Self-employed individuals in the Czech Republic love the flat-rate tax regime (paušální režim) for its sheer simplicity. You pay a single monthly sum and completely skip the hassle of paperwork and tax returns. However, this convenience can become a headache if your circumstances change—for instance, if you decide to take on regular employment alongside your business.
In this article, we will explore the main challenges of navigating this dual status. We’ll break down what happens to your mandatory contributions and health insurance, and figure out the best course of action to ensure you don’t overpay.
How the Flat-Rate Regime Works
First, let’s recap exactly how the flat-rate regime operates and what sets it apart. This will make it easier to understand why taking on a regular job triggers certain obligations.
The core concept of this regime is that you are taxed simply for having an active business. The government doesn’t care how much you actually earned in any given month. It simply expects a fixed fee, which you are legally obligated to pay every month from the moment you opt into the regime until you officially leave it (Section 38lk of the Income Tax Act).
The exact amount you pay depends on your chosen income band (pásmo). But once that band is set, the payment is non-negotiable. Even if you make absolutely nothing in a particular month, the law still views you as an active entrepreneur (Section 7a, Paragraph 7 of the Income Tax Act).
As a reminder, you can voluntarily opt in or out of the regime only once a year—typically by January 10th. However, your participation can be terminated mid-year under specific objective circumstances. This happens, for example, if you no longer meet the eligibility criteria, officially suspend your trade license, or shut down your self-employment entirely.
What Changes When You Take on Employment
Now, let’s look at what happens when a self-employed individual on the flat-rate regime takes on a regular job without suspending their trade license.
Important: Until you officially opt out of the flat-rate regime or suspend your business activity, you remain a registered payer. This means your obligation to pay the monthly flat-rate advance remains in effect for every calendar month (Section 38lk). This applies regardless of whether your business generated any income that month or if your earnings were zero. The law explicitly states that your status as a payer is maintained even in the absence of actual business revenue (Section 7a, Paragraph 7).
At the same time, a second critical factor comes into play: the flat-rate payment does not cover payroll taxes. Income tax, social security, and health insurance contributions derived from employment are a completely separate matter. They are not offset by your monthly self-employment flat-rate fee. Income from employment falls into a distinct tax category (income from dependent activity, Section 6), and your employer is required to withhold taxes on these earnings separately (Section 38h).
In practice, this leaves you facing a double financial burden:
- You are obligated to continue paying your flat-rate advances (as an active entrepreneur).
- Your employer deducts taxes and mandatory contributions directly from your salary.
Below, we’ll guide you on the right steps to take to avoid overpaying and sidestep any bureaucratic red tape.
What to Do After Taking on Employment
First, you need to decide on the most important factor: will you actually continue your self-employed business activities? Your answer will determine the most correct and cost-effective approach. Taking on employment triggers the obligation to file a standard tax return for the year, because your «annual tax does not equal the flat-rate tax» once you have income from regular employment. Let’s explore your options in detail.
Option 1: You No Longer Need Your Trade License
If you don’t need your business after getting hired and won’t have any self-employment income, the logical step is to officially terminate your business activity. Closing your trade license automatically means you stop being a flat-rate payer. The flat-rate payments are then only due for the months you were still in the regime; from the month following the closure, you no longer have to pay them. This follows the logic of Section 38lk, where the obligation to pay is tied to your months of participation in the regime (Section 38lk, Paragraphs 1 and 4 of the Income Tax Act).
Going forward, you will only have payroll deductions handled directly by your employer.
Option 2: You Need Your Trade License, But Can Put It on Hold
If you have taken a job and don’t plan to use your trade license temporarily, we highly recommend officially suspending your business activity (pozastavit živnost).
From a bureaucratic standpoint, this is the safest and cleanest option. The main advantages of this approach are:
- Immediate exit from the flat-rate regime. The obligation to pay the flat tax disappears from the month following your suspension.
- No overpayments or extra paperwork. You stop paying the tax office, and your mandatory contributions (social security and health insurance) are deducted solely from your salary via your employer. You won’t have to spend months trying to claw back your own money later.
- Your trade license is preserved. It is not canceled; it simply goes «dormant.» You can reactivate it at any time by visiting the Trade Licensing Office (Živnostenský úřad) or doing it online.
If you don’t suspend your activity, you force yourself into a «double burden» situation where you are obligated to pay contributions both at work and as an entrepreneur. This can lead to overpayments, which in practice can be difficult to refund because VZP (the health insurance company) and the Tax Office might just pass the buck back and forth.
We should also highlight a crucial nuance (the law vs. practice). If you reactivate your suspended trade license later in the same year, legally, you automatically revert to being a flat-rate payer in the same income band (pásmo) as before the suspension. However, in practice, this automatic reinstatement often doesn’t happen; the tax office usually expects a new application from you. Because of this, experienced accountants note that temporarily suspending your trade license (even for just a month) can effectively give you a chance to «reset»: you exit the flat-rate regime, and upon reactivation, you can switch to standard accounting based on actual income and expenses.
Option 3: You Need Your Trade License and Will Keep Operating Until Year-End
If you cannot or do not want to suspend your business activity, you are required to keep paying your monthly flat-rate advances until the end of the year. You cannot voluntarily opt out of the regime any earlier.
What happens at year-end? By taking on employment, you have breached the conditions of the flat-rate regime. This means:
- Your tax and insurance contributions will be calculated based on your actual profit, rather than a fixed rate.
- You are obligated to file a standard Tax Return.
- Important! You are also required to submit Annual Overviews (Přehledy) to the Social Security Administration (ČSSZ) and your health insurance company.
In this scenario, all the flat-rate sums you paid throughout the year are treated by the government as advance payments. They are factored into your tax return and insurance overviews, and if there is an overpayment (which is highly likely, as your self-employment will become a secondary activity for the Tax Office and Social Security Administration), a portion of it can be refunded.
Important! VZP (the health insurance company) does not consider employment while on the flat-rate regime as grounds for reclassifying your self-employment as a secondary activity (vedlejší činnost). We explain the financial losses this causes and how to avoid them in detail below in the section «Refunding Flat-Rate Overpayments.»
How to opt out of the regime for the following year?
If you plan to continue combining employment and business, there is no point in staying in the flat-rate regime for the next year (since you will be obligated to file tax returns anyway). To avoid paying high fixed contributions for nothing, you must officially opt out of the regime. To do this, you need to submit a notification of voluntary withdrawal (Oznámení o dobrovolném vystoupení) by the deadline—usually January 10th.
Refunding Flat-Rate Overpayments
If you ultimately didn’t close or suspend your business but still took on a job, you continued making flat-rate payments alongside your payroll deductions. By the end of the year, this creates a «double payment» situation. And this is where things get really complicated.
Let’s revisit a specific feature of the flat-rate regime: throughout the year, you paid a single unified sum to the Tax Office (Finanční úřad). The Tax Office then «sliced this pie» and distributed the respective portions to your health insurance company (e.g., VZP) and the Social Security Administration (ČSSZ).
This is exactly where self-employed individuals run into the quirks of Czech legislation. From the perspective of the Tax Office and the Social Security Administration, your business activity shifts to a «secondary activity» (vedlejší činnost) status once you become employed. However, when it comes to health insurance, according to Section 3a, Paragraph 7 of Act No. 592/1992 Coll., the standard rules for secondary activity do not apply to individuals in the flat-rate regime (even if they were in it for only part of the year).
This means that, in the eyes of your health insurance company, you are still considered a payer with a fixed assessment base established for your flat-tax band. In other words, even if your self-employment income dropped to a bare minimum because of your main job, you are still legally obligated to pay the full health insurance contribution embedded in the flat-rate payment.
The insurance company will collect both the contributions withheld from your salary and the full health insurance portion of your flat-rate payment. Legally, no overpayment is registered in this case, because the assessment base for health insurance under the flat-rate regime is «locked.»
How to Get a Refund for Taxes and Social Security (ČSSZ) Overpayments?
The good news is that the situation with income tax and social security contributions is different from health insurance. For these authorities, taking on employment successfully reclassifies your business as a secondary activity (vedlejší činnost).
At the end of the year, if you lost your eligibility for the flat-rate tax due to employment, you are required to file a standard tax return, and your monthly flat-rate payments are retroactively converted into regular advance payments. You must also submit Annual Overviews (Přehledy) to two authorities:
- The Czech Social Security Administration (ČSSZ)
- Your health insurance company (e.g., VZP)
These documents establish your actual final obligations for the year. After filing your tax return and the ČSSZ overview, if a legitimate overpayment is recorded, you can then request a refund through the Tax Office (Finanční úřad).
Important: The process of getting a refund when you breach the flat-rate regime conditions (due to employment) is one of the most convoluted bureaucratic procedures out there. This is exactly why we loop back to our core advice from Option 2: if you get a regular staff job, suspend your trade license. It will save you not only money but also dozens of hours corresponding with bureaucrats.
Key Takeaways and Advice
Taking on employment while under the active flat-rate regime is a situation that requires proactive steps. If you just let things slide, you risk accumulating debt or facing major hurdles when trying to get your own money back.
Key Takeaways:
- Regarding VZP (Health Insurance): If you take a job and do not close or suspend your trade license, you are required to pay the full health insurance contribution regardless of your employment status, and this cannot be claimed as an overpayment.
- Regarding the Tax Office and Social Security: Working as a regular employee breaches the conditions of the flat-rate regime. As soon as you earn income from employment (excluding income subject to a final withholding tax—srážková daň), you lose your eligibility for the flat-rate tax for the entire calendar year. Mandatory annual reporting kicks back in. You will have to file a Tax Return and Annual Overviews (Přehledy) with the social security and health insurance authorities to recalculate your taxes based on your actual income.
- Flat-rate payments convert into advances. All the amounts you paid as a «flat-rate tax» simply become advance payments credited against your final tax liability. However, you can only get a refund for overpayments related to your income tax and social security contributions.
Advice from DoMyTax:
To navigate this situation with minimal loss of time and money, we recommend sticking to two main rules:
- Suspend your trade license if you have no business income. If you don’t expect any actual profit from your self-employment in the near future, it makes absolute sense to officially suspend your license (pozastavit živnost). By doing this, you cease to be a flat-rate payer, and the obligation to pay fixed monthly amounts disappears from the month following the suspension. This aligns directly with the legal framework (Section 38lk, Paragraph 4).
- Claim refunds through the Tax Office. If you’re dealing with an «overpayment from flat-rate contributions,» the most rational approach is to handle it through the Tax Office (Finanční úřad). You need to file a refund request via your personal tax account. The Tax Office acts as the administrator of the flat tax (Section 38lk, Paragraph 3 and Section 38lm), as they are the ones who originally distributed your funds.
Need Help? Transitioning from the flat-rate regime to regular employment is full of bureaucratic nuances. To avoid filing errors and ensure you get your overpayment back, it’s best to consult the experts at DoMyTax. We will help analyze your specific situation, devise a solid plan, prepare all necessary reports for the Tax Office and insurance funds, and guide you on the proper way to suspend your business or exit the regime. Reach out to us to get things done right and safeguard your money.
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💬 Chat with us online: DoMyTax
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