As an EU member nation in central Europe, the Czech Republic can be a popular destination for international contractors looking for new client opportunities. Prague, the capital city, is a well-known cultural centre, drawing large numbers of workers and visitors. When you add in the very low-income tax rates, the Czech Republic begins to look appealing to foreign contractors.
Before you begin searching for Czech clients you will want to know what to expect in terms of work regulations, taxes, immigration, and business culture. This guide will outline those areas for you, as well as your options for structuring your contracts and payment.
Do I need a visa to be a contractor in the Czech Republic?
If you are an EU citizen you don’t need a visa to work in the Czech Republic, and for stays beyond 90 days, you will only need a residence permit. Other nationalities will need a work permit for self-employment, also known as a ‘trade license’ (or zivno) visa.
What are the requirements for the zivno visa?
The zivno visa has to be applied for from an embassy or consultant outside of the Czech Republic, and due to the high demand, the process can take up to four months so it’s best to plan ahead. There are a number of requirements, including showing a business plan that will qualify for a trade license, as well as proof of having arranged accommodation for at least a year.
Citizens of some western countries may find it easier to get this visa, and given the requirements, the contractor has to be ready to commit to the Czech Republic for the long term.
How do I get paid as a contractor in the Czech Republic?
There are several choices of how to get paid in the Czech Republic, depending on how you set up your contracts and business structure.
Work as a self-employed freelancer
It can be simple to work as a self-employed EU citizen with their ‘freedom to travel’ rights, and you just have to set up the contract and agree with your client on payment terms. Non-EU nationals will have to navigate the zivno visa application and requirements to work as independent freelancers.
Set up your own limited company
You may have your own limited company, or want to set one up in the Czech Republic, and once again for EU citizens that is possible. Your client will contract with your limited company which will lease you out to perform the work. You will pay a corporate tax of 19% on retained earnings, which is slightly higher than the personal income tax.
Work with an umbrella company in the Czech Republic
Non-EU citizens or contractors who are new to the Czech Republic can work through an umbrella company, which will act as a third party to the contract. Your client will pay the umbrella company, which will, in turn, withhold your taxes and contributions before issuing you payment. The umbrella company may be able to sponsor your work visa as well, which would take the form of an ‘Employee Card’ that is also a long-term residence permit.
How do taxes work for contractors in the Czech Republic?
The Czech Republic simplified its tax system in 2021, and the rates are quite low compared to other EU countries.
There is a 15% flat tax rate on self-employment annual income up to EUR 65,000 and 23% after that. If you have a trade license as a self-employed, then 60% of your income is subtracted before the flat tax rate is applied, as an alternative to itemizing and deducting specific business expenses.
All of this means extremely high retention of your billed income and does explain why work visas are in demand.
Tax residency rule in the Czech Republic
The Czech Republic uses the 183-day rule and any stays beyond that will result in tax residency and taxation of worldwide income. But if your Czech income is all you have, residency might be desirable for some nationalities where the home tax rate is higher.
How to file taxes in the Czech Republic
The process for filing taxes in the Czech Republic involves the following steps:
Step 1: First, attain the Czech Republic Tax Identification Number.
Step 2: Secondly, enter here to access the database of forms. The personal income tax form is number 25 5405. Click ‘zobrazit’ to access the filing portal.
Step 3: Then, you click ‘Průvodce’ which launches a form guide that you can electronically complete based on the sources of income and deductions relevant to you.
Step 4: Follow the steps and enter the values for each income source and deduction that is relevant to you. Deductions may include:
- Donations – minimum of 2% of personal income tax base or CZK 1,000, maximum of 15% of the personal income tax base
- Interest from a loan from building society paid during tax period – maximum of CZK 300,000
- Private pension insurance – except for the first CZK 12,000, a maximum of CZK 24,000
- Private life insurance – maximum of CZK 24,000
Step 5: Attach any files that are required. You can also import documents from other applications. To do this, enter the tax portal and click ‘Dokumentace’ (Documentation).
Step 6: Submit the tax return. On the next page, you will see “Potvrzení o podání písemnosti” (Certificate of filing) which provides important information about your submission as well as a confirmation file.
What are the social security contributions in the Czech Republic?
If you are from the EU, it is likely that if you continue to pay into your home country’s social security program you won’t need to contribute to the Czech program. If you do have to contribute (or choose to), the total amount is around 30% which covers pension, health, and sickness insurance. The health insurance portion is voluntary.
The percentage is calculated against an ‘assessment base’, which changes every year, and is complex enough to challenge even the most experienced contractor. If you use an umbrella company, they can make all the calculations for you, and deduct the amount from your pay.
Can I work remotely for a company in the Czech Republic from my home country?
If you have problems getting a visa, or simply prefer to live in your home country, you can still work for Czech clients remotely if the role permits. This option has grown in acceptance in the past year, as even major companies begin to embrace remote work options for certain positions.
Your client would have to agree to it, but if you have the right skill set and can arrive at a beneficial work structure then it is worth considering. You would still invoice them from your home country based on time spent or project milestones, and the client would remit cross-border payment to you. All taxes and contributions would be based on your home country criteria, and the client would have no other compliance requirements.
How do I stay compliant while contracting in the Czech Republic?
As a foreign contractor, you will be concerned about compliance with Czech law and regulations, as you are working and living within its borders. Your primary compliance risks are:
- Meeting tax and social contribution requirements
- Business registration for limited companies
- Work visa validity and sponsorship for non-EU citizens
- Having required health insurance (if not covered by social security)
That is a lot to overcome, especially for new contractors, and you might need the help of an umbrella company to take over many of these tasks. Contractor Taxation has licensed, verified umbrella companies in the Czech Republic that are ready to assist you with setting up your contract and making sure that your payments are secure. Here are some of the benefits of using an umbrella company:
- Handles all client payments, tax withholding, and any social contributions
- Issues you a payslip each month, to a Czech or foreign account
- Can sponsor work permits for non-EU citizens
- Helps set up the Czech contract with the client
- Moderates any disputes with your client
- Advises on access to totalization and double taxation treaties
Unless you are prepared to handle all of this on your own, you may find that an umbrella company is a valuable partner in the Czech Republic as you embark on your contracting journey in a new country. Please contact Contractor Taxation with your questions about how an umbrella company can work for you.