How to file Czech income taxes: a complete guide for foreigners

If you live and work in the Czech Republic, you are most likely required to file a tax return every year; here's how.

Expats.cz

Written by Expats.cz
Published on 11.03.2021 10:27 (updated on 12.03.2021)

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Anyone living and working in the Czech Republic, Czech or foreigner, is required to pay income tax. Tax returns (daňové přiznání) must be filed by those with an active trade licence (self-employed), employees with other income in an amount over CZK 6,000 and unemployed persons with capital gain, rent or other income in an amount over CZK 15,000 per year.

Due to COVID, Brexit, and new Czech legislation implemented in 2020, there are some important changes to take note of when filing your taxes this year. For more information on how, when, and where to file your Czech income taxes, as well as important terminology related to the process, follow our step-by-step guide below:

Gather these important documents

The documents needed for filing taxes depend on whether you are employed or whether you have a trade license or both. If a person is employed, they will need a certificate of taxable income from their employer.

Trade license holders should compile their invoices paid for the given calendar year. Flat-rate expenses or real expenses related to their business may be applied. If flat-rate expenses are used, filers are not obliged to keep any receipts or invoices received.

If it is more advantageous to use real costs, then the person filing should make a list of costs paid for the entire year; receipts should be kept for another three years. Included among these real costs is anything related to conducting a business. Exceptions are the cost of food, refreshments, restaurants. Vehicle expenses can be deducted if certain conditions are met.

Trade license holders must determine any advances they paid for pension insurance (ČSSZ, or PSSZ in Prague) and public health insurance (VZP or provider you are registered with). Taxpayers should automatically receive this information after the end of the year (if you have an e-account with these institutions the information is available online). These numbers will be needed to prepare a statement of income for self-employed persons.

Factor in these common deductions

Tax filers also need to obtain confirmation of their deductions. The most used and well-known deduction is mortgage interest; in order to claim it, those filing taxes must prove how much interest they paid the previous year via confirmation from the bank.

If the taxpayer has dependent children, one of the parents may claim a deduction for them. The other parent must sign a declaration stating that they will not claim a deduction for the children.

Similarly, if a taxpayer wishes to claim a deduction for a non-working spouse, then that spouse must sign a declaration that his or her income has not exceeded a certain limit that year. Currently, this limit is CZK 68,000 for the entire year. You may also deduct payments for kindergarten, exactly as much as the school charges (for state schools roughly CZK 1,000/month) though the total is limited and you cannot deduct the entire cost of private kindergarten, for example.

Tax report (daňové přiznání), picture via financnisprava.cz
Tax report (daňové přiznání), picture via financnisprava.cz

Determine if you should register for VAT

For Value Added Tax (VAT) or as it's called in the Czech Republic daň z přidané hodnoty (DPH) people must monitor their turnover every 12 months, and if it exceeds CZK 1 million they are obliged to register for VAT. A person who issues an invoice to a client who is registered for VAT in another EU state must also register for VAT light (identifikovaná osoba) with their local tax office (finanční úřad).

Taxpayers must also register for VAT light if they receive business services from a company that is registered for VAT in another member state of the European Union.

Take note of COVID exemptions for pension and health insurance

From March to August 2020, due to COVID, the Czech Social Security Administration (ČSSZ) and health insurance companies waived the minimum advances for all self-employed persons who did business during these months. However, after the end of the year, those individuals must give a statement of income and expenses (přehled) and calculate their insurance. The total amount for the year is then calculated in the statement. In case of overpayment, the insurance company pays out funds to you or you may use these funds as a deposit toward current payments.

The minimum amount of advances for 2021 is CZK 2,588 for social insurance and CZK 2,393 for health insurance.

COVID has also brought about some special considerations. For 2020 taxes, self-employed persons are not required to declare special benefit payments received in the form of compensatory bonuses such as kompenzační bonus, pětadvacítka, or the "nursing" benefit (ošetřovné) many people received from staying home with children due to school closures in 2020.

Understand Czech tax domicile

The Czech Tax Office assumes that you have a tax domicile in the Czech Republic if you have a permanent dwelling in the Czech Republic, that is, you do not live in a hotel temporarily and at the same time, you have been in the Czech Republic for more than half a year.

In this case, the Czech Republic considers you a Czech tax resident, and you are obligated to report your worldwide income in your Czech tax return. If this income was taxed elsewhere in the world, then the Czech Republic, on the basis of a double taxation treaty, allows the Czech tax to be reduced by the tax paid abroad.

If you are a Czech tax resident, you also have the option of claiming various deductions in your tax return, such as deductions for a non-working spouse, deductions for children, mortgages, etc.

Tax non-residents of third countries do not have this right. And if you are a tax non-resident in the Czech Republic, but you are also a tax resident of another member state of the European Union, then you can claim these deductions only if the Czech income accounts for at least 90 percent of your worldwide income.

Third-country nationals outside the European Union cannot claim any deductions if they are not Czech tax residents. Britons living in the Czech Republic are no longer considered EU residents and must comply with the Czech taxation rules for those from non-EU countries. Previously, British citizens could take advantage of the basic taxpayer deductions mentioned above, however, post-Brexit they are considered third-country nationals, meaning if they were not Czech tax residents, they could not claim child deductions in the Czech tax return of a non-working partner.

Consider the advantages vs. disadvantages of the new flat tax

The flat tax (paušální daň) was introduced by the Czech govt. in 2021. Taxpayers who apply for a flat tax only must pay the tax office a total monthly amount of about CZK 65,000 per year in total. This amount will change slightly each year. In 2021 it is CZK 5,469 per month. This amount includes payment for pension insurance, health insurance, and a CZK 100 advance on income tax. People using this plan do not have to file tax returns after the end of the year, which is a great advantage. You can't register for the flat tax if you are VAT payer, if you are employed, or if you have any other type of income beside of the self-employment.

However, applying for a flat tax can also have some disadvantages, especially for foreigners. It will be impossible to apply for a tax assessment, for example, or a copy of any tax return filed, because no return will have been filed, so it will be very difficult to prove to foreign financial authorities that you paid tax in the Czech Republic.

File your taxes electronically, via mail, or in person

Those filing Czech tax returns no longer need to do so in person. The Finance Ministry recently launched its online tax platform Mojedane21.cz. While the portal is only available in the Czech language, improvements have been implemented to make it more user-friendly. Another benefit of not submitting taxes via the traditional paper forms is the extended deadline (see below).

In addition to personal income tax, the portal can also handle road tax, corporate income tax, VAT, and real estate tax.

A new electronic identity function was introduced earlier this year, which means it's possible to log in to the online tax office using internet banking login details, for those who bank with Česká spořitelna, Komerční Banka, or ČSOB.

Another option is to print completed tax forms and mail them. These should be sent to the tax office for the district where you reside. For Prague, that means the specific city district. A list of the addresses can be found online. Forms can be found on the website of the tax office.

Forms may also be dropped off at the tax office, but given the current situation, it's important to verify opening hours in advance which are subject to change due to the pandemic, as well as adhere to hygiene regulations.

Take note of deadlines

The traditional deadline for submitting taxes is March 31. This year, however, due to the current Covid lockdown the Czech government has extended the deadline until May 3, 2021 (paper forms) and June 1, 2021 (electronic submissions). As in previous years, filing your taxes via a certified tax advisor gives you three extra months after the end of March, with a deadline of July 1, 2021.

Help is available online for filing taxes. CzechTaxesOnline.cz guides people through the forms via a question and answer format in English, and then lets users print out the completed forms or files them on their behalf. The sister site ExpatTaxes.cz has up-to-date information on tax laws.