A better deal? How some Czech freelancers may benefit from historic tax reform

The current tax system for self-employed workers in the Czech Republic is unfair to both employees and low-income freelancers, according to a new study by PAQ Research and the Institute for Labour and Social Affairs. Economists are now calling for major reforms to make the system fairer.

At the heart of the issue is the widespread use of “flat-rate expenses”—fixed percentages that freelancers can deduct from their income for tax purposes, regardless of their actual costs. In many professions, this results in deductions far exceeding real business expenses. 

When it comes to tax, office-based freelancers can deduct up to 60 percent of their income, even though their actual costs average only 16 percent, researchers found.

“This creates an uneven playing field, especially compared to employees doing similar work,” said economist Petr Vilím, co-author of the study.

The current system also includes a flat tax regime introduced in 2021, which allows for a minimum single monthly payment—CZK 8,716 in 2025—covering income tax and social insurance. Economists argue this benefits high-earning freelancers with low costs and incentivizes the so-called švarc (black) system, a form of disguised employment in which businesses hire workers as freelancers to avoid paying full employment taxes.

To address these disparities, economists propose adjusting flat-rate deductions to reflect real business costs more accurately. 

Under the plan, office-based professions would see their deduction rate halved from 60 percent to 30 percent, while trades like crafts and agriculture would have their rates lowered from 80 percent to 60 percent. What does this mean for someone in a white-collar, freelance job that earns around CZK 50,000 per month? It’s bad news—it means they’ll be able to deduct fewer flat-rate expenses, and pay more tax.

The reform would also reduce minimum contributions for low-income freelancers and limit eligibility for the flat tax to manual trades. “This is the first reform based on real cost data,” said Vilím. “It allows for more fairness among self-employed workers and better alignment with employee contributions.”

The goal of these changes is to reduce tax avoidance among high earners and provide relief to those who are currently overburdened.

Critics argue that freelancers face more risks and fewer benefits than employees. But researchers contend these factors should be priced into freelance rates—and note that per-crown returns on pensions are often higher for freelancers than for employees.