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 2015 been capped till revenues up to 2 M CZK, 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 22% of the Tax Base - at the end of the year,
- social charges - monthly minimum charges of 1943 CZK (2015) in advance *,
- public health care - monthly minimum charges of 1797 CZK (2015) 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.
** 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).
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.
Significant Contribution Increase for a Trade License with a revenue over 2 M CZK / yearStarting 2015, for revenue over 2 M CZK, Income Tax / Social Charges / Health Contributions will go up significanty. Up to 2 M CZK, T / S / H charges will still be 14.5%, but over 2 M CZK, they can be over 25%.
This is because the 60/40 rule can not longer be used for revenue over 2 M CZK and everything over 2 M CZK is directly added to the Tax Base, which also affects Social and Health contributions.
Secondly, for Revenue over 2.4 M CZK, also the 'solidarity tax' will kick in, raising the Income Tax from 15% to 22%
- 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 30% of your revenue (!) - during the consultation you will look at the various options to reduce this burden..
VAT Registration - 3 different optionsIf your expected revenue in Czech Republic in 12 consecutive months is over 1.000.000 CZK, or you have EU customers, you are obligatory to register for VAT. An unpleasant change since 1.1.2013 is that even under 10 M CZK revenue monthly VAT reporting is used instead of quarterly filing. This can only be changed after 2 years.
One can choose to voluntarily register for VAT in case a VAT registration is needed, even if the revenue will never reach 1 M CZK / year.
If you do need to register for VAT, because you trade in the EU, but only sporadically invoice into the EU, you might consider a 'VAT-light' registration instead of a full VAT Registration. With 'VAT-light' you only file reports in the months you send invoices to an EU-client. Downside is that you cannot claim any VAT on expenses.
We highly recommend reading the articles in the following 2 links - it is quite a complex story.
With invoices to customers in the EU, you will have to file EU Sales lists as well, see
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.