General Information on the Živnostenský list (Czech Trade license)This page contains basic information about the financial side of a trade license.
60/40 rule, 60% Expenses Deduction, Real ExpensesWith a trade license you are able to deduct much more work-related expenses than an employee.
In many cases, for the Tax Return the so-called 60/40 rule is used: 60% of the trade licenses' revenue is considered expense, whether you have them or not, and the remaining 40% is the basis on which income tax, social- and health charges are calculated.
In case your expenses are (significantly) higher than 60%, it is also possible to use in the Tax Return the real revenue minus the real expenses as Tax Base. With this method, more Tax Benefits can be claimed and also it may be necessary to use this method in order to fulfill the minimum requirements when extending a Business Visa.
This luxurious system of 60% expense deduction has since for the year 2019 been capped to Revenues up to 2 M CZK (cca 80.000 EUR), for the part of the revenue over 2 M CZK the 60/40 rule cannot be aplied anymore (see below)
Total Taxes / Social- and Health ChargesBeing self-employed, basically you have the obligation to pay 3 things:
- income taxes, 15% or 23% of the Tax Base - at the end of the year,
- social charges - monthly minimum charges of 2500 CZK in advance *,
- public health care - monthly minimum charges of cca 2500 CZK in advance **
* US citizens who are able to prove that they pay social charges in the US do not have to pay the social charges in CZ, although for business visa purposes it is not recommended to do so.
** 3rd-Country Nationals who do not have a Permanent Residence Permit do not have to pay into the public health care (because they are obligatory to pay commercial health insurance for the duration of their stay). The exception is US citizens on a business visa - they have the obligation to make contributions (see link below)
IMPORTANT NOTE: US Citizens on a Business Visa, contrary to the above, must enroll into Public Health Care
For trade license revenue less than 400.000 CZK, the minimum social- and health charges will be sufficient: no extra payment at the end of the year required, and your effective Income Tax rate will be 0.
For revenue between 400.000 CZK and 2.000.000 CZK, using the 60/40 rule, the total charges (income tax, social charges, health insurance) for EU- and US- citizens will be around 15% and for non-EU 12% (since they do not contribute to the public health care system), so about 85% (88%) of the revenue is net income.
IMPORTANT 2021 INCOME TAX: affecting Trade Licenses with a Revenue over 2 M CZKThe Trade License income can be filed in 2 ways: either using the real revenue minus the real expenses, or by using the so-called 60/40 rule. The 60/40 rule is almost always used. It means that you can claim a 60% expense deduction on your revenue (even if the the real percentage is much lower). So, the remaining 40% of your invoiced amount is your tax base. On this tax base only 15% income tax is calculated, and if applicable, tax deductions can be applied.
Since this resulted in only 6% Income Tax on your total revenue, starting 2013 the government has taken steps to make you pay more. Already in 2013 and 2014 various tax changes have been implemented, in 2018 the limit to the 60/40 rule was 1M CZK, and now, the 2021 situation is:
- The 60/40 rule can be applied on the first 2M CZK on your Trade License Revenue. Everything over 2M is directly added to the Tax Base.
- For the part of the Tax Base over +/- 1.7 M CZK an additional 'solidarity tax' of 8% is implemented. In order for your Tax Base (as only income) to be over 1.7 M, your annual Revenue must be over 4.2 M CZK
- Note that from 2021 *all* income contributes to the 1.7 M CZK solidarity tax limit: employment, rental income, investments. stocks
- The tax benefits for non-working spouse (+/- 24 K) and children ( +/- 13 K) can be claimed again
IMPORTANT: For TL Revenue over 2M, it may be possible to optimize using various solutions
We highly recommend to book a consultation with our senior consultant if you have a revenue over 2 M CZK, since Tax / Social / Health contributions may amount to up to cca 30% of your revenue (!) - during the consultation we will look at various scenarios to reduce this burden.
VAT Registration - 3 different optionsIf your expected revenue from Czech sources in 12 consecutive months is over 1.000.000 CZK, or you have EU business customers, you have the obligation to register for VAT. There are several kinds of VAT registration, see VAT Registration Types
We highly recommend reading the article below- it is quite a complex story.
Consultation before and after registering a Živnostenský ListThis page has only very general and condensed information. Included in our Trade License registration package is a consultation before registration (the various busines forms, visa information, brief tax /social / health explanation) and one after registration (how to invoice, how to comply to the authorities, what to watch when extending your visa etc etc).
Because of this, you will be fully prepared to start your life as entrepreneur in Czech Republic.
Also, we will inform you automatically when it is time to file Taxes, and, if you have questions while running your business, you can always send an email or book a one-hour consultation.