How to set up as a sole trader in the Czech Republic

How to set up as a sole trader in the Czech Republic

Since June 2016, the number of Britons working in the Czech Republic has increased by over a third. What has risen even more dramatically is the number of people from Britain who have decided to live in the Czech Republic permanently. This has soared by 55 percent over the past 5 years. Brexit has definitely played a part, but there are other reasons as well. Compared to London, and probably all major cities in western Europe, living costs are much lower. In Prague, a pint of draft beer costs around £1.30 while a nice 2-bed apartment can be rented for approx. £800 a month. If you do not insist on living in the capital, you can cut costs even more. Also, there is good and inexpensive healthcare that is available to everyone, thriving social scene and low crime rate. How does that sound?

Low taxes for freelancers

And there is more. Compared to the UK, as a self-employed person, you might be able to cut your tax bill significantly.

That is because from 2021 onwards, if they opt for it, sole traders will only be asked to pay a flat-rate sole trader tax amounting to CZK 5.469 a month or 65.628 a year (£ 185 or £ 2.225, respectively). Importantly, this tax includes personal income tax as well as health insurance and social security payments (equivalent to Class 2 and 4 national insurance).

Here is an example of how much you can save by moving to and doing business in Czechia:

 

UK (in £ p.a.)

CZ (converted to £ p.a.)

Revenues

33.600

33.600

Expenses (15 %)

5.040

not applicable

Net profit
(revenues – expenses)

28.560

not applicable

Tax and Class 2
and 4 NI contributions

5.066

2.225 (you save 2.841)

Wondering how much exactly you can save? Use HMRC’s calculator.

More business, much less accounting

This is a flat-rate tax, so the amount you pay as a self-employed person is always the same. This means that while it is still a good idea to keep track of your expenses to make sure your business remains profitable, the tax man does not care. The only thing you must bear in mind is that you are only eligible for the flat-rate sole trader tax if your annual revenues do not surpass 1 million Czech crowns (approx. 33.600 GBP). Make sure you do not exceed this threshold. Otherwise, you will be asked to state your actual expenses in your tax return. This will almost certainly translate into a considerably higher tax bill unless your net profit is low and you have proof of your expenses. 

Also, if you earn over CZK 1 million in a year, you will have register for VAT.

Setting up as a sole trader is easy

All you need to do to start doing business as a freelancer in the Czech Republic is go to the Trade Licence Authority (Živnostenský úřad) where you live. Public officials do not always speak
English, so if you do not speak Czech at all, you may need an
interpreter. Please, bear in mind that as long as your licence is active, you are required to pay the flat-rate sole trader tax even if you have no or little sales.

That said, you can always apply to have your licence suspended to avoid having to pay the tax. Remember that if you do that, you cannot issue invoices for as long as your licence is inactive.

Flat-rate
sole trader tax

advantages

disadvantages

very low effective tax rate and NI contributions

only applicable if your income is less than CZK 1 million

virtually no accounting necessary

you cannot be registered for VAT, meaning you cannot legally invoice people or businesses outside the EU

no need to file a tax return

 

If this sounds interesting, that’s because it is. Still, I recommend you consult a reputable tax adviser or accountant before you make any tax-related decision. Taxes can be complex, especially if you are also a partner in a business corporation and if there are many sources of income.

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