Flat-rate tax and mortgage: how banks assess the income of self-employed persons in the flat-rate regime

In this article, we clearly explain what the flat tax is, what specifics it has for a mortgage, how banks calculate income (for obtaining a loan and for determining its ceiling), how the calculation differs for flat vs. non-lump sum self-employed, what documents banks most often ask for and what to watch out for.

What is a flat-rate tax

Flat tax for sole traders is a simplified scheme where you pay income tax, social security and health insurance in one monthly payment. The scheme has been used in the Czech Republic since 2021 and is intended for self-employed people with income from self-employment of up to CZK 2 million per year. In addition, from 2023, there are three bands, which depend on the amount and nature of your income (depending on the extent to which activities with higher fixed expenses predominate). Entry into the flat-rate scheme is normally reported by 10 January of the year in question.

What does this mean for you in practice? If you meet the conditions of the flat-rate scheme and have no other income that would trigger the obligation to file a return, you usually do not file a tax return or annual statements with the Social Security and Health Insurance Institutions. This is convenient in the normal course of business, but with a mortgage it has a consequence: the bank lacks the classic tax return as proof of your income.

Flat tax and mortgage: why banks are tackling your turnover

For self-employed people outside the flat-rate tax, they usually work with the tax base from their tax return. However, for lump sum tax there is typically no return. Therefore, banks will logically reach for something that always exists – bank statements with business sales. They then derive the net deductible income from these using an internal methodology. This is not to say that a lump sum automatically means a lower chance, as income assessment is no longer a problem for many banks.

However, it must be taken into account that individual banks differ in what documents they require and what percentage of turnover they will accept. Some banks admit a fixed percentage of annual turnover (in practice, it is said to be around 15-30%), while others proceed according to the industry, seasonality and stability of payments.

In practice, if two entrepreneurs show the same turnover, they will come out with different “net income” in different banks and therefore different maximum mortgage limits. For example, if you are in a business that generates a steady income and ongoing invoicing, a methodology based on a percentage of turnover is likely to work out better than for highly seasonal activities where the bank prefers to “spread” turnover over a longer period or ask for more detailed supporting documents.

How long you have been in business continuously also plays a role – many banks prefer the self-employed to have been in business for at least a year and not to have insurance arrears.

How the maximum is determined: LTV, DTI and DSTI in 2025

The mortgage amount is not determined by eligible income alone. Since spring 2022, the Czech National Bank has been given statutory powers to set LTV, DTI and DSTI for loans secured by real estate, and after a series of changes between 2023 and 2024, only LTV is now binding. Thus, the upper limit of LTV is now 80% and 90% for applicants under 36 years of age. The DTI and DSTI limits are therefore currently non-binding. This does not mean that banks have stopped looking at them – it is just no longer an across-the-board regulatory limit.

In practice, this means that for the same property and the same eligible income, one bank may accept a higher repayment burden than another by internal rule, while LTVs of 80/90% as a cap remain common.

Creditworthiness of the applicant

In addition, from a legal perspective, it must not be forgotten that banks are required by the Consumer Credit Act to assess the creditworthiness of each applicant. This is why banks require full and truthful information about your income, liabilities and expenses, and why they are not afraid to dig into the details.

In practice, the bank builds up a complete picture of the household from several layers. On the first layer is income – usually from pay slips and bank statements for employees, tax returns for the self-employed , or in the case of a flat-rate scheme, account turnover, which is converted into a recognisable net income.

The stability and predictability of this income is assessed (length of employment, probationary or notice period, length of business, seasonality, continuity of invoicing, contracts with customers). In the second layer, the bank maps liabilities and recurrent expenses: existing loans, leases, credit card and overdraft limits, maintenance obligations, housing costs and basic household operations. Household structure (number of adults, dependent children) is also taken into account, as this affects the level of necessary living costs.

Your credit history in the BRKI/NRKI and SOLUS registers is also part of the check. Banks also use stress tests (e.g. loss of part of income), take into account the maturity and fixation, the age of applicants, the type and currency of income and co-borrowers. For the self-employed, they look at the length of business, fluctuations in turnover, dependence on a single client and financial reserves. In terms of collateral, the valuer determines the normal price and the bank derives the LTV and assesses the liquidity of the collateral.

In short, the goal is a loan that matches the household’s realistic and sustainable ability to pay – which is why clarity of statements, regular payment of lump sum advances and any stable side income matter so much in a lump sum scheme.

How banks assess the income of self-employed persons in the flat-rate scheme

In the absence of a tax return, the bank will create a substitute: it will build up a picture of your business from your bank statements, evidence of regular lump-sum tax payments and, if necessary, invoices or contracts. They then apply a coefficient to the turnover – for example, they recognise a pre-determined proportion of your annual income as ‘net’ deductible income and apportion this over the months.

It is not uncommon for one bank to take 25% of turnover and another 20%, while a third will request a longer period and work with an average. It is therefore wise to approach several banks or an independent broker and have your turnover income calculated to suit.

Example: suppose you have an annual turnover of CZK 1 200 000 and no other loans. One bank’s methodology will give you 25% of your turnover – so CZK 300,000 a year, roughly CZK 25,000 a month. In another bank, they recognise 20% and you get to CZK 20 000 a month. The difference of five thousand in your monthly deductible income, combined with the bank’s tolerance for DSTI, can determine whether you qualify for a mortgage hundreds of thousands higher. At the same time, if you’re under 36, a higher LTV (up to 90%) can reduce the equity requirement – but it doesn’t exceed the collateral value cap, it just shifts the ratio of foreign vs. own money.

What documents to prepare

Although the specific list may vary from bank to bank, there are three basic pieces of evidence that are repeated across the market in 2024-2025: business bank statements with clearly visible business income, proof that you pay a flat tax (which tends to be on the statements themselves), and proof of debt-free status (tax office, CSZ, health insurance company).

Some banks will also ask for personal account statements if the sales flow through it, or request copies of invoices or contracts with major customers. It is also not uncommon for the bank to be interested in a longer history – for example, 6 to 12 months, and to check the internal history of accounts of its own clients without asking for statements Confirmation of debt-free status can then be processed electronically and does not represent a major administrative burden.

How banks approach different industries and seasonality

Banks perceive that not every industry is the same. For example, a designer or IT consultant with a steady income looks different in the numbers than a seasonal craftsman. That’s why banks combine percentages of turnover with expert logic (stability of contracts, length of business, fluctuations in income, cash deposits, etc.).

Special situations: transition between schemes, ancillary revenues and rule changes

It may be that you are in the flat tax one year and out of it the next, or that you have a side job or rental. In these situations, the bank will piece together the overall picture from the available documents. If you don’t file a return in a given year (because you didn’t qualify for a flat rate or have other taxable income), the traditional assessment and tax reports come back into play. When you do not file a return, the primary basis is turnover. Banks are used to these mixes – for them, truthfulness and completeness of information and stability of income are crucial, not the scheme.

When a self-employed flat-rate taxpayer has to file a return and what it does to the mortgage

There are situations where even a taxpayer in a flat rate scheme must file a return (e.g. failure to meet the conditions of the scheme, other taxable income). In such a year, you will again provide the bank with the standard DP and statements. The CSSA explicitly states that a taxpayer whose tax is not equal to the flat-rate tax must file a return and statements. In the meantime, some certificates can be obtained if you have paid lump sum advances, but this does not replace the final determination of the basis. So expect banks to ask for a combination of statements and returns in such a year.

The most common reasons why a self-employed person in the flat-rate scheme does not get a mortgage

The lump sum itself is not a problem, but in practice we encounter several recurring obstacles. The most common ones are:

• Low deductible income or a short business history: the bank uses the turnover on the account and calculates the deductible net income according to its methodology. If your turnover fluctuates or you have been in business for less than a year, your income may be insufficient.
• Opaque statements and cash business without a trail: With a flat rate, the readability of statements is key. If sales are half in cash, business and personal payments are mixed, regular flat tax payments are missing, or the bank sees only a sketchy history, it can’t justify the income.
• Record in the registers: Nonpayment or delinquency makes the bank cautious, and a negative credit history is among the most common reasons for rejection.
• Too high a repayment burden due to other commitments: even unused limits on credit cards and overdrafts reduce creditworthiness. When there is not enough margin left after deducting existing repayments and frameworks, the bank will not grant the application.
• Collateral problem or too high LTV: The expert valuation may come out lower than you expect or the collateral is less liquid (studio, holiday home, specific construction). The bank will then request more equity or reject the application. In addition, mandatory LTV limits apply (80%, 90% up to 36 years); the bank may not accept LTVs exceeding these limits.
• Tax, social security or health insurancearrears are a warning sign for the bank. Many institutions will therefore ask for proof of no debt. If you do not provide proof of these or the debt is shown, the application will be stopped.
• Mismatch between the flat-rate scheme and reality: If you have to file a tax return in a given year (e.g. due to other income or not meeting the lump sum conditions) and you don’t provide proof, the bank doesn’t have the full picture and may delay or reject the application.
• The bank also assesses the stability of the industry, the type of contracts and the currency of income. Income in less common currencies or highly seasonal industries may lead to a more stringent assessment, especially if there are no reserves or long-term contracts.

How to get the most out of a flat tax mortgage

These are not tricks, but clever preparation. In fact, as a self-employed flat-rate taxpayer, you can make the bank’s job a lot easier and increase your chances of getting a higher loan. How to do it?

1. Organise your income account. Ideally, separate your business and personal accounts and have your receipts come in cashless. The bank will see clear turnover.
2. Pay your flat tax on time and visibly. Let the bank have a record of regular payments from the statement. Some banks specifically want the last receipt/payment as proof.
3. Fine-tune your liability profile. Reduce or cancel overdrafts and credit cards that reduce creditworthiness even if you don’t draw on them.
4. Consider multiple banks. The variance in how much % of turnover they will accept is quite high (15-30% and sometimes tailored depending on the industry). This can make a difference of hundreds of thousands in an achievable mortgage.
5. Age and LTV. If you are under 36 years old, you can target an LTV of 90%. For those older, the limit is 80%.

Summary

The flat rate tax does not exclude mortgages – banks assess the income of self-employed people in the flat rate regime on the turnover of their business (or personal) accounts and use an internal methodology to determine the ‘net’ qualifying income. The maximum loan amount, in addition to the eligible income, is governed by the LTV limit (80%, 90% up to 36 years); DTI/DSTI are not currently binding, but banks monitor them internally. Expect creditworthiness checks: income history, liabilities, registers, type of collateral and liquidity. In years when you have to file a return, standard DPs and reports come back into consideration.

Banks typically want bank statements with sales, proof of payment of flat tax and proof of debt-free status (FÚ, ČSSZ, medical). The most common obstacles are low creditable income/short history, opaque statements, negative registers, high card/account limits, problem pledge or arrears. For a better chance, separate business and personal accounts, send sales cashless, pay your lump sum on time, reduce unused limits and approach multiple banks – the variance in the recognised percentage of turnover can mean a difference of hundreds of thousands.