Income tax: what it is and what types we have

In our article we translate the Income Tax Act into understandable language. We will show you what types of income Czech law distinguishes, what exactly is meant by the partial basis, when withholding tax and advance tax apply to you, and how to practically answer the question “how much is income tax” for you.

What is income tax and who does it apply to

Income tax is a compulsory payment on income earned. In Czech law we have two main branches: personal income tax and corporate income tax. The rules are regulated by the Income Tax Act.

This law determines what income is taxed, what is the tax base, what are the rates and reliefs (discounts, deductions), when advance payments are made and when, on the contrary, the tax is withheld by the payer (e.g. an employer or a joint stock company when paying dividends).

In the case of individuals, the law distinguishes five types of income on which partial tax bases are calculated: from employment, from self-employment, from capital assets, from rent and from other income. The sum of the sub-bases, adjusted for statutory items, forms the tax base on which tax is calculated and discounts applied.

Basic concepts you need to know

• The taxpayer is the person who pays the tax (e.g. employee, self-employed person, homeowner, investor).
• The taxpayer is the one who withholds and pays the tax to the tax authority “on behalf of the taxpayer” (typically the employer).
• The tax base is the amount on which the tax is calculated and, in the case of an individual, it is formed by the sum of the partial tax bases of each type of income.
• Advance tax is tax withheld on an ongoing basis (e.g. in wages),
• Withholding tax is a special regime where withholding at source often definitively closes the tax transaction (no return is required to be filed; if this is disadvantageous to the taxpayer, the income can be included in the return voluntarily).
• The tax bonus is the amount paid by the state when claiming the child tax credit if it is higher than the calculated tax.

Income tax law: what it actually says

TheIncome Tax Act is the “constitution” of the tax. In the section for individuals, it lists five types of income and describes how the tax base and tax loss are calculated, which non-taxable parts of the tax base and tax allowances can be claimed, who is tax resident, when income is taxed in advance and when it is taxed by withholding, and what expenditure lump sums exist for self-employed persons. In the section for corporations, the law sets out, among other things, the 21% rate, the rounding of the tax base and defines special rates.

Income tax rate or how much is income tax

Income tax is divided into two groups:

Personal income tax

It applies to employees, self-employed persons, landlords and investors. The base is the sum of the partial tax bases according to the above categories. Some income is taxed by advance tax (typically wages), others by withholding tax, and some may be exempt (e.g., certain sales of securities or real estate after conditions are met). Each year, the tax administration specifies when withholding is final and what limits apply – for example, from 2025, the limits for employment agreements and employment agreements have changed.

In 2025, there is a two-tier taxation: 15% up to the threshold set by law and 23% on the part of the base that exceeds this threshold. The threshold corresponds to 36 times the average monthly salary for the year and for 2025 is CZK 1,676,052 per year (i.e. approximately CZK 139,671 per month). Above this amount, an income tax rate of 23% applies .

A special rate (withholding tax) of 15% applies to selected income (e.g. dividends of individuals from Czech companies, some work agreements without a signed declaration up to the limit) – the tax is withheld by the payer when the payment is made. In the case of work performance agreements, the limit for withholding tax is shifted from 1 January 2025 according to the new “decisive amount” – it is CZK 11,500 per month with the same employer.

Corporate income tax

Corporate income tax applies to most legal entities – typically limited liability companies and joint stock companies, but also to associations or foundations if they generate taxable income.

The basic rate of tax is 21% in 2025. The law also provides for special rates: 5% for investment funds and 0% for pension companies and pension insurance institutions (if they meet the legal conditions).

Non-taxable parts of the tax base and tax allowances

The basic allowance per taxpayer in 2025 is CZK 30,840 per year. In addition, it is possible to claim, for example, the spouse discount (subject to the conditions of household sharing, limit on own income and care for a child under 3 years of age), disability discounts and the holder of a Disabled Persons’ Permit/P. The tax credit for children remains for 2025 at CZK 15,204 for the first, CZK 22,320 for the second and CZK 27,840 for the third and each additional child (monthly CZK 1,267 / CZK 1,860 / CZK 2,320).

For non-taxable parts of the base (e.g. gifts, interest on housing loans, pension contributions, donations for public benefit), it is always necessary to follow the current limits for the year and type of deduction. In the case of a mortgage, for example, this is a deduction of CZK 150,000 per year (for a mortgage taken out by the end of 2020). In the case of pension products, the amount is up to CZK 48,000 per year.

Income tax registration

Income tax registration has been significantly simplified as of 1 January 2024. Starting self-employed persons will no longer register for personal income tax (registration has been abolished), as have the registrations of some payers of special withholding tax.

However, registration remains mandatory for corporate income tax payers (e.g. newly established Ltd.) and for employers as payers of employment tax.

Taxes electronically: when do you have to file your tax return?

The general rule for filing income tax returns for the previous year is: on paper by the end of the third month after the end of the tax year, electronically by the end of the fourth month and with an adviser (or for audited entities) by the end of the sixth month.

For the 2024 return, this was specifically: paper by 1 April 2025, electronically by 2 May 2025, and with an adviser by 1 July 2025 – with tax due by the same deadlines.

Employees can use the employer’s annual return instead (on request and subject to conditions, notably no concurrent employment and no other taxable income).

If you have a data box set up by law (which applies to all entrepreneurs), you are obliged to file your tax return electronically. However, this does not mean that you have to file via the data box itself – you can easily send your return via the My Tax Portal, where you log in with your bank or citizen identity and electronically sign the return.

Summary

Income tax in the Czech Republic is divided into personal income tax (PIT) and corporate income tax (CIT). In the case of FOs, the law works with five types of income (employment, self-employment, capital, rent, other), which make up the tax base; non-taxable parts of the base and discounts can be applied. A distinction is made between advance tax and withholding tax (the latter is typically paid by the payer, e.g. the employer; sometimes it is final). Some income may be exempt. Tax registration has been simplified since 1 January 2024: Self-employed persons do not register for FIT, but the obligation remains for POs and employers. Returns are normally filed within 3/4/6 months (paper/electronic/adviser); employees can use the annual return.

For 2025, FOs are subject to 15% up to the annual limit of £1,676,052 and 23% above; selected income (e.g. FO dividends) is subject to 15% withholding. For employment agreements without a declaration, withholding tax is linked to a “decisive amount” of CZK 11,500 per month with the same employer. POs are taxed on profits at 21% (special rates: 5% for investment funds, 0% for pension companies if conditions are met). Among the reliefs, we should mention in particular the basic taxpayer discount of CZK 30,840 per year and the tax benefit for children, as well as typical non-taxable items (gifts, mortgage interest, pension products up to CZK 48,000). Electronic filing is done via the My Taxes portal (DIS+) with electronic signature.