Doing business with a trade license in Czechia
Who is a sole trader?
In order to practice a trade in the Czech Republic, you need to have a business permit, also known as a trade license. Such a document is issued by the Trade Licensing Office competent for your residential jurisdiction. According to relevant legislation, a sole trader is defined as a self-employed person (in Czech: OSVČ).
Czech law distinguishes between two classes of trades: unqualified (ohlašovací živnost) and licensed (koncesovaná živnost). So-called unqualified trades are further categorized as unregulated (volná) trades and regulated (vázaná) or craft (řemeslná) trades.
In simple terms, setting up an unqualified and unregulated trade is easy and only requires you to report to the Trade Licensing Office that you wish to begin doing business. You will submit personal documents and pay an administrative fee. Examples of unqualified, unregulated trades include teaching, translating, IT services, and marketing, just to name a few. When setting up an unqualified but regulated trade, such as a physical trainer at a gym, for example, you will also need to submit your credentials to perform the trade, such as a professional certificate – though the requirements may vary. In both cases, you can start doing business as soon as the Trade Licensing Office accepts your application.
In order to perform a licensed trade, on the other hand, you will also be required to submit a professional license or certificate, but the government must approve your application first before you can begin practicing as licensed trades are highly regulated.
Fortunately for you, most trades are unqualified trades and don’t require jumping through many hoops to get started. A complete list of trades (both unqualified and licensed) can be found on the official Ministry of Industry and Trade website.
How to set up your business
As we’ve already mentioned, announcing that you are ready to practice an unqualified trade to the Trade Licensing Office is fairly simple. You just need to fill out a special form available on the Ministry of Industry and Trade website. You will then take this form to the relevant Trade Licensing Office located in your jurisdiction. It’s also possible to do this via snail mail or through electronic notification via Data Box.
What documents are needed to set up a trade license?
- Passport or EU national ID card (if you are an EU or EEA citizen)
- A copy of the property ownership deed from the Land Registry for the property where you wish to register your business address
- Consent from the owner of the property to conducting business at the address if you are not the owner (or sole owner) of the property
- A criminal background check from your country of origin (*This criminal background check must not be older than 90 days and must have either an apostille or superlegalization seal. If the document was issued by an embassy and the country is a signatory to the Hague Convention, it does not need to be apostilled. If it is issued by an embassy and the country is not part of the Hague Convention, it must be superlegalized by the Czech Ministry of Foreign Affairs in Prague. In all cases, this document must be accompanied by a sworn translation into the Czech language*)
- Administration fee of 1000 CZK
If you have permanent residence status in the Czech Republic or are an EU/EEA citizen, a criminal background check is not required. US citizens may prove their clean criminal record status with an affidavit signed by the consular officer of the US Embassy in Prague for a fee of $50. As mentioned above, this affidavit is exempt from the apostille requirement as the US is a signatory to the Hague Convention on Apostilles.
If the owner of the property does not consent to you registering your business address at their property, you can also purchase a so-called virtual business address. This is a commercial service that costs about 4000 CZK per year and can be used as a tax write-off (deductible business expense).
General conditions for obtaining an unqualified trade license
- You’re at east 18 years old (proven by your passport or EU/EEA national ID card).
- You are competent to perform legal acts (an official will verify this themselves).
- You have a clean criminal record (in most cases, this is proven with a criminal background check issued by your country of origin).
If you meet all three conditions and collect all the necessary documents listed above, the Trade Licensing Office will register you in the Trade Licensing Register. It can take up to 3–5 days for this to go through, but you can start your business as a sole trader immediately so long as it is an unqualified trade. You will receive a certificate of registration in the Trade Register by post or via Data Box if you already have one.
What is a Data Box?
As of 1 January 2023, every sole trader is required to have a Data Box (datová schránka) designated for self-employed individuals. What’s a Data Box, you ask?
A Data Box is an online system used mainly for electronic communication with government offices. Think of it as something like an e-mail, only this e-mail is linked to your identity and used for eGovernment purposes. You can set up a Data Box at any Czech Post Office, Czech Point location, or notary office.
Upon verifying your identity, you will receive a special Data Box number unique to you along with your login details. The Data Box is also linked to your personal e-mail address, so whenever you receive a new message in your Data Box inbox, you will also receive an e-mail notification inviting you to log in to your Data Box to read the new message.
How long is a trade license good for?
For citizens of EU/EEA countries, Czech citizens, and foreign nationals with permanent residence status in the Czech Republic, the validity of your trade license is indefinite, and you can suspend or cancel it at any time. For non-EU/non-EEA citizens who do not yet possess permanent residence status, your trade license is good for only the duration of your visa or permitted stay in the Czech Republic. Thus, until you gain permanent residence status or become an EU/EEA/Czech citizen, you must extend your trade license’s validity every time you extend your visa or residence permit.
What are my legal obligations after getting a Czech trade license?
- Unless you are in possession of a certificate of coverage from your country of origin that is valid for the period of your stay in the Czech Republic, you must register with the Czech Social Security Administration as soon as your visa is approved and you begin working on a valid Czech trade license. You will make social security payments each month and be required to submit your income once a year when you complete your Czech tax return, in which case the amount you must pay will be adjusted relative to your personal income. The minimum monthly payment made to social security is currently set at 3852 CZK per month as of 2024.
- EU/EEA citizens and their family members, US citizens, and third-country nationals with permanent residence status in the Czech Republic must enter into the public healthcare system by registering with a public health insurance company (such as VZP or OZP). The minimum monthly payment for health insurance is currently set at 2968 CZK per month as of 2024. This insurance covers all basic healthcare costs, excluding compensation for incapacity for work (i.e. “sick days”). There are no co-pays or deductibles. Generally speaking, everything except dental care is covered. If you need to go to the emergency room, you will usually be charged a one-time fee of 90 CZK.
- Like with social security, you must also file an annual report to your health insurance company so that your monthly payments may be adjusted accordingly based on your personal income.
- You will also need to register with your local finance office to pay personal income tax. (Obligation cancelled from 1.1.2024)
If your annual turnover exceeds 2 million CZK, you are required to register as a VAT payer and charge your clients VAT (Value Added Tax). If you have customers in EU countries, you are required to register as what’s called an “identified person”, or “identifikovaná osoba” in Czech. This is essentially a “VAT Lite” regime and requires you to report all your EU income to the tax office, though you are not required to pay VAT unless your annual turnover exceeds 2 million CZK
Accounting obligations
Generally, every entrepreneur or sole trader is obliged to issue an invoice for his or her services, i.e. to issue tax documents to customers.
Personal income tax for self-employed individuals has been fairly moderate so far. Income tax for the self-employed currently amounts to 15% of your net income as of 2024, which can be reduced by a tax discount of 30,840 CZK. As a self-employed taxpayer, there are also a number of other discounts, deductions, and bonuses that you can apply. Current government measures are expected to tighten these conditions in the coming years.
So far, there are various options for offsetting costs and subsequent taxation.
- One option is to maintain very detailed tax records and to deduct your actual business expenses from your tax liability base amount.
- But a more popular method is to apply the flat-rate business expenses scheme. More often than not this means reporting expenses amounting to 60% of your total business income. If you choose this method, you are not required to prove your expenses, and thus this can be considered as applying “fictional” expenses, which is 100% legal.
A third option is to apply for a flat-rate tax. This means you will pay a single monthly fee that includes an advance on income tax, social security, and health insurance. If you choose this option, you don’t need to file an annual tax return or annual reports with the social security administration and health insurance company. Whether it’s more beneficial for you to choose the flat-rate tax scheme or the flat-rate business expenses scheme depends on your individual circumstances and how much income you have made. It’s best to consult with a tax advisor to find the right plan for you.
Choosing the right tax regime as an applicant for permanent residence
If you are working on a trade license in the Czech Republic and are planning on applying for a permanent residence permit, you will have to prove sufficient income in order to be approved. This is proven by submitting your tax return for the most recent tax period.
If you happen to choose the 60% flat-rate business expense scheme (or in some cases even the 80% flat-rate business expense scheme), you could be doing yourself a disservice because it will appear as if you are not making enough money to support yourself, even if you are. This is because only your net income AFTER applying the flat-rate business expense scheme is taken into account. This will then put your application for permanent residence status in jeopardy.
What is the minimum sufficient income needed to prove that you make enough to support yourself, you ask? We’ll calculate this for you based on your living expenses, insurance, and other expenditures.
Is everything crystal clear now?
Self-employment is not too complicated to comprehend, but of course we can’t cover everything in one article. If you have any questions about the Czech legal system, how to run a business or sole-proprietorship, or if you need help getting started, feel free to reach out! Top Visa is here to help make your Czech dreams come true.
