Income Tax and Tax Deductions in the Czech Republic
Find the updated article at: Income Tax and Tax Deductions in the Czech Republic in 2017
Czech Personal Income Tax is 15% for most incomes, but 22% for over 1.2 M CZK per year.
This article provides foreign nationals who are planning to work or are working in the Czech Republic with a general overview of Czech income tax regulations. You will also find a tax computation example at the end of the article. Knowing the tax system and tax deductions will help you save money and time.
Video: Workshop about income tax for employees and self-employed, tax calculation explained, VAT rules for business, January 2017 with TaxVision.cz; powered by JobSpin.cz
Who Pays the Income Tax in the Czech Republic
An individual is considered a resident for tax purposes in the Czech Republic if any of the following conditions is met:
- The individual is a permanent resident in the Czech Republic, i.e., possesses a permanent home in the Czech Republic. The possession of a long-term visa does not by itself make an individual a tax resident in the Czech Republic.
- The individual is present in the Czech Republic for more than 183 days, including arrival and departure.
What kinds of income are subject to tax in the Czech Republic?
Taxable income under the Czech Income Taxes Act includes the following:
- Income from dependent services (employment)
- Income from independent services (entrepreneurial and other profitable activities)
- Income from capital (interest, dividends, etc.)
- Rental income
- Other income (includes income from the sale of the individual‘s own real estate, moveable property, shares, participation, securities, occasional income, and prizes from lotteries)
Taxation of Employment Income
Income from dependent services includes income and related remuneration from employment. In the Czech Republic, an employee pays 15% Income Tax, unless he earns more than 48 times of the average salary (1.242 432 CZK – about 50.000 Euro) annually.
The amount over the 1.2 M CZK is taxed with an additional solidarity tax of 7% (hence in total 22%).
The location of the payment of salaries, bonuses, etc. does not affect the tax treatment.
Social Security Contributions and Health Insurance in the Czech Republic
The employer‘s mandatory health insurance and social security contributions, calculated according to the Czech health insurance and social security legislation, provide the basis for calculating the so-called “super-gross salary“ which is a tax base for the net salary calculation.
- Contributions paid by employers for each employee:
Social security contribution: 25% of gross earnings
Health insurance: 9% of gross earnings
- Contributions paid by employee:
Social security contribution: 6.5% of gross earnings
Health insurance: 4.5% of gross earnings
Gross Salary, Super-Gross Salary, Net Salary and Tax Duty Calculation in the Czech Republic
If your income is derived solely from a salary, you are not required to file a yearly return. In the Czech Republic, your employer deducts the income tax due from your salary. In all other cases (e.g., you work full time and you also have income from letting an apartment), the annual return must be submitted by March 31 (3 months after the end of each tax year).
Gross salary is an individual’s total personal income before taking taxes or deductions into account.
Super-gross salary [„superhruba mzda“] ( total costs of labor) is calculated as follows:
Gross salary + 9% health insurance + 25 % social security contributions (from gross salary paid by employers)
(in this example, we calculate based on monthly salary)
Super-gross salary presents the tax base, the amount that a government can tax.
Tax calculation (standard example):
15% of super-gross salary
Result: monthly tax before tax deductions
Annual Tax Deductions in the Czech Republic
The tax deductions can be applied when you have submitted the Declaration of the taxpayer liable to personal income tax from dependent activity (employment) and office – holders‘ emoluments to the local financial office. The form can be downloaded here: http://www.financnisprava.cz/…57-AJ_24.pdf.
The personal tax allowances for 2015 are as follows:
|Personal||24,840 CZK (monthly 2070 CZK)|
|Spouse (provided the spouse lives with the taxpayer and does not have annual income in excess of CZK 68 000)||24,840 CZK (calculated annually)|
|Student studying for an occupation||4,020 CZK (monthly 335 CZK)|
|If in receipt of partial disability pension||2,520 CZK (monthly 210 CZK)|
|If in receipt of disability pension||5,040 CZK (monthly 420 CZK)|
|Child tax credit (provided child qualifies as a dependent living with taxpayer) – 1st child, 2nd child, 3rd and other children respectively||13,404 CZK (m. 1117 CZK) / 15,804 CZK (m. 1317 CZK) / 17,004 CZK (m. 1417 CZK)|
|If child is ZTP/P card holder (handicapped person) – depending on a nature of handicap||26,808 CZK (m. 1934 CZK) / 31,608 CZK (m. 2634 CZK) / 34 008 CZK (m. 2824 CZK)|
When the deductions are applied, the result is the tax which is paid monthly by the employer to the financial office.
Net Income Calculation
- Calculate: 4.5% health insurance + 6.5% social security contributions (from gross salary paid by employees)
- Gross salary – tax after the tax deductions and allowances – health insurance and social security contribution paid by employees (4.5% + 6.5%)
= Net Income
Special Case: Artists, Sportsmen, Entertainers and Their Co-performers
The income of non-resident artists, sportsmen, entertainers and their co performers for the activities performed in the Czech Republic is subject to 15% tax for Czech tax non residents residing in EU/ EEA states or in a state having concluded a double tax treaty with the Czech Republic. For residents outside this area the tax rate is 35%.
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Example: Net Salary Computation
Mr Paywell: Taxpayer entitled to two children deductions (CZK)
Monthly gross salary – 30 000
Employer‘s health and social taxes:
plus 9% – 2 700
plus 25% – 7 500
Tax base (rounded) = super-gross salary – 40 200
15% of 40 200 – 6030
Personal – 2 070
Children tax credit (1st child) – 1 117
Children tax credit (2nd child) – 1317
Tax after the deductions – 1526 (6030 – 2070 – 1117 – 1317 = 1526)
Gross salary – 30 000
Employee‘s health and social taxes:
4.5% – 1 350
6.5% – 1 950
Net salary (monthly): 30 000 – 1526 – 1950 – 1350 = 25 174
If you don‘t have any children, simply deduct only 2 070 CZK of the personal tax deduction.
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Hello Gabi, thanks for the question. If your income tax after the deductions (for the reason of deductions) results negative, you will be entitled to a so called "tax bonus" - the state will pay to you. The maximum tax bonus for 2017 is CZK 60 300 / year.
What if the salary=the minimum wage, i mean "Tax after the deductions" in this case will be negative.. for the "Net salary" i shall conider the negative result or 0 or...? Please let me know the answer. Thank you :)