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Payroll in the Czech Republic – 2022 Updates
For 2022 the following measures were taken by the Czech authorities:
- Minimum wage increase - The minimum monthly salary for full-time work will increase from the current CZK 15,200 to CZK 16,200.
- Maximum assessment base for 2021 - The maximum assessment base for social security contributions in 2021 increases from CZK 1,701,168 to CZK 1,867,728.
- Changes to tax credits - From January 2022 the basic tax credit per taxpayer has been increased from CZK 2,320 to CZK 2,570 per month.
- Changes to sickness benefits - the support period for paternity leave increases from one week to two weeks. Another change was made to the drawing of the long-term carer’s allowance, where the required period of hospitalization was reduced from seven to four consecutive calendar days. The last change is the modification of the conditions for drawing the carer’s allowance, where the condition of a shared household with a close relative was revoked.
- Sickness benefit and salary compensation for incapacity for work to increase
- Changes on the basic compensation rate for the use of motor vehicles
- Changes on the meal allowance for business trips
- Changes on the average fuel price
Ease of Doing Business in the Czech Republic: An Overview
The Czech Republic is one of the most successful transition economies in terms of attracting foreign direct investment. Multinational companies based in the Czech Republic such as 3M, Coca-Cola, Johnson & Johnson, Vodafone, Cisco and Microsoft have all been successfully operating within the Czech Republic. Key factors such as a well-educated and skilled labor force, favorable labor costs, central location in Europe and advanced infrastructure all make it an attractive location for multinationals.
Basic facts on payroll in the Czech Republic
Employee income is subject to several levies in the Czech Republic, these are income tax, social security insurance, and health insurance. All three types of employee levies mentioned are handled by employers. Employers are obliged to deduct the employee contributions from the employees’ gross wage and transfer the amount to the particular authority.
Employers must register with the authorities when starting to employ people in the Czech Republic. It is also necessary to register each employee to the health insurance and social insurance system.
Taxes
Income tax
The tax rates are 15% and 23%. The 23% tax rate is applicable to income exceeding 48 times the average wage for the calendar year (CZK 1,867,728 for 2022)
There are 5 basic sources of income: employment, entrepreneurial activity, capital, leased property and “other”. Deductions are permitted for mortgage interest, life and supplementary pension insurance, and gifts.
Social security tax
Employees contribute 11% of gross income (4.5% for health insurance and 6.5% for old age pension.)
Tax on employment income is withheld by the employer and remitted to the tax authorities. Self-employed individuals must file a tax return by March 31 of the following year.
Corporate tax
Corporate income tax (CIT) applies to the profits generated by all companies, including branches of foreign companies.
Resident companies are required to pay tax on their worldwide income, while the non-resident companies are required to pay CIT on income sourced in the Czech Republic.
The general CIT rate is 19%, however there is a special CIT rate of 15% levied on dividend income of Czech tax resident entities from non-resident entities. 0% CIT tax rate applies to pension funds and 5% applies to income of certain investment funds.
VAT
Companies with operations in Czech Republic will be imposed with a 21% VAT rate, which is the standard rate applicable to most products and services, taxable under the current law, in 2022.
Public health insurance
Public health insurance in Czechia is a solidary insurance system. This provides all participants in the PHI system with public health services in the same scope no matter how much he/she contributes to the system. It is obligatory for employees to participate in the insurance system and the insurance premium is paid partly by employer and partly by employee. Health insurance is arranged for by 7 licensed health insurance companies and each employee can choose which of them he/she wants to use.
Social insurance
This insurance premium, in fact, contributes to three systems: pension insurance system, illness insurance system and the state fund for employment policy. It is obligatory for employees to participate in all of them. The pension insurance ensures employee pensions, the amount of which depends on the duration of insurance and premiums paid. The illness insurance protects employees against income fall in case of illness. Again, the insurance premium is paid partly by employer and partly by employee. The social insurance is arranged for by the Czech Social Security Agency (CSSA).
Compensation and Benefits
Minimum Wage
Effective as of 1 January 2022, the base rate for the minimum wage rises by CZK 1,000 per month to CZK 16,200, or by 5.90 crowns per hour to CZK 96.40.
Overtime
Overtime cannot exceed 150 hours within a calendar year and is calculated as 125% of the regular pay.
Hours of Work
Working hours are 40 hours a week or 8 hours per day.
Holiday & Sick Leave
Employees are entitled to 4 weeks of paid leave. There are 13 public holidays in the Czech Republic
Foreign Hires
Generally, foreigners can be employed in the Czech Republic under two conditions: the employer has obtained a permit from the Labor Office to employ foreigners and the employee has been granted a work permit for the job in question.
In order to apply for a Work Permit, the employer needs to initiate the process, by filing a job description at the local Labor Office. Then the position is posted for 30 days, and if no suitable Czech person is found, the Ministry of Labor will do a “nostrification” process.
For more information about how our Global Payroll Control Platform integrates with local payroll providers in the Czech Republic, contact us today.