Employee Income Tax in Czech Republic

Czech Personal Income Tax is 15% up to 1.9M CZK, but 23% over that.

In Czech Republic, an Employee pays 15% Income Tax, unless he earns more than 48 times the average salary annually ( about 1.9 M CZK in 2023).

The amount over the 1.9 M CZK is taxed with an additional solidarity tax of 8% (so 23% in total).

Note that if an Employee is subject to Solidarity Tax, it will be necessary to file a Personal Income Tax Return.

People that work on a Trade License also pay 15% or 23% Income Tax, but usually on only 40% of their Revenue . This means that even if the Revenue would be the same as the Gross Salary of their colleague, the freelancer will pay lower Income Tax / Social Charges/ Health Contributions than his employed colleague, especially when his Revenue stays under 2M CZK annually.

Trade License holders need to file an Income Tax Return using the above-mentioned 60/40 Method, or Real Expense Method. Only for the Pausalni Dan Method no Tax Return needs to be filed. For this reason (and many other restrictions), the Pausalni Dan system is really not recommended for foreigners.

Determining Tax Residency

As a basic rule you are Tax Resident in Czech Republic if...

• If you have spent 183 or more consecutive days in Czech Republic,
• and your 'most habitual place of living' is Czech Republic,
• and 'the center of your economic and social activity' is Czech Republic

If this period is shorter, or it is obvious you actually are not living here, then most likely you will have to pay taxes in another country, on your global income (so including income from Czech Republic in that case).

Bi-lateral Tax Agreements between 2 countries may influence where a person is Tax Resident and where Income Tax is paid. Especially in the first and last year in Czech Republic this needs to be determined.

Therefore we recommend to apply for a (Temporary) Residence Permit here as soon as possible, it is one of the documents showing 'binding with Czech Republic' and therefore may positively influence your Tax Residency.

Since 01.01.2009 there is the long-awaited renewed treaty on double taxation for U.S. citizens, which has also an effect on social charges and Medicare. More info on US social security here.

Tax Benefits on Personal Income Tax

If your Employer has registered you properly as Employee, the Tax Office already is aware of your taxable income and family situation, and you are not obligated to file a Tax Return, provided that you have no other source of income.

However, time and again we see that Employers do not provide complete information about their Employees, or do not file a Tax Return at all. Most of them provide the Employee only an Annual Income Statement (which is not the same as filing a Tax Return). Not filing means: no mortgage deduction and no Tax Benefits / Tax Deductions, which for an average family is 70.000 CZK annually.

It is possible to file corrected Tax Returns up to 3 years back, so in that case missed out Tax Benefits can be reclaimed and will be paid out to you !

Filing a Personal Income Tax Return

In the following cases it is wise or obligatory to fill in an Income Tax Return:

• Your Employer does not explicitely ask about your family situation (so no Tax Benefits),
• Your Employer only provides and annual income statement (which is not a Tax Return),
• You work on a trade license as freelancer,
• You have worked abroad as Employee,
• You pay mortgage (the interest part can be deducted from your Tax Base),
• You received rental income or other sources of income inside Czech Republic,
• You have had other sources of income outside Czech Republic,
• There are bi-lateral tax agreements with your home country.

Unlike many people think, you are supposed to file for your global income, not only for the Czech part!

It is very important to get income statements from every Employer of the past year, because they are vital for filing or checking a Personal Income Tax Return.

03/03/2023