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Text: Petr Zíka
Even though we have time for the tax return submission until the beginning of the next year, it is good to get ready for it in advance and to get acquainted with the new requirements. This concerns entrepreneurs as well as employees who perform what is defined as dependant activities. Another group consists of everyone who earns money independently – e.g. artists. We jointly refer to these people as self-employed persons. However, the question we face the most often is what tax return employees submit. Why is that so?
This is the answer: Any employee may submit their own tax return. The employer files annual salary tax reconciliation for all employees who have been performing one or more employments with them for a whole year and who do not have any other taxable income, and also for employees who started working for the employer in the course of the year and have submitted an employment certificate issued by the previous employer. This certificate is officially called CERTIFICATE of the Taxable Incomes from Dependent Activity, the Withheld Tax Advances and Tax Advantage pursuant to the Act No. 586/1992 Coll., on Income Taxes, as amended, for taxable period of 2019 – in Czech it is POTVRZENÍ o zdanitelných příjmech ze závislé činnosti, sražených zálohách na daň z těchto příjmů a daňovém zvýhodnění podle zákona č. 586/1992 Sb., o daních z příjmů, ve znění pozdějších předpisů za období 2019. This form, available here, is intended for all taxpayers who have performed a dependent activity for a part of the year or the whole year.
And in what cases is the employer unable to file annual salary tax reconciliation for the employee and the employee has to submit the tax return themselves? This happens when the employee has more employment relations with several employees or when the employee has other taxable income apart from the dependent activity. Let’s now have a look into the individual situations to make it clearer:
- The employee has one or more employments with one employer.
In this case, the employer takes care of everything. However, the employee may ask for the above mentioned certificate (or several certificates, if they have several employments) and submit the tax return themselves.
- The employee has several employments with several employers.
In this case, the employer asks for the above mentioned certificate at each employer and submits the tax return themselves.
In both these situations, you can fill in the tax return and then print it or submit it online at the portal of the Ministry of Finance of the CR.
This is a simplified tax return and it is officially called DECLARATION of the Taxpayer Liable to Personal Income Tax from Dependent Activity from Sources in the Czech Republic (including non-resident taxpayers in the Czech Republic) – in Czech it is PŘIZNÁNÍ k dani z příjmů fyzických osob pro poplatníky mající pouze příjmy ze závislé činnosti ze zdrojů na území České republiky (včetně daňových nerezidentů České republiky).
If the employee has any other income, for example from the rental of a property or from the performance of a trade, income from a share, etc., then they submit the tax return themselves. The form which applies to this situation is a little more complex but the updated version of the portal of the Ministry of Finance navigates you through the form. You will find the form at the same Internet link. It is called DECLARATION of the Taxpayer Liable to Personal Income Tax pursuant to the Act No. 586/1992 Coll., on Income Taxes, as amended, for a taxable period (calendar year) or a part thereof – in Czech PŘIZNÁNÍ k dani z příjmů fyzických osob podle zákona č. 586/1992 Sb., o daních z příjmů, ve znění pozdějších předpisů za zdaňovací období (kalendářní rok) nebo jeho část.
Self-employed persons also submit the tax declaration mentioned in the previous paragraph. In order to avoid any misunderstandings and inaccuracies, let’s now list the basic, verified, and unquestionably valid facts.
The flat rate expenditure limits have changed in 2019 – compared to 2018, they have doubled. What does that mean? Flat-rate expenditure limits are governed by section 7 par. 7 of the Act on Income Taxes. Flat-rate expenditures are expenditures calculated as a percentage of income. They are actually fictitious expenditures which a natural person (entrepreneur) can claim and thus reduce their income by 30–80%, even if they had no expenditures. These 30–80% are not taxed, you pay the income tax only from the rest of the amount.
We can honestly recommend claiming these rates. The following overview is applicable for 2019:
- 80% (up to CZK 1,600,000 a year) from income from agricultural production, forestry and water management, and from craft trade income;
- 60% (up to CZK 1,200,000 a year) from income from trade entrepreneurship;
- 40% (up to CZK 800,000 a year) from other income from independent activities;
- 30% (up to CZK 600,000 a year) from rental income.
This means that for example a bricklayer who works as a sole trader and who earned a million crowns in 2019, deducts CZK 800,000 as expenditures and his tax base is then only CZK 200,000. It is important to correctly classify your activities. While a phone tariffs seller who has no other expenses than those related to his phone and car can claim a 60% flat rate, a doctor or an advocate may claim only a 40% flat rate. Do not try to seek logic in these rules, just follow the wording of the law.
It needs to be said that the situation has been very positive for small entrepreneurship. Finally, we need to mention two facts which are often a subject of disputes.
Remember that if your profit for the past 12 consecutive months exceeds CZK 1 million, you need to register as a VAT (value-added tax) payer. This may be for example from June 2018 to May 2019, it does not have to be a calendar year. Registration for this tax is not associated with the obligation to keep single- or double-entry accounting. The records of income and expenditures or the records of income and expenditures for the purposes of VAT processing are enough. If you become a VAT payer and your profit exceeds CZK 2 million, you may of course claim the flat rate corresponding with the activity you perform. If you make, let’s say, CZK 3.5 million, you can claim a flat rate but only up to the amount equal to the specific percentage from CZK 2 million. Let’s now get back to our brick-layer who claims the 80% flat-rate: he will deduct CZK 1.6 million from the amount. This means that the amount of CZK 2 million is the maximum flat-rate expenditure limit, not the maximum amount for which it is possible to claim the flat rate – there is no such limit.