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If you come from abroad but pay your taxes in the Czech Republic, navigating the differences between your home country's tax system and that of the Czech Republic can be difficult to figure out.
This guide aims to shed light on the variances, focusing particularly on the intricacies of freelance tax obligations.
Main Highlights of the Czech Tax System for Freelancers
Let’s jump right in - here's a breakdown of the key elements unique to the country's tax regulations.
You’ll Handle Health and Social Insurance Contributions Yourself
In Czechia, freelancers manage their health and social insurance payments through monthly contributions known as měsíční zálohy. These contributions, calculated at 29.2% of the assessment base, cover pension insurance (28%) and state employment policy (1.2%). As of 2024, minimum social insurance payments are set at 30% of the average wage.
There are 4 Types of Trader's Licenses
Freelancers in the Czech Republic encounter four types of trader's licenses. While certain professions, like writers, are exempt from obtaining a license, others must navigate through the application process. This diversity accommodates various business models and professions operating within the freelance sphere.
- Freelance Trades (Volná živnost): Encompasses a broad range of activities with flexibility to engage in multiple sectors; requires meeting general conditions without specific professional qualifications.
- Craft Trades (Řemeslná živnost): Focuses on artisanal activities demanding specific professional qualifications or years of practical experience; proof of expertise is necessary.
- Restricted Trades (Vázaná živnost): Requires a formal declaration at the trade licensing office, demonstrating professional competence; specific requirements vary for each trade.
- Licensed Trades (Koncesovaná živnost): Involves a complex application process with permission required from state or municipality; serves as regulatory measures for certain business sectors.
Choose between 3 Accounting Methods
Freelancers in Czechia have the flexibility to choose between three accounting methods tailored to their business needs.
- Tracking Expenses Method: Involves subtracting real expenses from revenue; suitable for freelancers with minimal overhead costs.
- 60/40 Method: Allows claiming virtual expenses up to a threshold; streamlines accounting processes for certain professions.
- Flat Rate Tax Method (paušální daň): Offers fixed monthly tax payments, simplifying financial management for businesses with revenues up to 2 million CZK.
Freelance Taxation in Other Countries
While comparing different tax systems is a difficult task, let's highlight the key differences that will make filing taxes in Czechia easier if you understand one of the following systems.
Freelance Taxation in USA
- Health and Social Insurance Policies: Freelancers in the USA often struggle with securing health insurance, as they're responsible for finding and funding their own coverage.
- Freelancing Accounting Methods Available: Various accounting methods are available, including cash basis and accrual accounting.
- Types of Trader's Licenses: In the USA, freelancer licenses are typically not required, but specific permits may be necessary depending on the industry or location.
Freelance Taxation in the UK
- Health and Social Insurance Policies: Freelancers in the UK need to consider private health insurance, as they don't have access to NHS benefits like employed individuals.
- Freelancing Accounting Methods Available: Common accounting methods include cash basis and simplified expenses, which ease tax obligations for freelancers.
- Types of Trader's Licenses: In the UK, freelancers generally don't require a specific trader's license, but registration with HMRC is necessary for tax purposes.
Freelance Taxation in Germany
- Health and Social Insurance Policies: In Germany, freelancers must choose between public and private health insurance options, with contributions paid independently.
- Freelancing Accounting Methods Available: German freelancers can opt for simplified tax methods like the flat rate tax, depending on their revenue and business structure.
- Types of Trader's Licenses: Two main categories exist: Freiberuflich (Freelancer) and Gewerbetreibende (Businessperson/Tradesperson), each with distinct registration and taxation requirements.
Freelance Taxation in France
- Health and Social Insurance Policies: France offers compulsory health coverage for self-employed workers, integrated into the general social security scheme.
- Freelancing Accounting Methods Available: Freelancers in France can choose between simplified or actual accounting methods, depending on their revenue and business complexity.
- Types of Trader's Licenses: Various licenses are required based on the profession, with specific criteria outlined by the French authorities.
Freelance Taxation in Spain
- Health and Social Insurance Policies: Freelancers in Spain must contribute to the social security system through monthly payments, providing access to medical care, sick pay, and retirement benefits.
- Freelancing Accounting Methods Available: Spain offers simplified taxation options for freelancers, depending on their revenue and business activities.
- Types of Trader's Licenses: Registration with the RETA (special regime for freelancers) is mandatory, with different requirements based on the profession and business structure.
Wherever You Come From, Paying Taxes in Czechia Doesn't Have to Be Scary
Invoicing can be challenging for expats, but third-party services like živno offer a tailored solution for those in the Czech Republic, streamlining the process and alleviating the complexities of currency conversions.
With an intuitive English interface, živno is designed by expats, for expats, facilitating easy invoice creation in the Czech Republic. The setup is swift, and everything is in English. Plus, you can effortlessly duplicate previous invoices, saving you time and effort.
