60/40, real expenses or flat tax

With a trade license you choose how your income is taxed: the 60/40 method, real expenses, or the flat-tax method. Most of our clients use 60/40; about a quarter use the flat-tax method.

The 60/40 method

60% of your revenue counts as expenses, without receipts, even if your real costs are much lower. The other 40% is your profit. You pay 15% income tax on it (23% on the part above 1,762,812 CZK), minus tax credits such as the basic credit of 30,840 CZK. Social security and health insurance are calculated on the same profit.

• No bookkeeping of expenses, and no monthly accounting unless you are VAT registered.
• One tax return a year, with the overviews for social security and health insurance.
• Above 2,000,000 CZK revenue it still works: the 60% applies to the first 2,000,000 CZK, the rest counts fully as profit. A common misunderstanding is that the method stops at 2 million.

Most free trades (IT, consulting, translation, teaching, trading) get 60%. Crafts and agriculture get 80%; liberal professions outside the trade license system get 40% or 30%.

Real expenses

Revenue minus your real, documented expenses. You need bookkeeping all year. It only pays off when your real costs are above 60% of your revenue, which is rare for freelancers.

Monthly minimums with 60/40 and real expenses

You pay monthly advances for social security and health insurance, at least these amounts in 2026:

Health insurance only applies if you are in Czech public health insurance. That is roughly: EU citizens, US citizens, permanent residents and anyone who is also an employee. Many other non-EU citizens cannot join and need commercial health insurance instead. Trade license next to a job or studies? Then lower or no minimums apply: see social security.

The flat-tax method (paušální daň)

One fixed monthly payment covers income tax, social security and health insurance. No tax return and no overviews. For a trade license with 60% expenses:

Band 3 (27,139 CZK a month) is for other professions; a trade license with 60% expenses never needs it. The bands also depend on the share of your revenue with 60% or 80% expenses; ask us if you have a mix.

Who cannot use it

• You are registered for full VAT (VAT-light is fine).
• You are also an employee, or have a DPP or DPČ above the limit for insurance.
• You are a partner in a v.o.s. or a general partner in a k.s., or are paid as the director of a company.
• Your other income (rent, capital, other) is more than 50,000 CZK a year.
• You are in insolvency proceedings.
• You are not in Czech public health insurance. This rules out many non-EU citizens.

If one of these happens during the year, you drop out of the flat-tax method and file a normal tax return for that year, usually with the 60/40 method.

The downsides

• Low revenue: below roughly 700,000 CZK a year the 60/40 method is cheaper, and with the lower starter minimum even up to higher revenue.
• Going over 1.5 million: you must move to band 2 before it happens, and that is expensive if you are only a little over the limit.
• No tax credits: no credits for a spouse or children, no deductions for mortgage interest, pension savings or donations.
• No tax return: banks, mortgage and leasing companies, and foreign tax offices often ask for one.

Which method is cheaper for you depends on your revenue, your family and your plans. Our tax model calculates all methods side by side for your situation. Typical cases: what does a trade license cost you?

Switching to the flat-tax method

To use the flat-tax method next year, tell the tax office by 10 January. New trade license holders can also choose it at registration. In theory that works from the start, if all your registrations go through in time. We usually advise starting with the 60/40 method: why we usually start with 60/40.