Flat Tax or Fixed Expenses in 2025: What’s Better for the Self-Employed in Czhech Republic?

In 2025, individual entrepreneurs in the Czech Republic will see increases in both the minimum advance payments for social and health insurance and the flat tax rate. So, which option is more advantageous for the self-employed?

Key Factors to Consider

The choice between a flat tax and fixed expenses largely depends on your expense rate and income level. For instance, self-employed individuals with an expense rate of 80% may find the flat tax to be beneficial, according to updated calculations from Podnikatel.cz.

The consolidation package that took effect at the beginning of this year introduces significant changes:

• Minimum Tax Base for Social Insurance

This will increase by 5 percentage points each year until it reaches 40% of the average salary in 2026. In 2025, it will be set at 35%. However, new self-employed individuals will benefit from a lower minimum tax base of 25% during their first two years of operation.

• Tax Base for Social Security

The calculation for social security contributions has also changed, rising from 50% to 55% of profit.

• Impact of Average Salary Increases
  

As average salaries typically rise, the minimum tax base will also increase accordingly. However, the final increase will be less than initially proposed.

Health Insurance Payments

With the new average salary adjustments, minimum advance payments for health insurance will also rise. Specifically, in 2025, the minimum advance payment for health insurance will be CZK 3,143.

Contact the specialists at 360WEDO for expert advice on navigating business taxation in the Czech Republic. We’re here to help you understand the complexities of the tax system and ensure compliance.

How the Flat Tax Rate Will Change

The increase in minimum advance payments also impacts the flat tax system for self-employed individuals. Since 2023, the flat tax rate has been divided into three bands based on the entrepreneur’s prior income and fixed expenses.

First Band

The minimum health insurance contribution, 1.15 times the minimum social security contribution, and a tax of CZK 100 are paid. For 2024, the flat tax in this band will be CZK 7,498.

Second Band

Self-employed individuals will pay CZK 16,745.

Third Band

The amount remains at CZK 27,139.

Who Benefits from the Flat Tax?

Next year, the flat tax will be particularly advantageous for self-employed individuals with a flat expense rate of 40% who do not utilize any tax discounts or reliefs and have high incomes (up to CZK 1 million).

Conversely, those with an expense rate of 80% will generally find that the flat tax is not financially beneficial, although they may save on administrative costs. For individuals with a flat expense rate of 60%, the benefits depend on their income level as well as any discounts or reliefs they claim.

Calculations indicate that self-employed individuals with a flat expense rate of 40%, who do not use any tax discounts or reliefs and earn just under CZK 1 million, could save nearly CZK 80,000 annually.

On the other hand, those operating at an expense rate of 80% will see no financial advantage in switching to a flat tax; in most cases, it does not pay off for them. For those with a 60% expense rate, benefits again depend on factors like the number of children and other tax advantages.

Other Allowances and Deductions That Affect Calculations

In practice, other allowances and deductions claimed by the taxpayer can also influence the calculation. This consideration depends on whether the taxpayer’s spouse can utilize the tax benefits instead of the self-employed individual.

However, not every self-employed family loses out on tax advantages when opting for a flat fee. In some cases, another parent—such as one who is employed—may still be able to take advantage of these benefits.

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