Czech Republic payroll and tax overview.

The Czech Republic is situated at the heart of continental Europe, bordered by Germany to the northwest, Poland to the northeast, and Austria and Slovakia to the south and southeast respectively. The Czech Republic industrialised in the 19th century but only emerged as a global economic power in the late 20th century after a period of Communist rule. The modern Czech Republic has a developed, high income, export-oriented economy: in 2019 it reached a GDP of $246.95 billion with a 2.6% growth rate. Major Czech industries include engineering, pharmaceuticals, steel production, communications and IT, while car production accounts for around 25% of the country’s manufacturing output. Energy production also has a significant economic presence: the Czech Republic currently has an electricity surplus and exports a substantial amount of that excess to Europe. The Czech Republic is a parliamentary republic and an influential regional power: it is a member-nation of NATO, the OECD and the EU, which allows it to access tariff free trade with other EU and EEA member states. In 2019, the Czech Republic was ranked 41 on the World Bank’s Ease Of Doing Business Survey.

Why Invest in the Czech Republic ?

Interested investors should target the Czech Republic for numerous reasons including:

• Economic strength: The Czech Republic offers businesses one of the most stable and consistently favourable economic environments in the EU. In 2017, Czech GDP stood at around $216,399 million, with a growth rate of 2.4%. In 2018, year-on-year growth is expected to increase to 3.2%.
• Investment incentives: The Czech government is making a sustained effort to attract and encourage investment. Various initiatives exist to facilitate that effort, including tax relief schemes, EU subsidies, R&D tax allowances, job creation subsidies, and more. Further incentives are available for businesses targeting specific industries.
• Low labour cost: Czech labour costs are amongst the lowest in Europe and the world - on a par with some developing Asian countries. In 2016, the average hourly wage in the Czech Republic was €10.20 ($12.07) - compared to the average EU wage of €25.40.
• Educated workforce: A high percentage of the Czech workforce is educated to a university-level. According to OECD figures, the Czech Republic has one of the highest populations of STEM students in the world - with around 40,000 finance and economics students, and 25,000 IT students.
• Continental gateway: The Czech Republic is located at the heart of central Europe, and boasts trade connections to the rest of the EU, Russia, and emerging markets across Asia. Extensive transport infrastructures, including road and rail services, connect the country to global markets with tens of millions of customers.

Foreign Direct Investment in the Czech Republic

When it comes to attracting foreign investors, the Czech Republic is one of the most successful states in the EU. Located in the heart of Europe, with its significantly enhanced rail network, the Czech Republic has direct links to almost all major European cities. The Czech Republic offers investors a competitive economy, supported by a highly educated and skilled workforce.

Registering a Company and Establishing an Entity in the Czech Republic

A company is required to have a legal entity established in order to process a payroll.

For companies that are looking to process payroll in the Czech Republic, the company registrations to the Tax, Health and Social Security Authorities includes:

• Employer Number with social authority
• Tax registration for the taxes related to the payroll (personal income tax)
• Registration of the employees to the Health authority
• Employer Tax Number

The timeline for processing depends on the Registering Authority, this can take up to two weeks.

The key legislative authority in the Czech Republic varies depending on where the employer is located.

Business Banking in the Czech Republic

It is mandatory to make payments to the authorities from an in-country bank account.

Generally, banks are open to the public from 09:00 to 17:00 hours on weekdays. Some banks in the centre of larger cities are often open until 20:00 on weekdays.

What Are the Working Days and Working Hours in the Czech Republic

The working week in the Czech Republic is Monday to Friday, working 40 hours on average per week. The working day for commercial offices is typically from 09:00 to 18:00 hours.

Basic Facts about the Czech Republic

General Information

The Czech Republic is actually the conglomeration of three historical territories: Bohemia, Moravia, and Silesia. The territory which became known as the Czech Republic first became a nation in the 9th century, and was known as the Duchy of Bohemia. As a sovereign state, Czech territory has been contested throughout history, up until the 20th century and its liberation from Soviet occupation in 1989. Today, the Czech Republic is a developed and stable parliamentary republic with a progressive welfare state and high standards of living. Like the rest of central Europe, the Czech climate is mild and temperate, and the country is home to a variety of landscapes and environments, including flat western basins, and hilly and mountainous regions in its central and eastern regions. Capital city, Prague, is scenic and historic - and an extremely popular tourist destination.

Full Name: Czech Republic (Česká republika)

Population: 10.7 million (Czech Statistical Office, 2020)

Capital: Prague

Primary Language: Czech

Main Religion: Christianity

Monetary Unit: Czech Crown (CZK), in Czech typed Kč (Koruna česká)

Main Exports: Machinery and transport equipment, raw materials and fuel, chemicals

GNI per Capita: US $40,640 (World Bank, 2019)

Internet Domain: .CZ

International Dialing Code: +420

The tax year runs from 1st January to 31st December.

Income Tax in the Czech Republic

Monthly income tax contributions must be paid by the 20th day of the following month.

Calculation Example

Tax allowances = 0 (no children, no wife/husband without a taxable income)

Therefore, basic tax allowance only totals 2,320 CZK per month.

Employees tax = 15% (individual income tax) calculated for gross salary up to 141,764 CZK. 23% for the incomes above the 141,764 CZK.

Social Security in Czech Republic

Monthly social security contributions must be paid by the 20th day of the following month. The typical penalty awarded for late submission and payment of tax and social security contributions are:

Social and Health Insurance: 0.05% per day

Tax Office: Repo rate of a Czech National Bank + 14%

Pension Scheme: The employer can contribute to an Individual Employee’s Pension Account up to CZK 50,000 per year. This amount is tax deductible for the employer and is not considered as a benefit in kind for the employee (therefore no subject for further taxation). Individuals Employee’s Account can be opened by a registered bank fund only.

A company must be licensed to make any tax and/or social security filing on behalf of a client, a power of attorney must be signed by the client.

Reporting Tax in the Czech Republic

Monthly

• Social Insurance Authorities
• Health Insurance Authorities

Quarterly

• Calculations of the insurance against labor accidents for Kooperativa Insurance Company

Yearly

• Income tax statement of account for annual wages/salaries and withholding tax statement

New Employees in the Czech Republic

When an employee is hired, they must be registered with local authorities within eight days of starting the new job, this applies to expat new starts as well.

If the new start is an expat, they will be required to provide the following: -

• Passport
• Signed working contract
• Working permit – Only expats from out with the EU need to provide this, EU citizens only have to provide mandatory registration plus authorized confirmation in which country the employee is registered for Social and Health Insurance (can only be insured in one EU country).

EU citizens - no working permit is required, only mandatory registration and authorized confirmation in the country the employee is registered for social and health insurance (you can only be insured in one EU country).

Leavers in the Czech Republic

Redundancy payments are free of social and health insurance contribution. Typical redundancy scheme is 2 (termination notice) +3 (redundancy payment). Final payment has to be done within a regular salary payment date.

Entitlement for redundancy is paid only in case of termination by the employer for organizational reasons.

In the case of termination by the employee, there is not entitlement for redundancy.

Redundancy Payments:

Employment shorter than 12 months – 1 month salary

Employment for 12-24 months – 2 month salary

Employment for more than 240 months – 3 month salary

Social and health insurance authorities must be notified when an employee leaves.

In the Czech Republic, employers have withholding obligations towards their employees’ salaries during the payroll process. In practice, this means withholding income tax and social security contributions (pension, sickness, health, and unemployment insurance) at the following rates:

• Income tax: 15% flat rate
• Social security: 11% (with a 34% employer contribution)

Residency status is relevant to the Czech payroll process: while residents are taxed on all domestic and worldwide income, non-residents are charged only on domestic income. Employers may provide an online payslip with the written approval of the employee, and payroll reports must be kept for a minimum of 30 years. The complexity of the Czech tax landscape means many international employers choose to engage a global payroll provider in order to ensure efficiency, accuracy and legislative compliance.