The Czech Personal Income Tax return in detail
Disclaimer: the following text is an *extreme* simplification with as only purpose to give the reader some general understanding - no rights can be claimed from this text. This text is not 'tax advice' and may be -due to constant changes in legislation- not guaranteed to be correct.Income Tax on Employment, Self-Employment, Rent, Investments in Czech Republic
The Tax year is equal to the calendar year in Czech Republic. For private individuals the Personal Income Tax is either 15% or 23% (up to cca. 1.55M CZK (was 1.9M CZK in 2023) Tax Base it is 15%, anything over that so-called solidarity limit is taxed at 23%), and sources of income are divided over 5 paragraphs.
- Par. 6 - Income from Employment (in CZ or abroad)
- Par. 7 - Income from Self-employment (Zivnostensky List, other free professions)
- Par. 8 - Capital Gains (most common: Interests)
- Par. 9 - Rental Income from property in Czech Republic
- Par. 10 - Other / Sporadic Income (One-off Income, Investments, X-currency, Profits of (foreign) businesses)
Par. 6 - Income Taxes on Employment
If your only source of income was Czech employment, there is no obligation to file an Income Tax Return. Your employer should give you an Annual Income Overview. This *does not* replace a Tax Return. Many Tax offices abroad will not accept the overview as proof taxes were paid in Czech Republic. Also, by not filing a Tax Return you may miss out on tax benefits.Employment abroad should be filed in par. 6, even if taxes have been deducted at source already. Both the income and deducted taxes will go in the Czech Tax Return if you are Tax Resident in CZ for that year. You will not pay double taxes in both countries - this is exacly why DTA's for avoidance of double taxation are in place.
Many people 'forget' about the taxes of the previous job ('since they were deducted at source already') but technically it is not correct. Does it happen? Yes. Is it a risk? Theoretically, yes. It is necessary to know the exact details before giving a verdict.
Par. 7 - Income Taxes on Self-employment
There are various accouting methods to file income from self-employment (see this eleborate article on the 3 accounting methods), but by far the most popular system was the 60/40 method, where (for Revenue between cca 600.000 CZK and 2M CZK) the effective percentage of Income Tax + Social Security + Health Care is about 12% of the Revenue (not counting any tax benefits or tax deductions).2023 will bring big changes to the Paušální Daň method. The limit is now 2M CZK, but at the same time there are now 2 possible 'bands' to pay in. As a result the total for Income Tax + Social Security + Health Care can be anywhere between 5 and 30% of your Revenue, depending on your Revenue and Band.
Which of the methods is best for you can not be said in a few words. It is really necessary to calculate your situation exactly and compare the methods. Choosing the wrong method can cost you 10.000s of CZK (not an exaggeration!). Please read the article and book a consultation.
Par. 8 - Capital Gains
Capital Gains in Czech Republic means something else than what is usually considered capital gains. Profits on selling property or investment portfolio and X-currency do not go here. But Securities, Bonds, Share certificates and Interests on Bank Accounts do.Par. 9 - Rental Income
The basic rule is: only rental income from property located in Czech Republic. Rental Income from property in another country is usually taxed there (when in doubt, it is necessary to look in the bilateral tax agreement). Rental income is the bare rent (so no utilities / deposits counted), and from this sum either the real expenses or a standard 30% can be deducted.VERY IMPORTANT: Income from AirBnb and alike do not belong here.
For this kind of income it is necessary to have a trade license and a VAT registration (!)
Par. 10 - Other / sporadic income, Investments, X-currency, profits from businesses
In case it is really one-off income - it usually goes in par. 10. Typical example is a (partly) payout from an investment potfolio. Investment portfolios / Stocks are not always taxed. Only if the income is over 100.000 CZK, it is necessary to file a Tax Return - and then, if held more than 3 years they also may be tax-exempt. Similarly, capital gain from transferring shares is exempt after 5 years.
There is no Income Tax on Inheritance or Gifts - but there is a notification obligation when the sum is over 5 M CZK.
Prizes are tax-exempt if a) less than 10.000 CZK from competitions, or b) less than 1.000.000 CZK from lotteries.
Most pensions are tax-exempt, unless they are higher than 583.000 CZK (2022) / 622.800 (2023) annually, in which case they need to be declared in a Tax Return.
Selling property - the capital gains are not always taxed if held privately (if in an sro / trade license, this is always subject to tax). The rule of thumb: if you have the property as primary residence for at least 2 years, or 10 years as non-residence (this used to be 5 years), the capital gains become tax-exempt. However, even a tax-exemption is possible if the capital gains from the sale are used 'for own housing needs'.
Profits from (foreign) entities usually, but not always go in par. 10. This depends whether those profits are one-off or occur onregular basis. If the business resembles self-employment (an LLC, operated as sole prorietor, for example) then those profits should be (ought to be) declared in par. 7
VAT Registration
Another topic that never fails to raise questions is VAT registration.Starting 2023, the limit for 'Full VAT' registration is 2M CZK (before 2023 it was 1M CZK) in 12 consecutive months from Czech sources. For invoicing business in the EU however, a 'VAT-Light' registration is sufficient and for invoicing businesses outside EU no VAT registration of any kind is required.
Read this elaborate article on VAT in Czech Republic for more information.
For more information on Income Tax and VAT Book a Consultation by ZOOM / Skype / Whatsapp / Phone or email.