Trade License.cz / Income Tax and Tax Return
Filing an Income Tax Return for a Trade License:
At the end of the year, in most cases, you can claim a 60% (2012)* expense deduction,
and only 15% income tax needs to be paid over te remaining 40% (2012) * of the total business revenue.
The income taxes are then reduced by certain deductions (if you apply for them),
so it may well be that you do not have to pay any income tax!
* The % depends on the kind of tradelicense you have, some have a higher standard expense deduction (such as carpenters, blacksmiths and other manual labor - 80%). Trade and Sales (import / export), Teachers, Programmers and Consultants are always on 60%. Note that the government has in the past changed this percentage several times during 1 year.
Also, any other sources of (global) income need to be taken into account, not only the income generated in Czech Republic. Especially in the first year, you may have to still pay taxes in your home country, depending on where you are considered tax resident.
If you have a significant income (and had to pay significant incomes taxes last year), then it may very well be possible you are obligated to pre-pay twice or four times per year income tax in the next year. Not paying these income tax prepayments will lead to penalties (!)
Important: Additional Social Charges and Health Insurance Contributions after filing the Income Tax Return
Once your taxable income has been calculated and filed in a tax return you may have to pay extra social charges and health insurance contributions in case your earned more than the minimum income. Therefore it is clever to reserve money if you know in advance your income will be substantially higher, because especially the social charges can be an extra 10.000s of CZK - to be paid at once.
The second and all the following years, the social charges and health insurance contributions are calculated using the income of the previous year. If this income was higher than the minimum, your social- and health charges will increase significantly.
Example: based on a revenue of 1.000.000 CZK in the first year, additional social charges are 37.600 CZK and additional health insurance contributions 7.800 CZK.
The new social- and health charges would be almost 7.000 CZK / month, instead of some 3.000 CZK previously.
Common Question: How much of my revenue is going to disappear in Income Tax, Social Charges and Health Contributions?
This is not to easy to explain in a couple of sentences how much the total charges are, so for this purpose we have made this
Trade License cost calculation XLS sheet - XLS download
It shows exactly how much taxes, social- and health charges you will pay for a certain level of income for the first year. As a rule of thumb, about 85% you get to keep and about 15% of your revenue will be lost in taxes, social / health charges (not counting possible tax benefits)
VAT Registration obligated over 1.000.000 CZK
The basic rule is: if you expect your invoices to exceed 1.000.000 CZK within 12 months (not per calendar year, but from the moment of estimation) you are obligated to register for VAT.
It is also possible to register voluntarily for VAT (for example if you have clients that rerquire your VAT number, or in case you have large expenses with VAT)
EU Sales List - EU VAT reporting for sales outside CZ
In case you are VAT-registered and your customer based in the EU is as well, then you are obligated to file monthly (for goods) or quarterly (for services) electronic EU Sales Lists.
This is a specialized job, which you really cannot do yourself, but our softeware generates this electronic files automatically when doing your accounting.
More Information on accounting requirements in Czech Republic
For more information on accounting we refer to the Alexio.cz website. (external link)
