Taxes in the Czech Republic in 2025: How Will Changes Affect Self-Employed Individuals, Employees, and Companies?

Here’s a brief overview of the most important tax changes that will impact self-employed individuals, employees, and VAT payers.

The new year will bring several innovations in the tax landscape, including adjustments related to the newly established minimum and average wages for 2025.

Tax Return for 2024

It’s important to note that the consolidation package introduced several changes that have been in effect for a year. However, these changes will be reflected in practice for taxpayers filing their tax returns for the first time.

In the upcoming tax return, it will not be possible to deduct the tax rebate for a child’s attendance at a preschool institution or the student tax bonus. 

Additionally, deductions for trade union dues and fees for further education exams will no longer be allowed.

The tax relief for a non-working spouse can only be claimed if that person is caring for a child under three years of age. The income limit of CZK 68,000 remains unchanged.

Higher Limit for the Application of the Second Tax Band

Next year, the income threshold for applying the higher income tax rate will increase. This change is a result of the projected rise in the average salary for 2025, which has increased to CZK 46,557 (up from CZK 43,967 this year).

As the average salary rises, the income threshold for the second tax band of 23% will also increase.

However, the rule that this annual limit corresponds to 36 times the average salary will still apply. This year, it is CZK 1,582,812, and next year it will rise to CZK 1,676,052. For employees, this limit is based on gross salary, while for the self-employed, it is determined by annual income after deducting expenses. The monthly amount this year is CZK 131,901, and next year it will increase to CZK 139,671.

Higher Income Limit for Tax Bonus

Tax credits can only be applied up to the amount of income tax owed. The exception is the discount for a dependent child (tax relief). After applying this discount, the value may be negative, and any overpayment will be refunded by the tax office as a tax bonus, provided that the income limit is met.

To qualify for a tax bonus next year, your income (from employment or business) must exceed this year’s amount. This change is due to the increase in minimum wage starting next year.

A tax bonus can be claimed by one of the parents if, in a given year, they have income from work or business amounting to at least six times the minimum wage. For 2024, this limit is CZK 113,400. With the minimum wage set to increase to CZK 20,800 in 2025, the annual income limit will rise to CZK 124,800.

Employees can claim the child discount and thus the tax bonus on a monthly basis throughout the year. However, their gross salary must exceed half of the minimum wage, which will be CZK 10,400 for the following year.

In practice, it may occur that a taxpayer meets the conditions for receiving a monthly tax bonus in a specific month but does not exceed the annual income threshold for receiving an annual tax bonus. In such cases, the monthly tax bonuses received are not refunded. Gabriela Ivanko, a tax consultant at Forvis Mazars, explained that employees who work only part of the year for a low salary do not need to worry about having to return the bonus for that year.

Tax Deduction for Donations

A bill is currently pending in the Chamber of Deputies that proposes to extend the temporary increase in the limit for deducting gratuitous services from the tax base for the years 2024, 2025, and 2026.

Under the proposed legal conditions, it will be possible to deduct up to 30% of the tax base. This limit was initially increased in 2020 due to the coronavirus pandemic and was subsequently extended until the end of 2023 because of the war in Ukraine.

In general, for individuals to deduct donations from their tax base, the total value of donations must reach at least CZK 1,000 or exceed 2% of the tax base.

Employee Benefits

The exemption limit for non-monetary employee holiday benefits from personal income tax, which corresponds to half of the average salary, will increase to CZK 23,278 next year. However, there is a proposal in the Senate to further expand this exemption.

The current limit includes benefits in areas such as sports, education, culture, or health care. The annual limit applies collectively to all non-monetary benefits that an employee or their family member receives from the employer, whether directly from the employer’s profit after tax, from a cultural and social fund, or as non-tax expenses (which are not included in the costs of achieving, ensuring, and maintaining income). Benefits can also be granted for the purchase of goods or services related to medical, health, hygiene, or similar needs.

However, some critics argue that the initial exemption limit for employee benefits is insufficient, particularly regarding health benefits, which can often be crucial for employees. Therefore, discussions are underway regarding an amendment to Act No. 435/2004 on employment, which also amends the Income Tax Act and proposes introducing another limit.

This new limit will be set at the average wage (for 2025, CZK 46,557) and will apply only to health benefits paid from the cultural and social needs fund, the social fund, from the employer’s profit after taxation, or from retained earnings.

Exemption of Income from the Sale of Cryptocurrencies

Cryptocurrency owners may benefit from tax exemptions similar to those applicable to securities. These include a value test and a time test, which are proposed in an amendment to the Income Tax Act that regulates the exemption of income from the sale of crypto assets for individuals.

In the Czech Republic, it is already possible to invest in cryptocurrencies through so-called ETFs, offered by institutions such as Česká spořitelna, Fio Banka, and the XTB broker. Paradoxically, while cryptocurrency-linked ETFs are subject to a time test for exemption from income tax, the underlying assets (i.e., the cryptocurrencies themselves) are not. This discrepancy may be addressed by the proposed amendment.

If the proposal is approved in its current form, the new income tax exemption will be limited to a total of CZK 40 million. Additionally, income from the sale of crypto assets will be exempt from tax if its total amount does not exceed CZK 100,000 in a tax period. The exemption will also apply if the time between acquisition and sale exceeds three years.

Exemption of Income from the Sale of Securities

The annual exemption limit of CZK 40 million will apply not only to income from the sale of cryptocurrencies but also to the exemption of income from the sale of securities and shares in commercial corporations. This limitation pertains to gross income and includes all sales that meet the time test, which is three years for securities and five years for shares.

The date of receipt of income, rather than the date of contract conclusion, will be decisive for sales. For example, if a seller concludes a contract this year but receives the funds only next year, the new limit will still apply to that income.

Changes to Contracts for the Performance of Work

After a series of ups and downs regarding the rules for contracts for work (DPP), it is now clearer how things will be structured next year. Instead of the previously proposed notified agreement regime, the situation will be simplified, with only one change coming into effect.

The amendment to the Employment Act introduces an automatic increase in the limit for deductions of insurance contributions to the DPP, which has been set at CZK 10,000 for many years. This limit will now be adjusted to 25% of the average salary valid for the given year. For next year, this amount is expected to be CZK 11,500, meaning that participation in insurance and the obligation to pay tax will arise if gross monthly income reaches CZK 11,500 or more.

Increase in Flat Tax Payments

Starting next year, some entrepreneurs using the flat tax regime will see an increase in their tax payments. Those in the first band will need to pay CZK 8,716 per month.

An entrepreneur can apply for the first band if their income from self-employment for the previous year did not exceed CZK 1 million, regardless of the type of activity.

Additionally, an entrepreneur with an income of up to CZK 1.5 million can apply for this band if at least 75% of that income qualifies for a flat rate of 80% or 60%. Furthermore, those with income up to CZK 2 million can qualify if at least 75% of that income applies to a flat rate of 80%.

For next year, the flat-rate single tax amount for the first band will be CZK 8,716 per month (comprising pension insurance of CZK 5,473, health insurance of CZK 3,143, and income tax of CZK 100). This is an increase from this year’s amount of CZK 7,498, reflecting a rise of CZK 1,218 per month, or CZK 14,616 annually.

Payments for the second and third bands will remain unchanged compared to last year.

If you need help calculating taxes for your business or are looking for outsourced bookkeeping services, don’t hesitate to contact the experts at 360WEDO. They’re here to provide you with the guidance and support you need!

Source:

https://www.mesec.cz/clanky/dane-2025-ktere-novinky-ovlivni-osvc-zamestnance-a-firmy/?utm_medium=kolotoc-header&utm_source=mesec-cz&utm_campaign=dane-2025-ktere-novinky-ovlivni-osvc-zamestnance-a-firmy