Flat-rate tax – a new development
Currently, entrepreneurs can pay tax and social security and health care contributions at the flat-rate amount if their income does not exceed CZK 1 million in a single calendar year. Many payers appreciate this, as financial and administrative simplification because they are not obliged to file a tax return or the social security and health insurance overviews.
The amendment to the Income Tax Act extends the range of taxpayers who may use the flat-rate tax. Three new brackets will be introduced which will take into consideration the amount and nature of payers' income. Notice of entering the flat-rate regime must be made by the person in question by 10 January of the year in question (for 2023 the deadline is 10 January 2023); simultaneously the taxpayer must indicate the bracket of the flat-rate tax regime into which he will fall from 1 January 2023. When determining the bracket, the taxpayer takes into consideration the amount of his income from the previous year.
The following conditions must be met in order to be able to enter the flat-rate tax regime as at 1 January 2023: (i) tax payers are self-employed persons, (ii) they are not VAT payers, (iii) they are not shareholders in a public company or general partners in a limited partnership, (iv) as at the first day of the decisive tax period, they do not carry out activities that generate income from dependant activities, with the exception of income that is subject to a special rate of withholding tax, (v) they have only income from self-employment, or tax-exempt income, or income that is not subject to tax, or income that is subject to a special rate of withholding tax, (vi) apart from a the above-mentioned income, they may also have income from capital assets, rent or other income but not no more than CZK 25,000 in total and (vii) they will notify in due time the tax administrator of their entering into the flat-rate tax regime and of the chosen bracket.
The first bracket will be for self-employed persons with income of less than CZK one million per year; the activities that generate that income do not have to be distinguished. Also, the first bracket can be used by taxpayers with income from self-employment in the amount of CZK 1.5 million per year if at least 75 per cent of that income is income where expense allowances of 80 per cent or 60 per cent of the income can be claimed. The tax due for the first bracket will be flat-rate tax amounting to CZK 6,208 per month.
The second bracket will be for taxpayers whose income from self-employment did not exceed CZK 1.5 million in the previous tax period, no matter what self-employed activities generated the income. The second bracket can be used by taxpayers with income of up to CZK 2 million per year if at least 75 per cent of that income is income where expense allowances of 80 per cent or 60 per cent of the income can be claimed. The flat-rate levy in the second bracket will be CZK 16,000 per month. This will be a fixed amount that will not be changed with respect to any increase in the minimal insurance payment.
The third bracket will be for all taxpayers who meet the conditions for entering the flat-rate tax regime - i.e. those whose income from self-employment does not exceed CZK 2 million per year. Such self-employed persons will have to pay CZK 26,000 per month. Again, this will be a fixed amount that will not be changed with respect to any increase in the minimal insurance payment.
