Shrnutí: Accounting records must be maintained primarily by legal entities, self-employed individuals registered in the Commercial Register, and business owners whose revenue for the previous calendar year exceeded 25 million CZK. For smaller self-employed individuals, tax records or flat-rate expenses are generally sufficient. In this article, we’ll explain exactly when this obligation arises, how accounting differs from tax records, and how long you must retain individual documents.
| Situation | Accounting | Tax Records |
|---|---|---|
| LLC, corporation, cooperative | Mandatory | Not sufficient |
| Self-employed person registered in the Commercial Register | Required | Not sufficient |
| Self-employed individual with revenue exceeding 25 million CZK | Required after the statutory transition period expires | Not sufficient |
| Ordinary self-employed individuals below the threshold | Voluntary | Generally possible |
| Self-employed individuals claiming flat-rate expenses | Generally not | They are not required to maintain traditional tax records, but they do keep the necessary data |
Not sure whether you’re already required to keep accounting records, or if tax records are still sufficient for you? We’d be happy to advise you so that you don’t find out you’re required to start keeping accounting records only during a tax audit.
Simply put: accounting is a systematic record of an entrepreneur’s assets, liabilities, income, and expenses (revenue and costs). The Accounting Act states that accounting must provide a true and fair view of the financial position of a given company or business owner.
In practice, this means that we record every important financial transaction in the accounting records—that is, invoices issued and received, all bank transactions, employee wages, asset purchases, loans, shareholder contributions, and profit distributions. We systematically record all these transactions in the accounting ledgers so that they are clear and traceable. At the end of the year, these records are used to prepare financial statements, which typically include a balance sheet, an income statement, and, if applicable, other reports as required by law or the specific situation.
Accounting serves several purposes:
Not sure how to do your taxes correctly so you don’t get it wrong? We can help you navigate the law, whether it’s dealing with a specific tax situation, preparing for an audit by the tax authority or defending yourself in court.
Many self-employed individuals wonder whether to keep accounting records or tax records. Tax records are a simpler system in which you primarily track actual income and expenses for income tax purposes.
Accounting, on the other hand, operates on the so-called accrual basis —you record revenues and expenses in the period to which they relate in terms of substance and time, not based on the payment date. This makes it easier to determine the company’s actual financial position, but it is more complex to maintain.
This is precisely why it is often advantageous for smaller businesses to stick with tax records until they are required to switch to accounting.
Find out when it makes sense to switch from the tax records system to the flat-rate system —and vice versa.
The key term from which everything else stems is “accounting entity.” This is how the Accounting Act refers to anyone who is required to maintain accounting records. Accounting entities primarily include:
Once you fall into one of these categories, the law requires you to keep accounting records. At that point, a simple table of income and expenses is no longer sufficient.
As a self-employed individual (OSVČ), you may find yourself in one of two basic situations from an accounting perspective. In the first situation, you are not required to keep accounting records. This typically applies if you are not registered in the Commercial Register, your revenue for the previous calendar year did not exceed 25 million CZK, and no other legal regulation requires you to keep accounting records. In such a case, you maintain tax records or, if applicable, claim flat-rate expenses.
The second situation arises when you are required to maintain accounting records. This is generally the case if you, as an individual, are registered in the Commercial Register, or if your turnover exceeded 25 million CZK. The 25 million CZK turnover threshold is calculated in accordance with the VAT Act. Typically, this refers to the value of supplies made excluding VAT, including certain exempt supplies. Once you exceed this limit, you become an accounting entity as of the first day of the following year, and you must maintain accounting records starting from the next accounting period.
Example: Imagine you are a self-employed individual running an online fashion store. In 2024, you achieve a turnover of 27 million CZK. As of January 1, 2025, you become an accounting entity, but your obligation to maintain accounting records does not take effect until the next fiscal year, i.e., 2026. By providing this grace period, the Accounting Act ensures that you have enough time to prepare for the change.
Even if you are self-employed and the law does not require you to keep accounting records, you can choose to do so voluntarily —for example, because your business is more complex, banks require financial statements for a loan, or you have an investor who demands “full-fledged” accounting.
Banks and investors typically require financial statements for the past few years and monitor not only profits but also debt levels, liquidity, and cash flow stability. If you keep your books in an organized and timely manner, you’ll have a better chance of securing a loan or investment on reasonable terms. At the same time, financial statements quickly reveal whether your numbers are consistent over the long term.
During the transition, a so-called “transition adjustment” is typically made—inventories, accounts receivable, accounts payable, and sometimes even unpaid advances are restated to prevent double taxation or, conversely, the omission of certain revenues or expenses.
Entities registered in the public registry—typically limited liability companies (s.r.o.), joint-stock companies (a.s.), associations, foundations, or homeowners’ associations (SVJ)—are required to publish their financial statements. If you are a self-employed individual and are not registered in the public registry, you are not required to file your financial statements with the Collection of Documents, even if you maintain accounting records.
Most accounting entities use what is known as double-entry bookkeeping. This system works by recording each accounting transaction in two accounts—on one side, “debit,” and on the other, “credit.” This always results in an equation that must balance. Furthermore, double-entry bookkeeping captures not only cash flows themselves but also receivables, payables, asset depreciation, provisions, and other non-cash items that affect the company’s financial performance.
At the same time, the accrual principle applies. This principle states that revenues and expenses are recorded in the period to which they substantively relate, rather than based on when the funds are actually credited to the bank account. This has a fundamental impact on how accounting affects taxes. The accounting profit or loss—that is, the profit or loss reported in the financial statements—may not correspond to the current cash balance in the account. And it is precisely this accounting result that, only after adjustments in accordance with the Income Tax Act, becomes the tax base—the so-called taxable income.
From an income tax perspective, what matters most in accounting is what is and what is not tax-deductible. We focus primarily on tax-deductible expenses—that is, expenditures that the Income Tax Act recognizes as costs incurred to generate, secure, and maintain income. Conversely, non-tax-deductible expenses—such as certain contractual penalties, entertainment expenses, or portions of expenses related to personal consumption—do not reduce the tax base. Tax depreciation of tangible assets—typically machinery or vehicles—also plays an important role, as it often differs from accounting depreciation. The same applies to reserves and allowances —these are tax-deductible only if they meet specific conditions.
If you are a value-added tax ( VAT ) payer, the VAT Act requires you to maintain records from which you can correctly prepare both your VAT return and your control report.
In practice, this means that as part of your accounting, you must continuously maintain a record of all taxable transactions made—that is, invoices issued to both domestic and foreign customers—as well as a record of all taxable transactions received—that is, invoices received from suppliers. At the same time, you must clearly distinguish between the various VAT rates and track exempt transactions, intra-Community supplies and acquisitions of goods within the European Union, as well as imports and exports. Based on this data, you then need to have sufficient supporting documentation to correctly calculate your right to a VAT deduction. Of course, you are also required to retain tax documents for the period specified by law.
These records are usually part of your accounting system, most often in accounting software, but it is crucial that they allow for a clear reconstruction of the VAT calculation. In other words, during a tax audit, your records must clearly show which specific documents and data you used to arrive at the reported tax and deductions.
This brings us to a question that concerns nearly every business owner: how long should you keep your accounting records and various types of tax documents? The answer isn’t entirely straightforward, as several regulations come into play— the Accounting Act, the VAT Act, and the Tax Code —and each sets its own time limits.
Simply put, the Accounting Act sets two basic retention periods. You must retain your financial statements and, if applicable, your annual report for at least 10 years. Other accounting documents—specifically, accounting ledgers, inventory lists, depreciation schedules, the chart of accounts, and other accounting records that demonstrate you are maintaining your accounts properly—must be archived for at least 5 years. These retention periods always begin at the end of the accounting period to which the documents relate. Therefore, if you have financial statements for the year 2024, you should retain them at least until the end of 2034.
If you are a VAT payer, an additional layer of requirements applies. The VAT Act requires you to retain tax documents relevant for determining VAT for at least 10 years from the end of the tax period in which the transaction took place. This category includes, in particular, issued and received invoices, as well as credit and debit notes, documents related to intra-Community transactions, and documents related to assets for which you claim VAT, typically real estate with a long tax deduction adjustment period.
The Tax Code also plays a role, as it establishes the so-called “tax assessment period.” Under normal circumstances, this period is 3 years from the end of the deadline for filing a tax return. However, this three-year period may be extended—for example, by the filing of an amended tax return, the initiation of a tax audit, or other actions by the tax authority. As a result, in practice, it may last up to 10 years and, in exceptional cases, even longer.
That is precisely why we recommend retaining accounting and tax documents for at least 10 years, and even longer in the case of long-term investments, real estate, or more complex tax disputes. This will ensure that, even years later, you will be able to provide evidence of all relevant facts should the tax authority revisit that period.
The good news is that today you don’t have to keep accounting records solely in paper form. The Accounting Act explicitly permits archiving in both paper and electronic form, provided several basic conditions are met:
In practice, this means you can scan and digitize invoices and other documents and then store them in an accounting system or another secure electronic repository. At the same time, however, you must ensure that these electronic files remain legible even many years from now—which is why the PDF format, regular backups, and access rights settings are typically used. If you convert a paper document into electronic form and meet the requirements listed above, it is not always necessary to also archive the original paper document.
Not sure how to do your taxes correctly so you don’t get it wrong? We can help you navigate the law, whether it’s dealing with a specific tax situation, preparing for an audit by the tax authority or defending yourself in court.
Underestimating the importance of bookkeeping and tax record-keeping really may not pay off. There are essentially two types of risks— fines and tax consequences.
First, you face a fine for failing to maintain accounting records at all, maintaining them in violation of the law, or failing to retain accounting records for the required period. Violations of accounting obligations can result in fines, which may even be calculated as a percentage of the value of your assets—so for larger businesses, these fines can be quite significant. The specific amount also depends on the severity and consequences of the violation.
Second, if you are unable to provide proof of your expenses or tax documents during a tax audit, the tax authority may take direct action regarding your taxes. For example, it may disallow certain expenses as tax-deductible, assess additional tax, and impose penalties and late-payment interest. A single lost invoice or a missing archive can thus result in a financial loss—money that you will have to pay to the government, even many years after the original transaction took place.
Let’s look at a few typical situations you might encounter in practice:
Imagine a self-employed individual—for example, a graphic designer—who has an annual turnover of around 1.5 million crowns, is not a VAT payer, and is not registered in the Commercial Register.
In such a situation, they are not required to maintain accounting records. They may keep tax records or, alternatively, opt for a simpler regime and use flat-rate expenses. However, this does not mean they do not have to handle anything. They must still file a tax return and keep all tax-related documents, archiving them for at least the duration of the tax assessment period; in practice, a minimum of 10 years is recommended.
Another scenario involves a self-employed individual who runs a successful online electronics store. If her revenue in 2024 exceeded 25 million CZK, she became an accounting entity as of January 1, 2025. However, they will not be required to begin keeping accounting records until the fiscal year beginning in 2026. Until then, they must prepare for the transition, particularly by correctly transferring assets, inventory, receivables, and payables.
Typically, such a business owner will begin addressing the so-called “transition bridge” —that is, how to correctly transfer the balances of assets, inventory, receivables, and payables from tax records to the accounting system so that everything aligns with past records and complies with tax regulations.
From our experience: Entrepreneurs often focus solely on the threshold for mandatory VAT registration and overlook the fact that separate rules apply to the obligation to maintain accounting records. The most common complication, therefore, does not arise from exceeding the turnover threshold itself, but from the delayed preparation of the transfer of inventory, receivables, payables, and assets from tax records to the accounting system.
A third scenario might be when two partners establish a limited liability company (s.r.o.) and begin operating a small construction firm.
A limited liability company is automatically considered an accounting entity, so it must maintain accounting recordsfrom the moment it is entered in theCommercial Register. From the very first document received or issued, everything must be properlyrecorded. If the company is also a VAT payer, it is required to maintain the relevant VAT records in accordance with the VAT Act. For such a company, it is therefore crucial to set up accounting and taxes correctly from the very beginning—distinguishing between advance payments and invoices, and correctly recording depreciation of machinery, contractual penalties, travel reimbursements, and other items. It is precisely these settings that determine both corporate income tax and the correct reporting of VAT.
Accounting and tax management depend primarily on whether you are an accounting entity. This includes any legal entity, as well as self-employed individuals registered in the Commercial Register or entrepreneurs whose turnover exceeded 25 million CZK in the previous year, as defined by the VAT Act. In such cases, tax records alone are no longer sufficient, and you must maintain double-entry accounting based on the accrual principle—that is, record expenses and revenues in the period to which they relate, and the tax base is then calculated from this accounting result after adjustments. If you are a VAT payer, you also have the additional obligation to keep detailed records of taxable transactions so that you can correctly prepare your tax return and control report. Smaller self-employed individuals who do not meet the threshold or other conditions may continue to use tax records or take advantage of flat-rate expenses; however, they often voluntarily choose to use accounting due to requirements from banks, investors, or the nature of their more complex business operations.
Proper document archiving is also crucial. You must retain financial statements for at least 10 years, most other accounting records for at least 5 years, and VAT documents for 10 years—and the standard three-year period for tax assessment can, in practice, be extended to more than 10 years.
Documents can be archived in both paper and electronic form, but you must always ensure their authenticity, integrity, and legibility throughout the entire period. Underestimating the importance of bookkeeping and record-keeping can lead not only to heavy fines under the Accounting Act, but more importantly to additional tax assessments, disallowance of expenses, and other financial consequences—even retroactively for many years.
Practical experience: During a tax audit, it is generally not enough to simply have a saved file containing an invoice. The business owner must also be able to document the invoice’s origin, its connection to a specific transaction, and how the amount was reflected in the accounting records or tax return. Therefore, the main problem often lies with documents stored without a related purchase order, contract, or handover report.
All Czech legal entities and self-employed individuals (OSVČ) must maintain accounting records if they are registered in the Commercial Register, have voluntarily opted for accounting, or exceeded a turnover of 25 million CZK in the previous calendar year. For other self-employed individuals, tax records or records necessary for claiming flat-rate expenses are generally sufficient. Financial statements and annual reports must be retained for ten years; most other accounting records for five years; and VAT documents for ten years. Electronic archiving is permitted provided that the authenticity of origin, the integrity of the content, and the legibility of the documents are preserved. Missing or insufficient accounting records may result in the disallowance of expenses, additional tax assessments, interest, penalties, and fines under the Accounting Act.
A fiscal year is an accounting period that does not begin on January 1, but on a different date—for example, from April 1 to March 31 of the following year. This can be useful for companies whose business is highly seasonal (e.g., agriculture, tourism) and that want the end of the fiscal year to fall outside the peak season.
The law does not explicitly require the retention of all electronic communications, but it does require that the authenticity of origin, integrity, and legibility of accounting and tax documents be verifiable. Therefore, if essential information is contained only in an email (e.g., confirmation of a discount, a price change, or acceptance of an offer), it is more practical to save such a message with the document or in the contract file. This way, you’ll avoid a situation where you can provide the invoice but not the circumstances under which it was issued.
First, the tax authority will ask you to provide or submit specific documents and set a deadline by which you must respond. If you fail to provide the documents, the tax authority may assess your tax using substitute data—that is, based on estimates, available information, and comparisons—which often results in a higher tax bill. At the same time, it may impose a fine and charge late-payment interest.
In the case of corporations (s.r.o., a.s.), a managing director may be held personally liable for the company’s debts if he or she breaches the duty to act with due care—and improper accounting is a strong indication to the courts that this duty has been breached. In extreme cases, poor or intentionally falsified accounting may constitute the elements of the criminal offense of falsifying financial statements and asset records. Self-employed individuals risk having to pay back taxes and penalties directly from their personal assets as a result of such errors.
Not sure how to do your taxes correctly so you don’t get it wrong? We can help you navigate the law, whether it’s dealing with a specific tax situation, preparing for an audit by the tax authority or defending yourself in court.
Ondřej is the attorney who came up with the idea of providing legal services online. He's been earning his living through legal services for more than 15 years. He especially likes to help clients who may have given up hope in solving their legal issues at work, for example with real estate transfers or copyright licenses.
Ondřej is the attorney who came up with the idea of providing legal services online. He's been earning his living through legal services for more than 15 years. He especially likes to help clients who may have given up hope in solving their legal issues at work, for example with real estate transfers or copyright licenses.
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