A brief protocol for establishing a business
1. Visit the trade office (ŽÚ) and obtain a trade certificate (ŽL)
You will need:
- an identity card and an excerpt from the criminal register (this is checked by the trade office itself),
- consent to use your chosen location as the entrepreneur’s address, if you will not be based in a property you own,
- 1 day, and
- 1,000 CZK.
2. Establish a business bank account
- You will need to set up a business account in a bank of your choice using the issued trade certificate (this account is different from your personal account).
- 1 day time frame
- Free of charge, though the bank usually requires at least a minimum deposit (100 CZK)
3. Set up social and health insurance
- From the month following the establishment of your business, you will be required to start paying at least the minimum advance payments for health and social insurance.
The conditions of commercial business are governed by a separate Act on Commercial Business (Act No. 455/1991 Coll.). A trade is defined as a continuous activity carried out independently, in one’s own name, on one’s own responsibility, for the purpose of making a profit and under the conditions set by the Trade Act. Therefore, an IT consultant, developer, tester, IT architect, etc., who independently runs a business on a trade license, can also be a business.
However, the paper trade certificate (ŽL), i.e., a document confirming your approved trade license, is no longer issued today. You can obtain a trade certificate at the trade office, and if you need to furnish evidence somewhere, you can print an extract from the trade register at www.rzp.cz.
Requirements to start a business
- You must be of at least 18 years of age,
- must not have tax arrears with the tax office, or any social and health insurance arrears (evidenced if you already do business in the Czech Republic or have done business in the past),
- have the capacity to perform legal actions (evidenced by a valid national identity card),
- be of a good character (proved by an excerpt from the Criminal Registry, the trade office will obtain this on their own).
What kind of business do you need?
The division of trades is again determined by the Act on Tradesmanship (Act No. 455/1991 Coll.). To perform the activities of an IT Freelancer, it is sufficient to have a so-called free trade, and therefore we will not deal with other categories here (tied, craft, concessioned trade).
To perform the activities of an IT Freelancer, the following appear to be the most suitable:
56. Provision of software, consulting in the field of information technology, data processing, hosting and related activities and web portals.
Provision of use (sale and rental) and implementation of software. Reproduction of computer programs. Consulting in the field of hardware and software. Consulting in the field of communications and computer networks. Data processing using the program, in particular complete data processing, data entry services, management and operation of data processing equipment, or by another way. Activities related to the operation of databases (building a database, data collection, data storage, computer record preparation for the required information, data selection from the database, making data available to users, data sorting according to requirements, etc.). Computer network management, software uninstallation and other computer-related activities. Web hosting and other related activities.
The content of the activity is not the sale and repair of hardware.
Filling out of the unified registration form
To register a business, it is ideal to use the so-called Unified Registration Form, which you can fill out in person when you visit the trade office, or online in advance (https://www.mpo.cz/cz/podnikani/zivnostenske-podnikani/crm-jednotny-registracni-formular/jednotny-registracni-formular—234081/).
With this unified registration form, you can make all necessary and optional registrations and notifications at once, i.e., start a business, register for income tax and notify the health insurance company, and the social security administration. At the same time, you can also register for road tax, VAT or income tax for employees as needed.
Visit to the trade office
Free trade business can be reported to any trade office (you don’t have to travel to the municipality of your permanent residence).
You must bring with you:
- proof of identity (national identity card),
- consent to the use of your selected location as the entrepreneur’s address: in the case of an office in an object/building that is not your property (evidenced by an extract from the real estate register, which the trade office will check on their own), you will need the owner’s written consent (his signature on the consent must be verified!) with the use of the location as company headquarters. You can also use the services of companies providing so-called virtual offices. This way, for a certain fee, you can relatively quickly locate your headquarters to a prestigious address,
- 1,000 CZK, and
- completed unified registration form (or you can fill it out on the spot).
Within approximately a week of reporting your business, you will have an extract from the trade register and you will be assigned an eight-digit number, the so-called IČO (identification number).
Health and social security insurance
If you only work as an IT Freelancer (or have it as your main activity), you must pay a minimum monthly advance for health insurance (in 2022: CZK 2,627) and social insurance (in 2022: CZK 2,841) from the beginning of the activity.
If you only carry out this activity on the side (in addition to running a business, you also have an employment relationship, but not only an Agreement on the performance of work, or a disability or an old-age pension; other options are listed in Act No. 155/1995 Coll., on pension insurance), you don’t have to pay the first year of advances. You will only pay for health and social insurance after submitting your tax return and income statement to the social security administration and to your health insurance company.
The advance payment for health insurance is due by the 8th day of the relevant calendar month.
The social insurance deposit is due during the calendar month for which it is paid.
Accounting or tax records
There are several options to record income and expenses for your independent business. This will form the basis for the income tax return. Either we track and retain income and expenditure documents throughout the whole year, keep accounting (usually only simple accounting; the obligation to keep double-entry accounting only arises from incomes exceeding CZK 25 million per calendar year) and prepare a profit-loss account, balance sheet and compile a tax return according to them, or alternatively, only keep tax return records of income (issued invoices) and calculate the expenses as a flat rate (percentage) from the recorded income.
Value Added Tax (VAT)
If you are registered as a VAT payer, you must also keep records according to the VAT Act and subsequently submit a VAT tax return (usually quarterly) along with a monthly control and summary report.
However, at the beginning of our business activity, you are most likely to operate as VAT non-payer. Nonetheless, it is imperative to check whether you are not required to register as a VAT payer. (This obligation arises from the moment that your income reaches 1,000,000 CZK in 12 consecutive months – i.e., not in one calendar year, which is why this requires a careful monitoring!)
Car and road tax
If you use a car for business purposes, you are required to pay quarterly road tax advances and submit a tax return for this tax at the end of the year.
End of the year income tax and insurance
After the end of the calendar year, you will determine the profit, i.e., income and expenses, using the records chosen (see paragraph 4 above).
An income tax return then has to be filed and income tax paid no later than 31st March of the following calendar year (or 30th June if you use the services of a tax advisor, which, of course, must be reported to the relevant Tax Office by 31st March).
No later than 1 month from the submission of the Income Tax Return, you must also submit the Income Statements for health and social insurance purposes and pay the relevant insurance (this will be the difference between the paid advances and the calculated obligation, respectively). At the same time, from these income reports (these are automatic forms), you will find the new advance amounts for health and social insurance, that you are obliged to pay regularly from the following month on.