How to get a Czech trade license (Živnostenský list) in 2022

Whether you want to teach in the Czech Republic, invoice a company for freelance work, or even sell your goods at a farmer’s market, you’ll first need to form a sole proprietorship, commonly referred to as a trade license (Živnostenský list).

A sole proprietor (osoba samostatně výdělečně činná or OSVČ) is a physical person who has income from carrying out a business and/or self-employment (a freelancer or entrepreneur).

Who qualifies for a trade license?

To be self-employed, you must be 18 years of age, do business on your own account, and have a clean criminal record. Accounting records may be kept using either the cash-basis or accrual accounting method. There are significant tax advantages to working as a sole proprietor.

An entrepreneur may be a tradesperson registered with the Commercial Court (obchodní soud), trade license office (živnostenský úřad), or someone who is self-employed and regulated under a special law, e.g. notary, tax adviser, journalist, or farmer. Here we’ll focus primarily on tradespersons registered with the trade license office.

What you’ll need to apply

Sole proprietorships can be formed in 5 business days (this is the formal deadline though some offices can process the paperwork faster) after filing papers with the trade license office. To form a sole proprietorship, you must file an application with the trade license office that provides personal details, a residential and work address, and a list of selected trade license fields.

Also required:

The trade license office is entitled to obtain a criminal record extract on your behalf from the Czech criminal register. Sole proprietors will need to obtain the same extract or a corresponding document from their home countries. If the country does not have a signed legal aid agreement with the Czech Republic, the document must be superlegalized or have an Apostille, and must be translated by a court interpreter.

If such a document is not issued by their home country or country of last residence, an affidavit declaring that they have no criminal record, made at their embassy in Prague, or in front of a notary in their home country. These documents cannot be older than three months.

If the owner of the address where your sole proprietorship will be registered is a company, it will be necessary to provide an extract from the Commercial Register. The permission agreement must be signed by the director or a representative with a power of attorney from the director.

Make sure you call the filing office in advance to confirm opening times, as some are open every weekday while others are only open to the public on Mondays and Wednesdays and by appointment only the rest of the week.

Preparing forms in advance (downloadable from the website of the Czech Ministry of Industry and Trade) is always advisable as is checking opening hours as government offices, particularly during the recent pandemic scare can change.

Generally, the applications will be processed while you wait. Comprehensive services in this area are provided by accounting and business services firms, as well as many legal offices (Cost varies from 5,000–10,000 CZK) but with patience and determination, you can do it on your own.

Accounting and income taxes

A sole proprietorship is regulated by a great number of government entities, including the trade license office, tax authority, social security authority, and a health insurance company. Employees of sole proprietors are taxed in the same way as employees of an s.r.o. Sole proprietors generally must file an income tax return (daňové příznání) each year by March 31, and health insurance and social security returns (Přehled o příjmech a výdajích OSVČ) by April 30.

Direct taxes are calculated from the taxable income base, which will be either revenue less deductible expenses, or, under the percentage of revenue option, generally 60% of revenues. You can keep accrual or cash-basis tax evidence accounts and use the percentage of the revenue method.

Health and social security, representation expenses (meals and entertainment), or poorly-documented expenses are not deductible. Both health and social security contributions max out at 1,242,432 CZK of the taxable base.

The self-employed will need to register for income tax with the tax authority within 30 days of obtaining a trade license. You may also register for VAT if you want to be able to reclaim VAT on eligible business expenses and road tax if you plan to operate a car as part of the business. Income tax: 15% of the taxable base.

Sole proprietors must pay monthly advances on social security and health insurance, which are netted against the annual liability due in April. Each February the social security administration and health insurance company provide a summary of advances received by the payer.

In the first year of business, the advance will be set to the minimum amount; in subsequent years, to the amount of tax paid in the previous year. The amount of social security advances paid depends on whether self-employment is your main or secondary source of earned income.

Social security

You will most likely need to register for social security if you are self-employed. If you are not subject to the Trade License Act (e.g., a journalist) or if you are covered by a certificate of coverage under a foreign program, you may not be required to do so.

For example, American citizens who are self-employed are permitted to continue to pay into the US system, even if they work in the Czech Republic, for up to five years. Most entrepreneurs will be considered to have self-employment as the main source of income.

If you are an employee or receive any number of government entitlements, your self-employment may be considered a secondary source of income. This will impact especially the amount of the advance that you need to pay.

Social security: 29.2% of the taxable base; 2022 minimum monthly advance: 2,841 CZK (was 2,588 CZK in 2021).

Health insurance

If you are a citizen, permanent resident, or an employee in a company based in the Czech Republic, you are obligated to register for public health insurance. Citizens of some countries that have bilateral agreements with Czechia are also obligated to sign up for it. This includes the USA, Japan, Turkey, and a few other countries. If you are not one of these, you are required under the terms of your visa to obtain health insurance that meets certain minimum conditions.

Health Insurance: 6.75% of the taxable base; 2022 minimum monthly advance: 2,627 CZK (was 2,393 CZK in 2021).