Expert tax advice can save freelancers in Czechia time and money

Simplified tax filing is the secret to success for self-employed workers in Czechia.

Expats.cz Staff

Written by Expats.cz Staff Published on 20.01.2025 16:50:00 (updated on 20.01.2025) Reading time: 4 minutes

This article was written in partnership with HJ Taxes Read our policy

Death and taxes may be the only certainties in life, as the saying goes – so for self-employed workers and small businesses, it’s vital to make sure you get your accounting right.

As a foreigner in Czechia, sorting out your tax affairs can seem daunting. Peculiarities of the complex Czech tax system and the language barrier when communicating with tax authorities force many expats to seek expert help with their tax affairs.

Accountancy firms targeting their services at expats have become essential pillars of support for foreigners with a “trade license” to conduct business in Czechia. With “živnostenské oprávnění” recipients now numbering well over 100,000, it’s big business. Expats.cz asked one such firm, HJ Taxes, about how expert support when filing taxes can save money - and significant headaches.

Optimize taxes to save money

HJ Taxes helps both individual entrepreneurs and businesses with multiple employees navigate their licensing requirements. The company also assists those without trade licenses manage and report income (for example, investment returns) obtained outside of their typical employment.

Whatever the specific circumstances, the process always starts with an honest and open discussion about the nature of the client’s business activity. “The first step is to talk about taxes in general, enabling us to figure out what we can do for that person,” explains Jaroslava Mehessen from HJ Taxes.

Taxes are rarely simple, so it’s vital to know how the rules apply to your specific income and circumstances.

We need to find out what can be deducted, what can be removed, what clients do and don’t need to put down in their tax documentation. Sites exist which can help you ‘do it yourself’, but they’re risky. Income tax, and taxes in general, are very complex, and it’s worth having an expert to help you,” Jaroslava says.

Expert advice is even more valuable given that expats attempting to navigate the Czech tax system rarely know all the options available to them. For Jaroslava, knowing a client’s personal circumstances is also key, as tax credits and deductions may be available for families with children, for mortgage owners, or for other reasons. Jaroslava notes “big mistakes in the limits for deducting interest from mortgages” as a pervasive issue. Even a simple mistake can be costly for entrepreneurs working in Czechia.

Don’t get tripped up by investments

Among the biggest pitfalls, expert advisors can help clients avoid mistakes commonly made when reporting income earned from investments. As individual investing has become an increasingly popular tactic to beat inflation, demand for assistance in this category has grown.

“The single greatest area of issues that we see is in stocks and cryptocurrencies. Selling crypto works very differently from country to country, and while some clients are surprised to pay less tax than they expected, others are upset because they didn’t think it would be so much. And even if crypto doesn’t generate positive returns, it still generates tax. I would strongly advise against people trying to deal with taxes from crypto and stocks by themselves,” Jaroslava warns.

Although some general rules of investing are well-known – such as investments becoming tax-exempt if held for longer than three years – clients often overlook the fact that “each portfolio, according to its location and type, is treated differently.” Investing in countries without a double-taxation treaty with Czechia imposes dual tax obligations, and accountants can play a vital role by reading and understanding tax treaties between different nations.

Which tax scheme could (or should) you use?

Having someone on your side who knows the rules and possibilities of the Czech system isn’t just important when filing your tax returns. Expert advice is also vital for those starting out and considering which Czech tax regime will work best for them.

“We help people set up a trade license, and before starting the process, we discuss aspects such as VAT registrations. We ask about expected income, and whether they’ll issue invoices to other EU countries. Clients often don’t realize the nuances of whether they need to be registered for VAT or VAT light, depending on their invoicing. When clients are registered for VAT but no longer need to be, we let them know, giving them the choice to keep or retain their registration,” Jaroslava explains.

Another big question facing self-employed people in Czechia is whether to use the Paušální daň flat-tax system. Many find it tempting as a way to cut out bureaucracy – but Jaroslava advises caution when it comes to this popular scheme.

“If you have an income close to the limit for the scheme, you’ll benefit – but everyone else loses - because for most people, paying an average works out less well than paying income tax along with social and health insurances separately,” she claims.

“Problems also arise when you need evidence of income, such as when taking out a mortgage or dealing with the foreign police regarding visa or residency requirements. In this context, it’s better to have an income tax return proving that you have income. Finally, it’s worth remembering that any income beyond your self-employed activity will still have to be filed in a separate tax return - even if you’re on the flat-tax scheme.”

The message is clear: for self-employed workers and small business owners, going it alone is a potentially costly decision. Accountants such as HJ Taxes do the hard work - tailoring tax reporting to best suit your circumstances - so that you don’t have to.

“Clients come to us and tell us their situation, and we work out the possibilities. We do the calculations and advise them on which options will be best. Ultimately, it’s up to them to make the final decision,” Jaroslava concludes.

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