Self-employment involves a certain degree of administrative burden in the form of levies, payments and tax returns. What does all this entail and when is a flat-rate tax paid instead? What will all change for the self-employed in 2023? That’s what we look at in our article.
As a self-employed person, you can work as a main or secondary earner. In the case of a main activity, this is de facto “full-time” work, similar to employment. If you set up your business in this way, you must pay at least the minimum social security and health insurance contributions from the first month of business. However, if you expect an income of tens of thousands or hundreds of thousands, it is worth paying higher amounts right from the start, or at least putting money aside so that you are not surprised by high arrears later.
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If we evaluate the business purely from the point of view of paying taxes, it is worthwhile to have the business as a secondary activity, i.e. rather as a supplementary income. According to the law, self-employment is considered secondary if:
If you have set up your business as a secondary activity, the mandatory advance payments will be reduced quite significantly, or you can avoid paying them altogether.
Tip: Do you want to become more independent at work and adapt your work pace to your needs? Are you planning to work in an industry where employment is almost impossible? Are you looking for some extra income? In all these cases, a trade licence may be useful. In our guide, you’ll find out how to set up a trade in five easy steps.
As a self-employed person, you are required to pay taxes on your income and file a tax return each year. However, you don’t pay everything that lands in your account, only the difference between your income and expenses. The income tax rate is 15%. As for expenses, you can either keep all receipts and invoices and claim the actual expenses, or the law offers you the option of choosing a flat-rate expense.
Another option for those who run their main business is to apply the so-called flat-rate tax, which we will look at in more detail below.
Income from:
Tip: Even a master carpenter makes mistakes sometimes. You file your tax return every year and have the whole process down pat, but you may still forget to declare extra income, or you may forget a tax-deductible item that helps you reduce your tax. Learn what to do if you file the wrong return.
Lump sum expenses are sometimes confused with a flat rate tax, but this is quite different. A flat-rate expenditure replaces the complicated overview and calculation of individual actual expenses (which, on the other hand, are worthwhile if the actual expenses exceed the flat-rate ones, for example, when goods are resold). Instead of collecting receipts, you can choose one of the following rates depending on the type of business:
If your expenditure exceeds your income, this is a loss, by which the tax base is then reduced in future tax periods.
Tip: Considering whether to choose a trade or a job? How about trying both? What are the advantages of such a combination and what can stand in your way of doing business? That’s what we discuss in our article.
The flat-rate tax can be applied by businesses from 2021. It is mainly sought by those who want to simplify their lives with administration and get rid of tax returns. It’s worthwhile for people who don’t usually deal much with deductible items like mortgage interest, gifts or pensions on their tax return, don’t claim child tax credits and so on.
The flat-rate scheme involves registering by 10 January of the relevant year and then paying the same tax payment each month as set by the state. You do not have to fill in tax returns, insurance and social security statements the following year and you cannot incur any annual arrears. Does this sound like an ideal situation? There are some disadvantages, after all. You must keep an eye on your income, as you must not exceed an annual income of CZK 2,000,000. But not everyone can do that. A bigger complication arises when you have to prove your income, for example, for the purposes of a mortgage or other loan. Normally, entrepreneurs do this through a tax return, but you do not file it in the flat-rate regime. So you may not get along with some banks at all, while with others you may have to find alternative ways of proving your income.
From 2023, self-employed persons with income up to CZK 2,000,000 who are not VAT payers can enter the flat-rate regime. There are also three flat-rate tax bands, namely CZK 7,498 per month, CZK 16,745 per month and CZK 27,139 per month. The amount is then due by the 20th day of the calendar month for which the advance is paid.
Tip: Have you become a sole trader and are wondering what information about you will be publicly available in the trade register? Do you need to apply for registration and how can you change some incorrect or outdated information? We have looked at all of this in our article on what the Trade Register is and what it is for.
For health insurance, the minimum advance payment will increase to CZK 2 968 in 2024. The amount changes right from the January payment, so you need to amend your standing orders accordingly. However, if you pay more than the legal minimum, you don’t need to worry about anything until your tax return. If you forget to change the minimum deposit amount at the bank, the health insurance staff will usually notify you of the underpayment.
Self-employed people who work as a sideline do not pay the minimum health insurance advance. Simply submit an income and expenditure statement to your health insurance company once a year and then, if necessary, pay the premium at once according to your actual income.
Tip: Health and social security debt can build up quickly – just forget one payment or fail to pay the full amount and you’re done. On top of that, there are penalties and you could be in for a nasty surprise. So how exactly does it work if you’re self-employed and what if your employer doesn’t pay your insurance? Find out in our next article.
Social insurance contributions for 2023 are set at a minimum of CZK 3,852. For social insurance, the advance payments change in the month in which you submit your 2023 statement, usually in April. Either you set your new minimum advance payments up, or they are calculated on the basis of your income and expenditure statement for the previous year. As with health insurance, if you’re already paying more than the minimum, you don’t need to worry about anything.
For self-employed persons who carry out secondary activities, the minimum advance payment for social insurance will rise to CZK 1,413 in 2023. However, if they are starting a business, they pay no advance for the first year.
Tip: Unfortunately, not every business is successful or promising. If yours isn’t bringing you the joy, money, or anything else you originally expected, you may be considering shutting it down. We’ve discussed how to wind up a business legally, time-wise and financially in our article.
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