Guide to the duties after setting up a self-employed trade

* Starting in 2025, new self-employed persons will pay reduced social insurance contributions. This relief applies in the first three years of business (year of start + next two years) if you have never been in business in the previous 20 years.

When and how to pay the contributions correctly?

Self-employed persons for secondary activities

A secondary activity is perceived as a form of earning extra income and therefore you do not pay contributions in the first year of business. Most often, people carry out secondary activities while employed or as persons for whom the state pays insurance (e.g. pensioners, students under 26, persons on parental leave, etc.).

• Health insurance: as an employed entrepreneur, you do not pay health insurance premiums. You only pay them in one lump sum if you are found to be in arrears after submitting your annual income statement. Other self-employed persons who are self-employed on a sideline activity after the first year pay advances, which they calculate on the basis of their annual statement.
• Social insurance: you will be assessed retrospectively and will pay the minimum monthly advance for the following year (for the year 2025 for the secondary activity of CZK 1,496). But only if your gross profit (i.e. income less related expenses) exceeds the decisive amount (in 2025 the amount is CZK 111,736).

Consider whether a flat rate tax is worthwhile for you

In addition to paying your premiums separately, you can opt for a ' flat tax'. Under this, you pay a fixed amount each month (CZK 8,716 in 2025) regardless of how much you actually earn. This amount includes social security, health insurance and income tax.

The advantage is that you don't have to file a tax return (if you meet the flat-rate tax conditions). However, it may not be worthwhile for low-income entrepreneurs - for example, if you earn CZK 200,000 a year, you will pay CZK 104,592 in flat-rate tax in 2025, which is more than half of your income. It is particularly worthwhile for those with an annual income of between CZK 700,000 and CZK 2,000,000 and who benefit from a minimum of tax credits.

You must register for the flat-rate tax when you set up your business or by 10 January of the year in question. You will then find out the specific amount of the payment by entering one of the three bands according to your turnover.

Get to grips with tax and accounting

As a self-employed person (who does not benefit from the flat-rate tax scheme), you are liable for income tax. Think ahead about how you will calculate your expenses.

What are the ways of taxing the self-employed?

Depending on the nature of your business and your financial situation, you will probably choose between the first two methods of taxation for self-employed workers in the Income Tax Act:

How to calculate income tax and file a tax return?

The basic personal income tax rate is 15% and is calculated on profit (the difference between income and expenses). However, if your income exceeds CZK 1,676,052 per year (i.e. 36 times the average wage for 2025), you will be subject to a higher tax rate of 23%.

Every sole trader is obliged to file a tax return which summarises all income and expenses for the past year and is used to calculate income tax. The tax return must be filed electronically via the My Tax Portal or data box by 2 May each year. Any tax arrears must also be paid.

If you find an error on your regular tax return, you can file what's called an amended return. However, if the tax office discovers an error, you will have to file a supplementary return.

Did you know that previously self-employed people had to register for income tax at the tax office? Today, this obligation applies only to legal entities. Sole traders fulfil their legal obligations to the tax office by filing a tax return.

Is it worth it to be a VAT payer?

You can become a VAT payer voluntarily or compulsorily - if your turnover for the calendar year exceeds CZK 2 million. Although the administration of VAT is more complicated, it may be more advantageous for you to become a voluntary VAT payer in the following situations, for example:

• You buy most of your goods or services from VAT payers.
• Your customers are mostly VAT payers.
• You also trade abroad.
• You buy goods or services at the standard rate of VAT but sell at the reduced rate of 12%.
• You plan to buy valuable assets.

A special form of VAT payer is called an identified person. Under certain conditions, this is a businessman who trades abroad. This could be an e-shop owner selling goods abroad, or a freelance graphic designer who pays for advertising on Instagram or licenses a foreign program.

Learn how to issue documents correctly

Whether you're a VAT payer or a non-taxpayer, invoicing is an integral part of doing business. The main difference is the amount of information that must be included on the document.

What information needs to be filled in on the documents?

Two types of documents are most common for VAT payers:

A simplified tax document can be issued for amounts up to CZK 10,000 including VAT, whether it is a cash payment or a payment in advance. It must contain:

• identification of the seller,
• The seller's VAT number,
• the registration number of the document,
• description of the goods/service supplied,
• the date of issue of the document and the date of the taxable supply,
• the unit price excluding tax and any discount,
• the price including VAT and the VAT rate.

In addition,the current tax document must contain the identification of the buyer including VAT number, VAT base, VAT amount rounded to the crown, unit price excluding VAT and any discount not included in the unit price

What are the possibilities of issuing invoices?

You have several ways and tools to issue an invoice:

• Manual invoicing - suitable if you issue a minimum number of invoices. The disadvantages are time consuming and higher error rate.
• Online invoicing application - an invoicing application allows you to issue invoices from anywhere. Usually you can link them to your accounting and banking so you have all your documents clearly in one place (e.g. Fakturoid, mPohoda...).
• Accounting programs - provide a comprehensive solution for bookkeeping, with the ability to issue invoices being just one of many features. For freelancers, accounting software is mostly unnecessary.