The limit for VAT and flat-rate tax registration will rise to two million

Milan Malíček

According to Finance Minister Zbyněk Stanjura (ODS), the limit for registration for value-added tax (VAT) and flat-rate tax should increase from one to two million crowns from next year. Accelerated depreciation should continue this year and next year. The government approved the draft law change on Wednesday, Stanjura tweeted.

The flat tax for small entrepreneurs this year is CZK 5,994 a month. The minimum health insurance premium is 2,627 crowns; the minimum social insurance premium is 3,267 crowns, increased by 15%; and the income tax is 100 crowns.

The Ministry of Finance (MoF) estimates that the changes will enable up to 60,000 small entrepreneurs to participate in the flat-rate tax. At the end of April this year, some 82,300 sole traders were using the flat tax.

According to government materials, entrepreneurs with a flat tax would now be divided into three bands. In the first band, would-be entrepreneurs with an annual income of up to CZK 1 million, regardless of the type of self-employment. The flat-rate tax should then be about CZK 6,500 per month next year.

In the second band are sole traders with an income up to CZK 1.5 million, regardless of the type of activity. Their tax should be roughly CZK 16,000 per month. The third band is for entrepreneurs with an income of up to CZK 2 million regardless of activity. They should have a tax of 26 000 crowns per month.

The amount of the expenditure lump sum applied will be taken into account when dividing the tax into individual bands. Sole traders use this in calculating the tax base. Instead of proving personal expenses during the year, they apply them in a lump sum, which the law sets as a percentage according to the type of business.

Thus, entrepreneurs with an income of up to CZK 1.5 million a year will be able to be included in the first band, provided that 75 percent of their income can be covered by the 80 or 60 percent expenditure lump sum. Similarly, entrepreneurs with incomes up to CZK 2 million are in the first band if an 80 percent expenditure flat rate can be applied to at least 75 percent of their income.

Entrepreneurs with incomes up to CZK 2 million will fall into the second band if an 80 or 60 percent expenditure flat rate can be applied to 75 percent of their income.

The flat-rate tax was introduced in January last year. A sole trader must notify the tax office of his decision to use it by the tenth day of the relevant tax period, i.e., usually by January 10. According to the MoF’s estimates, the extension of the tax will reduce annual revenues to public budgets by about CZK 600 million. Moreover, entrepreneurs and companies should continue to have the possibility of accelerated depreciation of assets.