Being a part of the European Union, the Czech Republic follows most of the EU's tax rules and regulations. This applies to VAT as well. So it doesn't matter where you're living; as long as you have clients in the Czech Republic as a freelancer or contractor, you need to be aware of the VAT rates and rules it follows.
If you are or would like to become a freelancer in the Czech Republic, you will first need to obtain a 'Živnostenské oprávnění', which means a trade license or business license. Additionally, in order to start selling to customers in the Czech Republic, or anywhere in the EU, you must be registered with an EU VAT number. This beginner's guide will help you have a good overview of VAT rates and legal obligations with VAT you have when working as a freelancer in the Czech Republic.
The Czech VAT Rates for Freelancers
The standard VAT rate in Czech Republic is 21%. There are four different VAT rates in the Czech Republic, and freelancers must charge the amount that applies to their products and services:
- The Standard Rate - Unless the items or services you offer fall under the reduced rate or zero-rated category, you should charge the standard VAT rate of 21%.
- The Reduced Rate of 15% is set on food, livestock, water, and domestic fuel, books and newspapers; construction; cultural and sports events; household services
- The Reduced Rate of 10% on medicines, pharmaceuticals, e-books, and baby foodstuffs
- The Zero Rate - When items are zero-rated, they are still VAT-taxable, but the rate of VAT you must charge your consumers is 0%. This covers services like intra-community and international transport. Although there are no charges on zero rates, you should record sales of goods and services and create a report based on your returns.
Who is Obliged to Register and Pay for VAT in the Czech Republic?
The Czech Republic offers some great opportunities for freelancers. If you are a resident of the Czech Republic, there’s a special tax scheme known as a Trade Licence, which offers a highly reduced tax burden up to specific sales volumes. You would have a registered tax number and the same rights as a company registered in the Czech Republic.
Eighty activities fall under the trade license, the most common ones being graphic design, IT and general consulting, foreign language teacher, sales, photography services, and event organizer. With a trade license, you can participate in all 80 activities under one trade license and tax number.
Additionally, as a freelancer, you don’t pay taxes on income up to 400,000 koruna, or €15,000. You can also apply for a European tax identification number, and if your sales volume is under €37,000 (or your income is under €3,000 a month) you don’t have to collect VAT.
VAT for Expat Freelancers in the Czech Republic
All foreigners who meet the legal requirements can work in the Czech Republic as freelancers; however, most of the world’s citizens would first need a visa and a trade license to do so. The essential conditions to obtain a trade license include a criminal clearance report from your home country, if you don’t have permanent residency in the Czech Republic yet. The whole registration process can take up to 7 days.
EU citizens are exempt from needing both a criminal clearance report or temporary residency. British Citizens are considered as third-country nationals and hence, must obtain a criminal clearance report from the UK.
A criminal clearance report form doesn’t exist in the US, so US citizens must provide an affidavit signed by the US embassy, confirming they don’t have a criminal record. You can make an appointment online to visit the US embassy in the Czech Republic. If you are still in the US, you should arrange an affidavit form at the nearest Czech embassy.
Canadian criminal clearance reports should be translated into the Czech language and have a super legalization stamp at the Czech embassy. If you are a Canadian already living in the Czech Republic, please contact the Canadian embassy.
For citizens of Australia, Brazil, and South Africa, the criminal clearance reports should be translated into the Czech language as well and must have an Apostille stamp.
When to Register for VAT as a Freelancer
EU VAT returns are due quarterly. Following this, the deadline for VAT Return submission is on the 25th of the following month after the quarter ends. If the 25th is a weekend or state holiday, VAT reports can be submitted on the next working day.
As long as your VAT return is submitted within five days of the deadline there is no penalty.
If it is submitted later than five days, Czech tax authorities will charge 500 CZK.
How to Register for VAT as a Freelancer in the Czech Republic
To register for VAT, an online application (in Czech) should be filed, and a signed hard copy of the confirmation of the electronic application should be delivered to the Financial Office of Prague.
- You must provide information such as your annual revenue, business activity, and bank account information.
- The effective date of registration is the day on which you registered. From this date forward, you must pay VAT.
- It is not necessary to hire a fiscal representative to register you for VAT.
Another option is to make use of MOSS. The Mini One-Stop Shop is an EU-wide tax system that allows you to consolidate all of your EU VAT in one single tax return. This scheme is optional but especially useful if you have customers in multiple countries, including the Czech Republic, within the EU. MOSS allows you to avoid registering in each Member State of consumption. Even if you’re a non-EU business, you can register with MOSS in the Czech Republic or any other EU member.
When You Can't Register Online for VAT as a Freelancer
If you’re unable to register online, you must register by mail to the Financial Office.
Financial Obligations of VAT Registered Freelancers In Czech Republic
Registering for VAT is only the first step. From the day of your registration's effective date, you must:
- Charge the correct VAT rate
- Follow the full information requirements for invoices under the Czech VAT Act
- Issue invoices for goods or services in accordance with the Czech time of supply rules
- Make use of e-invoices, and gain approvals by customers
- Maintain accounting records
- Issue credit notes and other corrections
- Use only approved foreign currency rates
- File for VAT returns
VAT invoices are the EU’s version of tax receipts. They’re an official record of how much tax you charged and collected, and hence, official proof of how much tax you owe the government. Czech invoices must include the following information:
- Your business name and address
- Your business VAT number
- Invoice date
- Invoice sequencing number
- Description of the goods or services
- Rate of VAT applied to each item
- The total amount, including VAT
Your invoices must be issued within six months of delivering your product or service. Then, you must maintain these invoices for ten years, just in case any authorities want to verify your tax. Your records should be precise, complete, and simple to comprehend. As a freelancer, you must maintain a history of the following things:
- Printed copies of the invoices you send out
- Received invoices
- The self-billing vendors' names, addresses, and VAT numbers.
- Debit/credit notes
- Records of imports and exports.
- You must also preserve records of bank statements, check stubs, cash books, till rolls, and paying-in slips in addition to your VAT account.
- Prescribed pharmaceutical products, cut flowers, children's footwear, and clothing, seed supplies, etc. Although there are no charges on Zero Rates, you should record sales of goods and services and create a report based on your returns.
Read more: Hire freelancers and independent contractors from Czech Republic
How to Send and Keep VAT Invoices as a Freelancer with Xolo
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