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Sorting out tax arrangements can be tricky enough in your home country; doing the same abroad can be even more difficult, especially if you are working on a freelance basis. Here is a basic outline of some of the issues to take into consideration when paying tax in the Czech Republic. Please note that this article is intended as an overview and not a detailed guide: for expert advice you should always consult a tax adviser.
Do I pay tax in the Czech Republic?
There are two main factors to take into account when paying tax as a private individual in the Czech Republic. Assuming you are eligible to pay in the first place, you have to establish where you are resident here for tax purposes. Secondly, you should consider your status – are you working solely as an employee or on the basis of a trade licence (zivnostenský list) or both?
With regard to residence, the situation is quite straightforward: if you are living in the Czech Republic for 183 or more days in a calendar year then you are liable to pay tax in this country. But this becomes more complex if you earn outside the Czech Republic. In principle you should pay tax in the country where the work is performed, but the situation is complicated by factors such as where the company you work for is based and any tax agreements between the Czech Republic and your home country. It´s therefore advisable to clarify these issues with your company or, if necessary, a tax adviser.
Then there is the issue of work done in the Czech Republic for a foreign/international organisation or company, i.e. which is based abroad. For example, if you are based entirely in the Czech Republic and do work for an organisation which is based abroad then you will pay tax to the Czech authorities because the work was done on Czech territory. For example, a freelance journalist who works for British or American publications but who writes the articles entirely in the Czech Republic would pay taxes to the Czech authorities because the work is done here. But again, if you are doubt about your situation consult a tax adviser.
Once you have sorted out where you will be paying tax you should also make sure that you are registered properly. If you are working solely as an employee the tax arrangements are fairly simple because everything will be taken care of for you. Your company will inform the relevant authorities and you will be registered to pay tax, with contributions being automatically deducted from your salary. Obviously, there will be a certain level of paperwork at the beginning, and when you start a job you´ll be asked to fill out a form with all the usual details: name, address etc. But once this has been done there shouldn´t be much more bureaucracy to deal with.
If you are working as a sole trader, i.e. on the basis of a trade licence, the situation is more complicated because you are have to arrange your contributions yourself.
Within 30 days of receiving your trade licence you should inform the relevant financial office (finanční úřad), which deals with tax payments, and it will set up all the arrangements for you. It can take some time for the paperwork to be processed, so be prepared for a wait. Remember to take all the relevant documents, such as your trade licence, residence permit, passport etc. Once everything has been arranged you will be issued with a tax identification number (daňové identifikační číslo), which is written as CZ followed by a 10-digit number (your birth registration number) and a registration number (identifikační číslo). Not all freelance work is carried out on a the basis of trade licence: if you are a self-employed artist based here your income comes from ‘royalties´ from your works as opposed to money from jobs based on a trade licence. Of course, you still have to pay tax whatever work you do, and if you have any doubts about whether a trade licence is needed or not you should check with the financial office.
If you are an employee and you work on the basis of a trade licence too then you should register with the financial office within 30 days of the licence being issued. If, on the other hand, you are working on a freelance basis and you then become an employee (while continuing to work as a freelancer) you should inform your employer about this change of situation as well as the relevant financial office, as soon as possible.
Once registered at the office you should then keep a record of all your income (invoices, bank statements etc.), which will form the basis of the tax declaration (properly called příznání k dani z přijmů fyzických osob or daňové přiznání) which you submit together with the tax payment by 31 March or 30 June at the latest. If you submit after these dates a fine will be incurred. If you intend to pay in June you must produce power of attorney (plná moc) from a registered tax adviser, stating that your tax declaration will be submitted with the tax amount by 30 June, and you must submit this power of attorney to the financial office by 31 March. This statement must have the round stamp of the tax adviser. The tax declaration form comes in the form of a pink booklet and can be obtained from any financial office. It´s notoriously complicated to fill in so therefore it´s a good idea to enlist the services of a tax adviser/accountant.
Finding your financial office can be complicated, although in Prague you should go to the office for the district where you live, e.g. Prague 4. Note that that the districts Prague 11-20 all come under one of the 10 municipal districts, so if for example you live in Prague 18 – Letňany, which is located in Prague 9, you should go to the financial office for Prague 9. Outside of Prague establishing where to go can be more complicated, but the website mentioned below should help.
Finding your local financial office www.statnisprava.cz/ebe/redakce.nsf/i/finance Click on ‘finanční úřady and then click on the relevant region (kraj) to help you locate the financial office.
The big four accountancy firms. (Deloitte, Ernst & Young, KPMG and PriceWaterhouseCoopers) all provide help tax services. The Chamber of Tax Advisers (Komora daňových poradců) also can also help. It has a list of registered tax advisers.