Are you considering switching from a full-time employment contract to a Identification Number and not sure how to go about it? We’ve prepared a guide that will help you set up your Identification Number and highlight what you should watch out for. From the very first steps to the benefits and obligations that await you.
The article you are about to read is valid for citizens of the Czech Republic. If you work in the Czech Republic but are a citizen of another country, we recommend verifying the information according to applicable laws for foreigners working and doing business in the Czech Republic.
What’s the difference between working under a full-time contract and a Identification Number ? You can read about the advantages and disadvantages of both options in our article Main employment or work based on trade certificate: how to work as an IT specialist?
Which documents do you need to start as self-employed person?
Establishing an Identification Number is an essential step for anyone looking to start a business as a sole proprietor. At the beginning, you will need:
- ID card
- Completed Trade License Application (You can get the application form at any Trade Licensing Office or download it from their website.)
- Administrative fee of CZK 1,000
- Additional documents to verify expertise for a craft, regulated, or concession-based trade (If you’re an IT specialist, this doesn’t apply to you.)
Conditions for starting a trade:
- 18 years of age or older
- Clean criminal record (You can get this certificate at a post office providing Czech POINT services, or it can be obtained directly by an officer at the Trade Licensing Office through the Criminal Register to which they have access.)
Types of trades
Trades are divided into notifiable and concession-based. Notifiable trades include free, craft, and regulated. Most IT positions fall under the free trade category. An exception is providing technical services for the protection of property and persons, which belongs to concession-based trades. You can find the full list of trades in the appendix to the Trade Licensing Act (specifically the appendix to Act No. 455/1991 Coll., on Trade Licensing).
A useful website for this is the Business Trade Portal.
What do I have to pay as an self-employed person?
Health and social insurance
In an employment relationship, your employer pays your social and health insurance. As a sole proprietor, you need to pay monthly advances for health and social insurance starting from the first month of operating your trade. The amount of these advances changes each year, so it’s important to keep an eye on these changes at the end of the year or have an accountant who can alert you.
- Minimum health insurance advance for 2024: CZK 2,968 / for 2025: CZK 3,161
(The advance is due by the 8th day of the following month.) - Minimum social insurance advance for 2024: CZK 3,852 / for 2025: CZK 4,759
(The payment is due by the end of the month for which the advance is paid.) - Sickness insurance is voluntary, and the minimum amount for 2024 is CZK 216 / for 2025: CZK 243.
TIP: Set up a standing order for your insurance payments.
Flat-rate tax
The flat-rate tax is a single amount covering health insurance, social insurance, and income tax. If you choose this route, you won’t have to file a tax return or insurance statements. The flat-rate tax is divided into three bands based on your annual income and the type of expense lump sum (výdajový paušál) you could claim.
1. First band:
- Flat-rate tax: CZK 7,498
- Income up to CZK 1.5 million per calendar year
- Expense lump sum: 60% or 80%
(For 2025, the flat-rate tax is CZK 8,716.)
2. Second band:
- Flat-rate tax: CZK 16,745
- Income up to CZK 2 million per calendar year
- Expense lump sum: 60%
For 2025, the amount remains the same.)
3. Third band:
- Flat-rate tax: CZK 27,139
- Income up to CZK 2 million
- Condition: Using a 40% expense lump sum
(For 2025, the amount remains the same.)
Conditions for registering for the flat-rate tax:
- You are not a VAT payer.
- You don’t have income higher than CZK 2 million in a calendar year.
- You are not in insolvency proceedings.
- You are not a partner in a general partnership (v.o.s.) or a general partner in a limited partnership (k.s.).
For more information about the flat-rate tax, visit this page.
If you’re unsure whether the flat-rate tax is right for you, you can use the Ministry of Finance’s calculator.
Income tax
If you do not pay the flat-rate tax, you are required to file a tax return once a year and pay income tax. This tax is paid on income earned during the calendar year. Your tax base = your income after deducting all the expenses you had to incur to earn that income. The tax return must be filed by April 1 at the latest.
- Income tax rates are 15% and 23% of the tax base.
- 15% applies to the tax base up to 48 times the average wage.
- 23% applies to the tax base exceeding 48 times the average wage.
- If you pay the flat-rate tax, you do not file a tax return.
Self-employed person and VAT
Value Added Tax (DPH) for IT services is set at 21% and must be included in every invoice if you are registered as a VAT payer.
As self-employed person, you can choose whether or not to become a VAT payer, provided your total income over the last 12 months doesn’t exceed CZK 2 million. Once you exceed this limit, you automatically become a mandatory VAT payer.
You must register for VAT at the tax office yourself, even mid-year, because the CZK 2 million limit is assessed based on your income over the previous 12 months. The tax office may only inform you at the end of the year and can retroactively charge VAT from the time you originally exceeded the CZK 2 million limit, which is obviously unpleasant.
TIP: We recommend monitoring the CZK 2 million limit every month.
Expense lump sum
This expense lump sum lets you deduct 60% of your annual income as expenses, significantly simplifying your bookkeeping because you do not have to keep track of all receipts and invoices. It’s worthwhile if your actual expenses are lower than 60% of your income. For most IT specialists, actual expenses tend to be fairly low.
In this case, you pay income tax (15%) on the remaining 40% of your income (after deducting the lump sum). However, to use this lump sum, your income must stay under CZK 2 million per calendar year.
WARNING: If you exceed this amount, you must keep all receipts and other expense documentation!
Registered business address for Self-employed person
By law, every entrepreneur must have a registered address. This is your official mailing address from which you handle communication with government authorities. It’s crucial that mail can be delivered and processed easily at this address.
Most entrepreneurs use their permanent residence as their business address, but that’s not mandatory. You can register a different address if you provide a notarized consent from the property owner. Finally, there’s the option of a virtual office, which can be convenient if you rent your home or don’t want your private address to be publicly visible.
Data mailbox
Having a data mailbox is a legal requirement for every sole trader. If you don’t have one yet, set it up or verify whether it was created automatically when you established your trade. Setting up and using a data mailbox is free, and trust us, it will make your life easier.
Trade license
The traditional trade license is no longer issued; it has been replaced by an Extract from the Trade Register. This document contains your details as a sole trader and lists all your active trades. The Trade Register is a public portal where you can look up specific businesses and their publicly available information.
As you can see, setting up an Identification Number is not complicated at all. You’ll find all the information you need at the relevant offices and insurance companies, such as the Trade Licensing Office, Tax Office, Czech Social Security Administration, and your health insurance provider. And if you’re unsure or don’t want to spend a lot of time researching online, the simplest solution is to contact an accountant, who will help you with everything and explain what’s best for you. At Systeum, we offer our IT specialists free accounting and tax advisory as part of our benefits, because we know how crucial it is to have all your documentation in order.
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