Czech Government to Increase Social Security Contributions for Self-Employed Individuals

The Czech government has announced that it will increase social security contributions for self-employed individuals, also known as “živnostníci”, in a bid to ensure the sustainability of the public finances and bring greater fairness to the system. According to government estimates, self-employed individuals currently contribute a fraction of the amount that employees do, which is why changes need to be made.

At present, there are around one million active self-employed individuals in the Czech Republic, and around 60% of them pay the minimum insurance contribution. Younger individuals who are just starting out in business are more likely to pay the minimum contribution, whereas those with more experience tend to pay more. Approximately 80% of self-employed individuals aged around 20 pay the minimum contribution, while around half of those aged 60 pay the minimum amount.

Currently, the average contribution rate for self-employed individuals is around 60%. This is in stark contrast to the contributions made by employees, which totaled over CZK 600 billion last year, compared to just CZK 34 billion from self-employed individuals. As a result, self-employed individuals account for just 6% of total social security contributions.

In an effort to bring greater parity to the system, the government will gradually raise the minimum calculation base for social security contributions for self-employed individuals from 25% to 40% of the average wage between 2024 and 2026. This means that self-employed individuals who do not pay taxes on a flat-rate basis will be required to pay a minimum of CZK 4,710 per month towards social security contributions, up from CZK 2,944 per month currently.

This move is expected to significantly increase the amount of contributions that self-employed individuals make towards social security, bringing greater financial stability to the system. However, some self-employed individuals have raised concerns that the increase in contributions could make it more difficult for small businesses to survive, particularly those that are just starting out or those that are operating in industries with thin profit margins.