The Ministry of Finance of the Czech Republic has submitted a tax package (here), where, among other things, it proposes to increase the threshold for mandatory VAT registration from CZK 1m to CZK 2m, as we have already informed you in our news here. The Czech Republic has requested an exemption from the European Commission for this purpose, so that it can apply the increase in turnover from next year already and not from 2025 according to the already approved legislation. According to the Finance Minister, last week the EU Council granted our request for an exemption to apply a higher threshold for compulsory VAT registration earlier.

The proposed changes will probably take effect from 1 January 2023.

Flat-rate users will be divided into three bands

Following the increase in the limit for becoming a VAT payer, the amendment to the Income Tax Act will also increase the threshold for income from self-employment for entering the flat-rate regime to CZK 2m.

This year, the monthly flat-rate advance payment for everyone is set at CZK 5,994 and includes minimum health and pension insurance (CZK 5,884 for insurance and CZK 100 for income tax). In addition, the flat-rate advance payment will no longer be set as a fixed amount. Three bands will be introduced based on the amount of income and the amount of the flat-rate expenditure. 

Band 1

• Self-employed persons with income up to CZK 1m per year, regardless of the type of activity.
• Self-employed persons with income up to CZK 1.5m, if 60 % or 80 % flat-rate expenditure can be applied to at least 75 % of this income.
• Self-employed persons with income up to CZK 2m, if 80 % flat-rate expenditure can be applied to at least 75 % of this income.

In the year 2022, the flat-rate advance in band 1 will reach approximately CZK 6,500 per month. The tax is CZK 100, the remaining amount is the minimum health and pension insurance.

Band 2

• Self-employed persons with income up to CZK 1.5m per year, regardless of the type of activity.
• Self-employed persons with income up to CZK 2m, if 60 % or 80 % flat-rate expenditure can be applied to at least 75 % of this income.

The total monthly deposit for the year 2022 in band 2 will reach CZK 16,000 per month. The amount of CZK 4,963 will go to tax, CZK 7,446 to pension insurance and CZK 3,591 to health insurance.

Band 3

• Self-employed persons with income up to CZK 2m per year, regardless of the type of activity.

In the third band, self-employed persons will pay CZK 26,000 as a monthly advance payment in 2022. The amount of income tax is CZK 9,320, pension insurance CZK 11,388 and health insurance CZK 5,292.

It is expected that up to 60,000 self-employed persons, who meet the conditions for participation, may join to the flat-rate scheme next year. Approximately one half of them would benefit from joining and may do so.

If you are interested in this topic or you are planning to join the flat-rate scheme, we will be happy to answer your questions.