Labour Market
Employees – Taxation, Social Security and Health Insurance
Information on working conditions annually monitors the working and wage conditions for employers in the Czech Republic based on an analysis of collective agreements. Under the auspices of the Ministry of Labour and Social Affairs, this survey has been conducted regularly since 1993. Its purpose is to map and analyse the content of collective bargaining in the Czech Republic.
The extent of the individual’s taxation in the Czech Republic depends on the individual’s tax residency status. Czech tax residents are subject to tax on their worldwide income. Czech tax non-residents are subject to tax on Czech-source income only. Tax non-residents are taxed in the same way as residents on their Czech-source income, except for certain types of income.
Czech source income is, for instance, income for work performed in the territory of the Czech Republic, rental income from real estate located in the Czech Republic, etc. In addition, Czech tax non-residents may not qualify for certain tax-deductible items and tax reliefs. The term “tax resident” includes any person residing in the Czech Republic for at least 183 days within a calendar year (continuously or over several periods) or having a residence (permanent home)1 in the Czech Republic.If an individual is treated as a tax resident in the Czech Republic and, at the same time in another country, the final tax residency status is to be determined in accordance with the applicable double tax treaty. The Czech Republic concluded double tax treaties with nearly all European countries and a majority of other developed countries. If there is no double tax treaty in place between the Czech Republic and the other country, double taxation may arise.
Income Subject to Tax
Employment income includes salaries, wages, bonuses,
other compensation of a similar nature and most benefits in kind2.
Employment income also includes fees paid to directors and shareholders of
private limited companies and to limited partners of limited partnerships for
work performed for the company or partnership.
On the other hand, travel reimbursement within the Czech Labour Law statutory limits
and various other qualified benefits, such as luncheon vouchers, cultural and social
fund benefits, temporary accommodation of up to CZK 3 500 per month (approx. EUR 145) and private life.
insurance or supplementary pension insurance premiums annually of up to
CZK 50 000 approx. EUR 2 066) may be exempt from taxation if further conditions are met.
The taxbase for employment income equals the sum of the gross income of the
employee. No expenses may be deducted from employment income.
Tax-deductible items
The tax base from employment as described above is to be consolidated with all other partial tax bases (i.e. partial tax base from self-employment and business income, from rent, investment income or from other income).
The overall tax base can be lowered by tax-deductible items such as gifts to charities and other organisations for qualified purposes, mortgage interests, and contributions towards the individual’s private life insurance or supplementary pension insurance.
Tax Rate
The employee’s tax liability is computed from the tax base, reduced by the above tax base deductions, using the 15 % tax rate.
In the case of the gross income of the employee exceeding the annual maximum assessment base for social security contributions, a 23 % tax rate applies on employment income exceeding the limit.
For Czech tax non-residents from countries outside the European economic area with no treaty on exchange of tax-related information with the Czech Republic in place, income from dividends, capital gains, interest, royalties, and remuneration to members of statutory bodies is subject to a 35 % withholding tax rate.
Tax Allowances
A taxpayer may lower the annual tax liability through the deduction of tax reliefs. The below tax reliefs, except for the personal tax relief, are available for Czech tax residents and, in general, also for Czech tax non-residents who qualify as residents of other member states of the European Union or of the European economic area and their Czech-source income accounts for at least 90 % of their total annual income.
The annual personal tax relief is CZK 30 840 (approx. EUR 1 274). In addition, tax relief of CZK 24 840 is granted for a spouse living in the same household with the taxpayer, unless the spouse’s annual income exceeds CZK 68 000 (approx. EUR 2 810).
Additional personal tax relief of CZK 2 520 (approx. EUR 104) is granted for partially disabled persons and of CZK 5 040 (approx. EUR 208) for fully disabled persons. Tax relief of CZK 4 020 (approx. EUR 166) is granted to taxpayers who are full-time students up to the age of 26 years. Tax relief of CZK 15 204 (approx. EUR 628) is granted for the first child, CZK 22 320 (approx. EUR 922) for the second and CZK 27 840 (approx. EUR 1 150) for the third and each further dependent child. In addition, parents may apply for tax relief of CZK 16 200 (approx. EUR 669) per annum for children attending kindergarten. In the case of the taxpayer’s tax liability having been fully covered by tax reliefs, the child tax relief can also be used as a child tax bonus. In this case, the tax bonus increases the employee’s net salary or is paid to the taxpayer by the tax authorities.
Taxpayers can also claim proportionate amounts of tax reliefs, with the exception of the taxpayer allowance, if the applicable conditions are met for part of the year only.
Tax Collection
The employer is obliged to operate a monthly payroll to calculate the monthly payroll tax withholdings and to remit the payroll tax withholdings to the tax authorities.
If the taxpayer has only one employer at any time during the year, has his or her Taxpayer Declaration signed for the respective year, does not receive other income above CZK 6 000 (approx. EUR 248) (apart from income that is subject to the final withholding tax e.g. interests and dividends from Czech companies), the taxpayer is not obliged to file an annual tax return.
Consequently, the taxpayer may ask the employer to perform annual tax reconciliation to apply tax base deductions or tax reliefs that cannot be applied within the monthly payroll (simplified annual tax filing).
In other cases, the taxpayer is obliged to file an annual tax return.
The tax return for the respective tax period (calendar year for personal income tax) must be filed with the tax authorities by 1 April of the following year or 1 May of the following year, if the tax return is filed electronically by defined means. The filing deadline may be extended by an additional three months if the taxpayer grants a power of attorney to a certified Czech tax adviser, or on the basis of a special application. Another extension of the tax return filing deadline by 1 November of the following year is available if the taxpayer has income from abroad
Social Security and Healthcare Insurance Premiums
Employment income is subject to social security and
healthcare insurance premiums.
The
assessment base for premium computation is derived from the employment
income, where the assessment base is the sum of the income subject to personal
income tax.
The
premium consists of a part to be paid by the employer and of a part to be paid
by the employee. The payer of the premium is the employer, who withholds
the premium from the employee’s monthly income. The employer pays both these
parts to the social security and healthcare insurance authorities. The employer
pays 24.8 % of the assessment base as a social security premium and 9 % of
the assessment base as a healthcare insurance premium; 6.5 % of their
assessment base for social security and 4.5 % for healthcare insurance are
withheld from employees, members of statutory bodies and executives.
A
maximum annual assessment base is set for social security premiums. There is no maximum premium set for
healthcare insurance contributions. For employees changing employment in
the course of the calendar year, or working for several employers
simultaneously, the maximum assessment base for social security premiums is
calculated for each employer separately. If the amount of the employee’s
social security premium exceeds the annual maximum, the employee may claim
the return of the surplus after the end of the year. No premium overpayment
arises to the employer
Employees coming from another EU country, or a country with which the Czech Republic has a bilateral treaty in the area of social security and/or healthcare insurance, may apply for an exemption from premium payment in the Czech Republic. On the basis of such an exemption, employees are not required to contribute to the social security and/or healthcare insurance systems in the Czech Republic, but remain covered by their home social security and healthcare insurance systems.
As a member state of the European Union, the Czech Republic is bound by the EU social security regulations (currently applicable to all member states of the European economic area and Switzerland) and other EU law.
In addition, to prevent double social security contributions and to assure benefit coverage, the Czech Republic has entered into social security agreements with several non-EU jurisdictions, including Australia, Canada, India, Japan, Korea (South), Russian Federation and the United States.