Cancellation of income tax registration of self-employed persons: does it apply to you?

What about the tax office and income tax?

Until the end of 2023, when you started your business, you were required to register with the local tax office and register as self-employed for income tax. You had no idea whether in the first year of your business you would have income in the low thousands or, on the contrary, in the high hundreds of thousands.

Similarly, you were still obliged to declare that you had no taxable income for the previous year as a self-employed person and to file a "zero" tax return.

However, both obligations will end with the introduction of the consolidation package on 1 January 2024. The state expects the change to result in significant savings in direct and indirect administrative costs both on its side (i.e. the tax administrator) and on the side of sole traders (taxpayers).

The agenda for registration of self-employed persons for income tax includes such actions as:

• the necessity to report a change of local jurisdiction (typically when changing the registered office),
• assigning a tax identification number (TIN),
• or refunding the overpayment of tax in various ways according to the taxpayer's choice (now the refunds will be transferred only to the bank account that you specify in the refund application).

The state is now trying to consolidate all these actions and is abolishing redundant paperwork. The goal is to automate the discovery of essential data by linking available sources so that they do not need to be handled individually in multiple locations.

Income tax registration for existing self-employed persons

If you are already registered for income tax as a self-employed person, i.e. you have started a trade by the end of 2023 or have income from your trade, you do not need to do any extra tasks now.

The state will automatically cancel all registrations on 1 January 2024 without you having to apply for it yourself. This will also cancel your VAT number, but not your obligation to pay taxes. However, as the change is based on the law, the tax office will not inform you individually.

The news is therefore an advantage not only for self-employed persons starting out, but also for those who decide to close their trade. Until the end of last year, they had to fill in a form for cancellation of income tax registration and ask their local tax office to process it. Now this obligation is no longer necessary.

What about the income tax return and payment?

Cancellation of income tax registration does not mean that you no longer have to pay income tax. The only issue now is whether you, as a sole trader, have taxable income for the previous year.

If you did and the amount of the income exceeded CZK 50,000 in total (or CZK 20,000 if you are also employed), you will continue to file a regular tax return with all its requirements.

If you don't, send a notice to the IRS that you didn't incur a tax liability in the previous year. However, you can just send the notice as a message through your data box and you do not need to document a "nil" tax return unless you have another reason for doing so. The deadline for filing the notice is the same as the deadline for filing the tax return.

Do not forget to file the same notification with the Tax Office after you have closed your business (after cancellation of your trade licence). As we explained above, although you no longer have to fill in a special form to cancel your income tax registration, this is why the Tax Office cannot know whether or not to expect you to file a tax return and it is therefore your responsibility to notify it.

Do I have to file a tax return?

Who is not affected by the change?

The obligation to register for income tax remains for the time being for legal entities (except for those where tax is withheld at a special tax rate) and for individuals with income from employment (typically wages from employment).

Simply put - if you are an employee or have an employee, this change will not affect you for the time being.

These two groups should also see a simplification of their tax agenda in the future. However, this should be subject to more comprehensive reform than the consolidation package approved in 2023.

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