Employee Income Tax in Czech Republic
Determining Tax Residency
As a basic rule you are tax-resident (i.e. you fall under Czech Income Tax legislation) if you have spent 183 or more consecutive days in Czech Republic. If this is difficult to determine, then needs to be determined where 'the center of your economic and social activity is' (i.e. where you work most of the time and where your family / partner lives)If this period is shorter, or it is obvious you actually are not living here, then most likely you will have to pay taxes in your home country, on your global income (so including income from Czech Republic).
For 3rd Country Nationals but even some EU Citizens there may be bi-lateral tax treaties with different conditions influencing the rules outlined above, depending on their nationality.
Retroactively valid since 01.01.2009 there is the long-awaited renewed treaty on double taxation for U.S. citizens, which has also an effect on social charges and Medicare. More info on US social security here.
Therefore we recommend to apply for tax-residence here as soon as possible, because most likely you'll pay less taxes than in your home country, because currently (2010) the income taxes are only a flat-rate of 15% and there are considerable tax deductions / tax benefits for families with children, but even for single people.
Social- and Health Charges, Employer's part and Employee's part
An Employer is obligated to withhold a certain part of your gross (hrubá mzda) income:- Employee's part social charges (6.5%),
- Employee's part health charges (4.5%),
- Employee's part income tax (15%).
What you get on your bank account is the net (cistá mzda) income.
On top of your gross (hrubá) income the employer is paying his part in social charges (25%), health charges (9%) and other charges. All those sums together form the so-called 'super-hrubá' income, which is almost twice your net income. See also Employee Salary Calculator - external link on Finance.cz
For this reason, it may be an attractive idea to use a živnostenský list instead of being an employee.
It allows you to deduct more costs, and pay less taxes. Also there are benefits for the employer.
Tax Benefits on Income Tax
If your employer has registered you properly as employee, the taxoffice already is aware of your income and family situation, and you are not obligated to file a tax declaration, provided that you have had no other source of income. However, time and again we see that employers do not provide the accountant proper information about their employees, so they miss out on benefits / deductions.An employee has until 31.03.2010 to file corrections for the year 2009 - After that it will be a lot more work to recover non-claimed benefits from previous, but (usually) it can be done.
It is easy to avoid this whole situation: let Alexio fill in your personal income tax return.
The costs are far smaller than the gains and you have the peace of mind your tax return has been filed correctly!
Filing a Tax Return for Income Taxes
In the following cases it is wise or obligated to fill in an Income Tax Return:- Your employer does not explicitely ask about your family situation,
- You work on a trade license as freelancer,
- You may be egliable for non-standard tax deductions,
- You have been only part of the year in Czech Republic,
- You have worked abroad, but for a CZ-based company,
- You received rental income or other sources of income inside Czech Republic,
- You have had other sources of income outside Czech Republic,
- There are bi-lateral tax agreements with your homecountry.
Unlike many people think, you are supposed to file for your global income, not only for the czech part!
It is very important to get income statements from every employer of the past year, because they are vital for filing or checking your tax return form.