have a regulated trade. You do not have to provide the evidence again. Another advantage is that this administrative step is free. 

While the business is suspended, I would at least submit a declaration to the tax office stating that no obligation to file a tax return has arisen.

What about advance payments?

The situation is the same whether you cancel or suspend your trade. From the following month, you no longer have to pay monthly health and social insurance advances or any income tax advances. However, you must make sure that at least some health insurance is being paid for you. If you stop because you are taking a job, your employer starts paying the minimum contributions. If you stop because of study, registration with the Labour Office, maternity, retirement or imprisonment, the state starts paying the minimum contributions. The prison example is a little joke, though it is true. 🙂

What should you do if you simply no longer want to work, for example because you live on passive income not subject to compulsory insurance contributions (rent or dividends), or are simply financially secure? You must make sure you register for insurance as an OBZP, i.e. a person without taxable income, and pay health insurance in that category. Social insurance is more flexible: it is paid when there is relevant income. With passive income, or situations where the state pays health insurance, you simply do not deal with social insurance at all. However, if you are an OBZP and do not pay social insurance, those months and years will not count towards the qualifying years for your pension. 

Any other complications?

Your final return must include remaining inventory, regardless of whether you claimed actual or lump-sum expenses. This inventory must be brought back into taxation, increasing your tax base and thus income. Why? Essentially, you claimed those stocks as expenses at some point, so you must remove them from expenses because they did not serve to generate income. You must also remember to account for unpaid liabilities and receivables in the return. Again, you increase the tax base.

If you are VAT-registered and want to stop, things become more complicated. There is a difference between ending and suspending activity. Ending it means it is over, and you can apply to cancel your VAT registration. That may sound like a win, but you might have to repay some VAT. Pay particular attention to small assets costing more than CZK 10,000 acquired in the previous 12 months, movable assets above CZK 80,000 acquired in the previous 5 years (the threshold was CZK 40,000 until 2019–2020), and immovable property acquired in the previous 10 years. You must repay a proportion corresponding to the unused months or years of the adjustment period. For example, if you cancel VAT registration 3 years after claiming a deduction on a car, you must repay ⅖ of the VAT originally deducted to the tax office.

If you suspend activity, you must keep filing zero VAT returns during the suspension (VAT control statements and EC Sales Lists are not required). If you have been VAT-registered for at least a year and your turnover for the last 12 months falls below CZK 1 million, you can deregister. On the other hand, suspension can defer possible repayment of VAT previously deducted.

If your self-employment is even slightly more complicated (selling goods, manufacturing or claiming actual expenses), or you are VAT-registered, I recommend discussing the closure with someone who understands the rules. If you are unsure what to do, please get in touch and we can look at it together. 🙂