Choosing between Employee or Živnostenský List (Freelance)?

Having employees is expensive business. The total costs for the employer are almost twice of what an employee gets on his bank account. Besides that, many times companies do not want extra employees, or are just looking for temporary workforce and prefer to have external workers.

If the employing company is located outside of Czech Republic and the employee is located in Czech Republic (or the other way around), an employment contract becomes even more complicated (more expensive).

Getting a Work permit is a long and complicated process, especially if the person has no visa yet or is not living in Czech Republic. Most employers are not looking forward to dealing with the Labor Office.

Therefore, for an employer there are benefits in paying someone on freelance-basis, as external worker on a trade license (zivnostensky list).

Benefits using a trade licence (živno):
  • deduct more costs (in most cases 60% of the revenue),
  • pay less social / health charges * and income taxes compared to getting a salary,
  • you can have a živnostenský list and be a normal employee at the same time,
  • a "živno" can be put on hold - no social / health charges then,
  • when you lose your client, your Visa does not expire right away as with Visas for employment,
  • there is no need for a work permit, as you are not an employee,
  • it is very easy to invoice clients in CZ and in foreign countries without difficult employment contracts.
Downsides are:
  • less jobsecurity (write a watertight contract),
  • the need for an accountant (annual Income Tax Return, for some VAT Returns),
  • paying social- and health insurance * + income tax are now your responsibility,

* 3rd-Country Nationals without Permanent Residence Permit do not pay monthly health charges.

Instead of a živnostenský list also an SRO could be used, but an sro is much less cost effective when it comes to paying salary. A net Salary is about half of the Total Employment costs, whereas on a trade license, Tax + Social charges are +/- 12% of the revenue (up to 2 M CZK), and EU-Citizens the obligatory Public Health Contributions are 3% of the revenue (up to 2 M CZK)

Besides, from 1.1.2011 the Ministry of Interior requires that directors on a Business Visa receive a fee for their activities (on which social- and health charges need to be paid), making directorship far less attractive than before.