Details about the Employee Income Tax in Czech Republic
Czech Personal Income Tax is 15% for most incomes, but 22% for over 1.2 M CZK.In Czech Republic, an employee pays 15% Income Tax, unless he earns more than 48 times the average salary (1.242 432 CZK - about 50.000 euro) annually. The amount over the 1.2 M CZK is taxed with an additional solidarity tax of 7% (so 22% in total). (starting 1.1.2013).
Note that if an employee is subject to Solidarity Tax, it will be necessary to file a Personal Income Tax Return, as only the basic 15% is withheld at source.
People that work on a Trade License also pay 15% or 22% income taxes, but on only 40% of their revenue (60% is the standard expense deduction). This means that even if the revenue would be the same as the gross salary of their colleague, the freelancer will pay lower taxes / social / health charges then his employed colleague, especially when his revenue stays under 2 M CZK annually.
Trade License holders always need to file an Income Tax Return (even if there was 0 revenue in that year).
Determining Tax Residency
As a basic rule you are tax-resident (i.e. you fall under Czech Income Tax legislation)
- If you have spent 183 or more consecutive days in Czech Republic,
- OR If your 'most habitual place of living' is Czech Republic,
- OR 'the center of your economic and social activity' is Czech Republic
If this period is shorter, or it is obvious you actually are not living here, then most likely you will have to pay taxes in another country, usually on your global income (so including income from Czech Republic in that case).
For 3rd Country Nationals but even some EU Citizens there may be bi-lateral tax treaties with different conditions influencing the rules outlined above.
Therefore we recommend to apply for Tax Residence here as soon as possible, because most likely you'll pay less taxes than in your home country.
Retroactively valid since 01.01.2009 there is the long-awaited renewed treaty on double taxation for U.S. citizens, which has also an effect on social charges and Medicare. More info on US social security here.
Tax Benefits on Personal Income TaxIf your employer has registered you properly as employee, the taxoffice already is aware of your income and family situation, and you are not obligated to file a Tax Return, provided that you have no other source of income or are not subject to Solidarity Tax.
However, time and again we see that employers do not provide complete information about their employees, or do not file a Tax Return at all. Most of them provide the employee only an Annual Income Statement (which is not the same as filing a Tax Return). Not filing means: no mortgage deduction and no Tax Benefits / Tax Deductions, which for an average family is 70.000 CZK annually.
It is possible to file corrected Tax Returns up to 3 years back, so in that case missed out Tax Benefits can be reclaimed and will be paid out to you !
Filing a Personal Income Tax ReturnIn the following cases it is wise or obligatory to fill in an Income Tax Return:
- Your employer does not explicitely ask about your family situation (so no tax benefits),
- Your employer only provides and annual income statement (which is not a Tax Return),
- You work on a trade license as freelancer,
- You have worked abroad as employee,
- You pay mortgage (the interest part can be deducted from your income),
- You received rental income or other sources of income inside Czech Republic,
- You have had other sources of income outside Czech Republic,
- Your salary is higher than 1.2 M CZK anually and is subject to Solidarity Tax,
- There are bi-lateral tax agreements with your home country.
Unlike many people think, you are supposed to file for your global income, not only for the czech part!
It is very important to get income statements from every employer of the past year, because they are vital for filing or checking your tax return form.