How to get a Trade License (Živnostenský list) to do business in the Czech Republic

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.

Sole proprietorships can be formed in 1–3 days 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 or any other country where they have lived for more than three years.

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.

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.

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.

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; 2020 minimum monthly advance: 2,544 CZK (main).

Health Insurance: 6.75% of the taxable base; 2020 minimum monthly advance: 2,352 CZK.