This year, for the first time, a flat-rate tax scheme for individuals was introduced, allowing businesses to pay only one amount instead of three different payments. More than 70 000 entrepreneurs have tried the system and are enjoying the benefits, such as no need to file tax returns and statements. However, there are also disadvantages associated with this system, such as the inability to claim tax credits.
If an entrepreneur decides to opt out of the system, he or she has several options. Withdrawal from the flat-rate tax is usually voluntary and most entrepreneurs cannot take this step immediately.
How to opt out of the flat-rate tax
1. Immediate withdrawal
There are three specific situations where a taxpayer can opt out of the flat-rate scheme at any time during the year:
- Termination or discontinuation of self-employment – If the entrepreneur ceases or temporarily interrupts his or her business.
- Long-term stay abroad – If the taxpayer goes abroad and no longer has to pay health insurance.
- Loss of tax resident status – If the taxpayer ceases to be a tax resident of the Czech Republic.
In these cases, the obligation to pay the flat-rate tax ends with the expiry of the month in which the relevant event occurred. The taxpayer is obliged to notify this change within 15 days of its discovery.
2. Withdrawal at the end of the tax period
If the above situations do not arise, the taxpayer may opt out by 10 January of the year following the year in which the flat-rate tax was declared. For example, if a business has a child in 2021 and wants to take advantage of the tax credit, it can file a notice of withdrawal from the flat-rate scheme by 10 January 2022. However, it remains in the flat-rate scheme throughout 2021 and must pay a fixed amount.
If the taxpayer does not meet the conditions of the flat-rate tax during the current tax year (for example, becomes liable for VAT), he or she will have to continue to pay the flat-rate tax until the end of the year and will not return to the normal system until the following year. In this case, he is obliged to submit a tax return and income and expenditure statements.
Moving out of the flat-rate tax may be advantageous for some businesses, especially if they plan to take advantage of tax credits or have income that exceeds the limits set for the flat-rate scheme. To learn more about the flat tax, its advantages, disadvantages and the correct procedure for opting out, watch our YouTube video where we explain everything in detail.
