Filing Taxes in the Czech Republic
Tax help for expats who conduct business in the Czech Republic
If you live and work in the Czech Republic, chances are, you are also legally responsible for filing Czech taxes. Although many international companies have in-house certified tax accountants on hand to file their expat employees’ taxes, what options exist for the expat who operates on a trade license or owns a small business? If you fall into either of these categories and don’t have the money to pay for an expensive tax advisor or the expertise to file your taxes without help, you are not alone.
When the start-up company called Expat Taxes (www.expattaxes.cz) entered the tax scene four years ago, they saw a need and tried to fill it. Company founder, Skip Potts runs a TEFL school in Prague and previously ran a VISA company. Through his contact with US and other non-Czech students and teachers, he realized that expats living in the Czech Republic needed an affordable, professional option for tax advice. He hired Michaela Fillette, a certified tax accountant (ACCA certification) with expertise doing expat taxes, and the two got to work filing personal and corporate income taxes as well as handling the accounting needs for their expat clients. In addition to tax advice, Expat Taxes offers help securing a business license or a business seat for their expat clients.
Although most tax related information and the required forms can be found online (see helpful links section below), for a trade license holder (OSVČ) deciphering the paperwork for personal income taxes and VAT (DPH) can be especially daunting, particularly in the first year of business. Yet, Michaela assures expats that filing Czech taxes is not that difficult to do on your own once you know the procedure to follow. To support expats who would like to do their own tax returns she created Czech Taxes for Dummies, a 36-page online document available for free that she updates yearly as tax laws and regulations change. (Contact her via email at email@example.com for a copy.)
Czech Taxes for Dummies outlines the tax procedure step-by-step for trade license holders, starting from the basic steps to apply for a trade license. The guide has a large section that details the regulations for filing VAT and for identifying a person for VAT tax purposes. Michaela says that the specific VAT regulations are not always known by expats, such as the need to register for VAT “light” (officially: Identified person for the VAT purposes). The trade license holder has to register for VAT “light” if he/she provides services to clients from other EU countries. In this case, you don`t need to charge VAT to Czech clients and you are only required to file the VAT return in the month that you issue the invoice to another EU country, unlike regular VAT payers who must charge the VAT to their Czech clients and must file a monthly VAT for the first years of their business (before they can apply to file it quarterly). You are required to register for the regular VAT, if your turnover is over 1 million CZK in a 12- month time period.
In order to walk an expat through the tax filing process, Michaela’s guide includes concrete examples of what to do in specific situations – when you have to pay VAT or when you don’t, why you might elect to register as a VAT payer even when you don’t have to (i.e. you invoice to VAT registered clients in the EU, you plan to purchase a new car or flat), how to calculate your personal income tax base and what deductions are allowed or required (i.e. deductions for children, non-working spouses and a special deduction for preschool aged children who are enrolled in preschool).
Although specific questions about filing personal and corporate taxes should always be addressed to a tax authority, here is a look at the basics.
Getting a Handle on Czech Tax Procedure
In the Czech Republic, taxes are due by March 31. Personal income taxes must be filed at the tax office in the district where you are a permanent residence (or where you have temporary residence if your permanent residence is at the Foreign Police) either by mail, in person or through your data box. (See below for a link to tax offices). If you are a trade business person, you will receive payment statements from your health and social insurance providers in the first two months of the new year, which you will use to calculate whether you have paid enough/too much in your monthly advances from the previous year (i.e. how much you owe to each entity or how much of a return you can expect) and how much you will need to pay in the new tax year.
To calculate your own taxes, you need to first calculate your tax base which is the sum of your business profit (calculated from your income vs. expenses), wages from employment (if applicable) plus other profit (The breakdown is calculated for you in Section 4 of Czech Taxes for Dummies). Your tax rate is 15% from your tax base once deductions have been taken. Again, be sure to seek the advice of a tax authority with specific questions regarding the laws.
Changes for 2015
Changes to the Czech tax laws for trade licensed businesses limit the deduction in 2015 (which was previously in most cases 60% of total income) to 60% of the income up to 2 million CZK (i.e. 1.2 million CZK deduction limit).
In 2015, for employed people with an income above 106, 444 CZK/month, changes were made to the 2014 change which stated that the employee (not the employer) was required to do the taxes on his/her own. Now the employer can file the taxes. A solidarni tax of 7% still applies to those who fall into this category.
This year, the deduction for preschoolers (children enrolled in preschool in the Czech Republic) has risen from 8,400 to 9,200 CZK per year.
Minimum advance payments in 2016
All trade license holders have to pay advances for social and health insurance. In 2016, the minimum monthly payment is 1823 CZK for health insurance and 1972 CZK for social insurance.
Running an s.r.o. (limited liability company) in CZ
If you run an s.r.o. company in CZ, the rules for VAT are same as for the trade license holders. The big difference for the s.r.o. is that you need to keep double-entry bookkeeping, which usually requires a professional accountant and often the use of accounting software. The profit of an s.r.o. is taxed by 19% of the corporate income tax. If you want to “distribute” this taxed profit (it means to use the profit for your personal purposes), you need to pay 15% of the withholding tax up to 19%. The taxable period is also one calendar year with taxes due by March 31. You need to prepare a year-end financial statement (which includes a balance sheet, a profit and loss statement and footnotes).
Expat Taxes www.expattaxes.cz
List of all tax offices www.statnisprava.cz
List of all social offices www.cssz.cz
Tax return template forms: www.financnisprava.cz. For Czech version see form number 25 5405; for English version see form number 25 5405/AJ. (For help figuring out other forms, see the Czech Tax Guide for Dummies where form links are provided with the numbers of English forms)
Statement of income for social insurance: eportal.cssz.cz
VZP (Health) statement of income: www.vzp.cz
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