From 1 January 2021, traders and small entrepreneurs can use the new flat rate tax regime. The flat rate can be use by all persons, who are self-employed, who are not VAT payers and whose income from self-employed activity did not exceed CZK 1,000,000 in the taxable period immediately preceding the given taxable period (i.e. the year 2020). The regime cannot be used by a self-employed person, who performs the position of a partner in a general partnership or a general partner in a limited partnership, the person must not have income from employment (with the exception of income taxed by retention tax – i.e. income from an agreement to complete a job reaching up to CZK 10,000), must not be a debtor, against whom the authorities have already begun an insolvency proceeding, must not have other income (capital income, rent, etc.) higher than CZK 15,000.

For the year 2021, the flat rate of the tax has been set at CZK 5,469 per month (fixed monthly installment). This sum also includes minimum health insurance reaching CZK 2,393, minimal social insurance reaching CZK 2,976 and CZK 100 income tax. Monthly installments are due by the 20th day of every calendar month to “a joint personal tax account” maintained by the Financial Office. Payment of monthly installments meets the obligation to the Financial Office, the Czech Social Security Administration as well as to the health insurance company.

The main advantage of the flat rate tax is the lowering of administrative costs of processing tax return and surveys of income submitted by self-employed persons, a unification of three payments into one made by the taxpayer to the tax administrator, and the uncertainty regarding audits by the tax administrator is also significantly reduced. A major disadvantage, on the other hand, is the impossibility of using tax credit and tax benefits (i.e. the basic tax credit per taxpayer, for spouse, child tax credit, etc.).

If a self-employed person wants to enter the flat-rate regime, the person must announce this fact to the local Financial Office on a special form by 11 Jan 2021 at the latest. Later announcement will not be considered, nor can this deadline be prolonged.

If you have any questions or you are interested in a comparison of whether or not the flat rate regime is advantageous for you, please, do not hesitate to contact us.