As we are stepping into the year 2021, there are some new policies regarding social security and health insurance, which are mandatory regardless of whether you are self-employed or employed in a business. For self-employers, there are some big news coming; flat-rate tax. In this article, we bring you updates on all of the recent changes.
Social Security Insurance
Social security insurance is under the authority of ČSZZ (Czech Social Security Administration). ČSSZ falls under the Czech Ministry of Labour and Social Affairs and the main purpose is to collect and enforce payable social security premiums (pension insurance, sickness insurance and contribution to the state of employment policy). In regards to self-employment, it is compulsory to partake in pension insurance and contribution to the state of employment policy.
The changes in social security insurance for 2021 are the following:
- Change of minimum advance payments for self-employed
- The assessment basis for the payment of insurance premiums of employees
- Higher pensions
- Sickness benefits
The minimum advances for main work activity are increasing to 2 588 CZK and for minor work activity to 1 036 CZK. In regards to basic pension assessment, it will rise to 60 CZK per month. The minimum sickness benefits for self-employed will count for 147 CZK more in the year 2021.
The biggest health insurance company in the Czech Republic is VZP (General Health Insurance Company). As social security insurance goes through some changes at the beginning of the new year, there are some changes in health insurance as well.
The main change in 2021 regarding health insurance is the rise of minimum advance payments for health insurance. For self-employed people the amount is going up to 2 393 CZK, which is 41 CZK higher than last year. The minimum advance payment for health insurance for other employees is 2 052 CZK.
The advance payments for health insurance have to be paid by the 8th day of the following (and each) month within the year. The obligation to pay this insurance starts from January 2021, with the latest payday 8. 2. 2021 for the first payment.
All these updates for health and social security insurance are happening due to the changes of Average National Wage. In the year 2021, the average wage is 35 441 CZK a month.
Entrepreneurs or self-employed managing their own business can apply for the payment of the so-called flat-rate tax. The benefit of this tax is lower tax administration, meaning save on taxes. However, you need to meet certain requirements to be able to apply for this tax; the income has to be below 1 million CZK and it is eligible only for non-payers of DPH (value-added tax). Moreover, those self-employers who are partners of public companies or general partners in a limited partnership are not eligible to apply.
- Helps with the income tax
- Solves health and social security insurance (do not have to pay advances for them)
- Easier administrative and communicative complexity with only one tax office
- Financial savings (in some cases)
- By regularly paying flat-rate tax all other tax obligations will be fulfilled (only paying flat-rate tax to the tax office)
- Replaces the obligation to submit the tax return
- Better pension provision
- You are still controlled by the tax office
- You still have registration obligations
- If you start paying DPH or you have income exceeding 1 million CZK, you have to file a tax return (including health and social security insurance) and pay the remaining amount of tax – the flat-rate scheme will be ended
- If you become a regular employee, you have to file a tax return (including health and social security insurance) and pay the remaining tax and the insurances – the flat-rate scheme won’t be ended
How Can I Apply?
If you would like to use this tax, the latest date for submitting your application is January 11th, 2021. To do so, fill out a simple form and submit it to the relevant tax office via mail, data box or directly in the tax office.
According to the Ministry of Finance, the amount of the flat-rate tax for the next year equals 5 469 CZK per month. This amount includes the minimum of health insurance, income tax (100 CZK), advance payments for pension insurance (2 976 CZK), and advance payments for social security insurance (2 393 CZK). All stated amounts are calculated for the year 2021.
If you will start (or restart) your business (become self-employed) during the year 2021, you can apply for this tax not later than the first day of starting your business (the initial date for starting the business is 16.3. 2021 you can enter the flat-rate scheme until 16.3. 2021).
It is important to mention that flat-rate tax is not compulsory, so it is upon everyone’s decision if they want to apply for the flat-rate tax. It is an alternative to the ‘traditional’ tax payment. Just bear in mind that you should calculate whether or not the flat-rate tax is beneficial for you and consider all ‘pros and cons’. To determine if the flat-rate tax is beneficial for you, use the official finance ministry calculator.
Summary of a flat-rate tax
- Only self-employed can apply for flat-rate tax
- Apply by filling out the form of ‘notification of the entry into the flat-rate scheme’ (oznámení o vstupu do paušálního režimu in Czech)
- Apply for a flat-tax rate by 11.1. 2021
- Less paperwork
- Financial savings
- Flat-tax rate is voluntary