Moving to the Czech Republic, starting a business or receiving income from abroad can significantly change your tax obligations. For expats, it is often not just a matter of filing a tax return. It is essential to correctly determine your tax residence, assess the individual sources of income and take international taxation rules into account. Getting the setup right from the outset can help you avoid unnecessary complications, additional obligations and the risk of double taxation.

Have you moved to the Czech Republic?

Moving to another country usually changes where and to what extent your income is taxed. The key factor is tax residence, which is not determined by citizenship or permanent residence registration. Under Czech rules, what matters in particular is whether you have a permanent home in the Czech Republic with the intention of staying there permanently, and how long you spend in the country during the year. If you have ties to more than one country, the relevant double taxation treaty may further determine your residence by applying criteria such as a permanent home, centre of vital interests, habitual abode and nationality. The frequently mentioned 183-day threshold is therefore only one of the relevant criteria, not the final answer.

The practical impact is significant: a Czech tax resident is generally taxed in the Czech Republic on their worldwide income, whereas a non-resident is taxed only on income from Czech sources.

Are you starting a business as a self-employed individual?

Starting a business in the Czech Republic involves more than simply obtaining a trade licence. You need to choose how to claim your expenses — whether using actual expenses, a flat-rate expense deduction or, where applicable, the flat-rate tax regime — set up records of income and expenses, complete the necessary registrations with the tax authority, Social Security Administration and health insurance company, and assess how income from foreign clients should be reflected in your Czech tax return.

The fact that you invoice foreign clients or receive payments into a foreign bank account does not mean that the income is exempt from Czech taxation. VAT also requires particular attention, as for cross-border services a VAT registration obligation may arise before you reach the standard turnover threshold. The correct treatment always depends on your specific tax circumstances, tax residence and the nature of your activities.

Do you need to file a tax return?

The obligation to file a personal income tax return depends on the structure of your income and your tax status. For expats, the key question is often not only whether a tax return must be filed, but above all in which country a particular type of income should be taxed. This applies to income from employment, self-employment, rental activities, investments and other foreign sources.

The filing deadline depends on the method of submission. The standard deadline is three months after the end of the calendar year, while electronic filing extends the deadline by one month and filing through a tax adviser by a further three months. Representation by a tax adviser therefore provides not only professional support but also additional time to gather documentation relating to foreign income.

Are you unsure about your tax residence?

Uncertain tax residence is one of the most common sources of disputes in cross-border taxation. A typical situation arises when you live in the Czech Republic, work for a foreign company and at the same time maintain family or economic ties in another country. In such cases, both countries may consider you to be their tax resident, and the conflict is resolved by applying the tie-breaker rules contained in the relevant international double taxation treaty.

In practice, it is often useful to obtain a certificate of tax residence, issued by the Czech tax authority upon request. Such a certificate is frequently required by foreign income payers, banks or investment platforms. Determining tax residence is also the first step on which the taxation of all other income depends, so it is worth resolving this issue before addressing anything else.

Do you receive income from abroad?

Foreign income can take many forms, from employment and self-employment income to rental income, dividends, interest or investment returns. A Czech tax resident generally has to include such income in their Czech tax return, even where the income has already been taxed abroad. The next step is to determine how the foreign tax should be taken into account in the Czech Republic.

Relying on the assumption that the Czech tax authority will not become aware of foreign income is no longer realistic. Banks and tax authorities automatically exchange information on accounts and income, meaning that discrepancies may only come to light several years later, together with interest and penalties.

Do you want to avoid double taxation?

Cross-border income may be subject to taxation in more than one country. This is precisely what double taxation treaties, which the Czech Republic has concluded with dozens of countries, are designed to prevent. They generally use two main methods: a foreign tax credit or an exemption of the income from taxation in the Czech Republic.

Which method applies depends on the specific country, type of income and wording of the relevant treaty. There is no universal solution applicable to every country and every type of income, which is why a detailed professional assessment is advisable.

How we can help

In cross-border tax matters, timing is crucial. Ideally, the relevant issues should be assessed before you start doing business in the Czech Republic, receive foreign income or become required to file a tax return. We will assess your tax residence, income structure and the relevant international rules and propose a solution tailored to your situation.

The PKF APOGEO tax team specialises in Czech and international taxation of both individuals and companies. As part of the PKF Global network, we can also assess your situation from the perspective of the other country involved. Contact us — an initial consultation can also be arranged online.

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