Lump-sum tax – one payment and it is done?

Since the relevant law amendment has entered into force as of 1 January 2021, the taxpayer may apply to this institute firstly for the year 2021, provided that he/she fulfills the following conditions:

• is a self-employed person;
• is not a VAT payer;
• is not a member of the general commercial partnership (in Czech “veřejná obchodní společnost”) or of limited partnership (in Czech “komanditní společnost”);
• is not subject to the insolvency procedure;
• does not have income from self-employment exceeding CZK 1 000 000, except of tax-exempt income, income not subject to tax, and income subject to withholding tax;
• does not perform activity which generates income from dependent activities, except of income subject to withholding tax; and
• has submitted the notification on entering the lump-sum tax regime to the tax administrator.

Since the primary motive for the introduction of this new institute was friendliness and openness to taxpayers and reduction of administrative complexity in connection not only with income tax, but also with so-called public insurance premiums, the lump-sum tax also covers social security and health insurance contributions, which will be dealt with together with the personal income tax on a single form.

The monthly amount of the lump-sum tax, which is payable by the 20th day of the relevant period, i.e. of that calendar month for which the tax is payable, amounts in 2021 to CZK 5,469, namely in the following structure:

• tax of CZK 100,
• social security contribution of CZK 2,976,
• health insurance contribution of CZK 2,393.

Timely payment of tax advances will result in the fulfillment of all obligations not only in the area of taxes, but also in other public premium payments. Thanks to the application of a lump-sum tax, some taxpayers would thus be able to reduce the costs of accounting and tax services, and at the same time, mitigate the risk of tax inspections.

On the other hand, it will no longer be possible to take advantage of other tax reliefs and credits when applying this form of taxation. Therefore, for some taxpayers, it could even mean an increase in the total contribution and tax liability. This applies especially to those who would otherwise pay the tax of CZK 0. Instead of zero tax and minimum insurance premiums (for health insurance in the amount of CZK 2,393 and for social security in the amount of CZK 2,588), they would pay a lump-sum higher by up to CZK 488 per month.

It is therefore always necessary to consider individually whether the application of a lump-sum tax will be of advantage.

However, it should be emphasized that those who want to exercise their tax liability through a lump-sum tax are obliged to notify the tax administrator no later than on 10^th day of the relevant tax period, while for 2021 applies the deadline of 11 January 2021.

Thus, the deadline is approaching rapidly. If you are curious whether the lump-sum regime would be advantageous for yourself, do not hesitate to contact us, we will be happy to help you with such assessment.

In case that the taxpayer ceases to meet any condition for the application of the lump-sum tax during the year, the taxpayer continues to pay advances until the end of the year, but after the end, he/she will be obliged to submit a tax return as well as overviews for health insurance and social security based on actual income. Simultaneously, he/she is obliged to notify the tax authority.

Although it does not result directly from the law, we recommend to the taxpayers in the lump-sum tax regime to keep further the so-called tax records. It may happen that in a relevant tax period the taxpayer does not meet all of the conditions for the application of the lump-sum tax and will therefore be obliged to prove the actual income. Record keeping is also needed when moving from the lump-sum tax regime to the standard tax regime and vice versa.