Czech Income Tax and Tax Deductions in 2017
“In this world nothing can be said to be certain, except death and taxes.”
— Benjamin Franklin, in a letter to Jean-Baptiste Leroy, 1789
Whether you file taxes on your own or rely on a tax consultant, knowing the tax system and tax deductions will help you save money and time. This is a general overview of Czech income tax regulations and rates in 2017. You will also find an income tax computation example at the end of the article.
Czech Personal Income Tax is 15% for most incomes, but 22% for over 1.3 M CZK per year. Ministry of Finance of the Czech Republic and its subordinated tax authorities administer and collect the individual taxes.
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, mobile 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 (1.355.136 CZK – about 50.000 Euro) annually.
The amount over the 1.3 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, from just one employer, 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 April 1 (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 [in Czech “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 = monthly tax before tax deductions
Annual Tax Deductions in the Czech Republic
Basic personal tax deductions can be applied when you have signed the Declaration of the taxpayer Liable to Personal Income Tax from Dependent Activity (employment) and Office–Holders‘ Emoluments. Your employer gives you this form and you can sign it only by one employer at the time.
- Basic personal deduction 24,840 CZK (monthly 2,070 CZK)
Other tax allowances for 2017 are as follows:
- 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)
- If taxpayer is ZTP/P card holder (handicapped person) – depending on a nature of handicap: 16,140 CZK (m 1.345 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) / 19,404 CZK (m. 1,617 CZK) / 24,204 CZK (m. 2,017 CZK)
- If child is ZTP/P card holder (handicapped person) – depending on a nature of handicap: 26,808 CZK (m. 1934 CZK) / 38,808 CZK (m. 3,234 CZK) / 48,408 CZK (m. 4,034CZK)
- If child is in nursery school: 11.000 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)
- Net income = Gross salary – tax after the tax deductions and allowances – health insurance and social security contribution paid by employees (4.5% + 6.5%)
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%.
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) – 1 617
Tax after the deductions – 1226 (6030 – 2070 – 1117 – 1617 = 1226)
Gross salary – 30 000
Employee‘s health and social taxes:
4.5% – 1 350
6.5% – 1 950
Net salary (monthly): 30 000 – 1226 – 1950 – 1350 = 25 474
If you don‘t have any children, simply deduct only 2 070 CZK of the personal tax deduction.
The Article was written in cooperation with experts from TaxVision s.r.o.: Accounting, Tax Advisory, Wage Administration – Prague.
Title image: Pixabay.com
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