Self-employed Person

The Civil Code does not use the term “self-employed person” (in Czech abbreviated as OSVČ) but rather uses the term “entrepreneur”, which is defined as follows: “A person who, on his own account and responsibility, independently carries out a gainful activity in the form of a trade or in a similar manner with the intention to do so consistently for profit is considered, with regard to this activity, to be an entrepreneur.”

Self-employed person (OSVČ) is a term used in the Czech legislation on income tax, social security and health insurance to refer to an individual who has completed compulsory school attendance, attained the age of at least 15 years and earns income from business or other independent gainful activities. The State pension Act stipulates explicitly that self-employment includes “the performance of artistic or other creative activities on the basis of copyright relationships, with the exception of activities the income from which constitutes a separate base for calculating individual income tax subject to a special tax rate under a separate statute” (such exceptions include authors’ incomes from contributions to newspapers, magazines and radio or television generated from sources in the territory of the Czech Republic; these incomes constitute a separate tax base subject to a special tax rate provided that they are generated from the exploitation or granting of rights of industrial or other intellectual property, copyrights and neighbouring rights, including incomes from the publication, reproduction and distribution of literary and other works at one’s own expense and that the sum of these incomes from the same payer does not exceed CZK 10,000 in a calendar month).

Self-employed artists are artists who pursue their gainful activities independently (i.e. their activities do not have the elements of “dependent work”). Artists operating as self-employed persons are not entitled to any protection under the labour law.

Self-employment activities carried out outside the Czech Republic are regarded as self-employment carried out in the Czech Republic provided that they are performed on the basis of a permit or licence granted under the legislation of the Czech Republic.

However, it may not always be easy to distinguish whether a particular activity constitutes dependent work or self-employment. There nevertheless exist the following statutory criteria defining the elements of “dependent work” (see Employee) as well as the elements of business or self-employment, which are the following:

Independence: Independence is an element that distinguishes self-employment from employment most of all. It means that the self-employed person decides on his/her activities and their organisation independently. An activity carried out in a dependent/subordinate position, particularly an activity carried out for a single person who determines and controls the essential components of its performance, cannot be regarded as self-employment. If it is found out that an activity is not carried out independently, it does not constitute self-employment at all. An independent artist does not decide on his/her activities according to the instructions and orders of “superiors” but on his/her own.
Systematic character: A one-off or random activity cannot be regarded as systematic, even if it showed other elements of self-employment. Seasonal activity is not in conflict with the requirement of systematic character. Depending on the circumstances, a one-off activity may be regarded as systematic if it is repeated during a certain period.
In one’s own name: The requirement to conduct the activity in one’s own name is met if the artist does not carry out the activity on behalf of the person for whom he/she works but in his/her own name.
Own liability: The requirement of conducting the activity at one’s own liability expresses the “business risk”. The artist is liable for his/her obligations to the amount of all of his/her assets.
Achievement of profit: An intention to achieve a profit is sufficient to constitute an element of self-employment. It is not decisive whether a profit is actually achieved or for what purposes the achieved profit will be used.

The distinction between dependent work and self-employment is, therefore, based solely on the assessment of the elements distinguishing dependent work from self-employment. The material principle is applied here, which means that the formal name of the agreement or of the parties to the agreement or certain formal provisions in the agreement are irrelevant; the only decisive criterion is the actual content of the rights and obligations established and the manner in which the respective activity is actually carried out.

Example

A lighting technician and a stage designer make a collaboration offer to a theatre for the next season. Without further evaluation, the lighting technician is considered an employee who is subject to health insurance and social security contributions because he has been integrated into the operations of the theatre and has become bound by its instructions. The stage designer, on the other hand, will be able to stay self-employed, since her activity (consisting in creating a stage design for one particular project) can be considered independent based on the elements distinguishing self-employment from dependent work.

A self-employed person has the following rights and duties:

carries out his/her activities in his/her own name (for example as “actress Tereza Nováková”),
is liable for damage caused by his/her artistic activities to the amount of all of his/her assets,
up to a certain turnover (determined by law) may keep simple tax records (instead of having to keep accounting books),
up to a certain turnover (determined by law) does not have to document his/her expenditures but may apply a flat rate for them,
up to a certain turnover (determined by law) does not have to be a value added tax payer,
unlike legal entities, does not have to be registered in a public register (provided that his/her annual turnover is below CZK 120 million).

If the annual income of a self-employed person does not reach the minimum threshold, which in 2017 stood at CZK 67,756, the self-employed person is not obliged to pay social security contributions.

Self-employment as a primary or secondary activity?

A self-employed person may conduct his/her business as a primary or a secondary activity. The distinction influences the payment of health insurance and social security contributions. For this reason, it is important to notify the respective authority of this fact upon registration, and to produce evidence of this fact if necessary. During self-employment, the activity can change from primary to secondary, and vice versa.

Self-employment as a primary activity

A self-employed artistic activity is considered a primary gainful activity when it is the main focus of an artist’s occupation and clearly exceeds any other gainful activity in terms of the income earned. In fact, an activity is primary if is the main source of income. Unlike a secondary activity, the primary activity is not specified in detail by law. When in doubt, the following simple rule can be used: If an activity is not secondary (as specified by law, see below), it is automatically considered primary.

Health insurance
In 2017, the compulsory minimum health insurance contributions were set at CZK 1,906. A self-employed person pays the contributions after filing the income and expenditure statement for the past calendar year. In the first year of self-employment as a primary activity, the self-employed person is obliged to pay contributions in the amount of the above-mentioned minimum.
Sickness insurance
In 2017, the minimum sickness insurance contributions were set at CZK 115 (sickness insurance is nevertheless voluntary for self-employed persons and it is not very advantageous in the Czech system).
Social security
In 2017, the compulsory minimum social security contributions were set at CZK 2,061. In the first year of self-employment as a primary activity, the self-employed person is obliged to pay these contributions in the amount of the above-mentioned minimum.

Self-employment as a secondary activity

If an artist is at the start of his/her artistic career and is able to perform (one more) occupation, self-employment as a secondary gainful activity can be a certain challenge. In such case, the artist does not pay contributions in the first year of self-employment at all, and in the following years he/she pays contributions only in the amount calculated from the actually earned income. An activity constitutes self-employment as a secondary activity if the self-employed person:

is employed as a standard employee who is obligatorily subject to the sickness insurance scheme (for certain types of employees this applies to state pension as well),
is on disability or old-age pension,
is entitled to parental allowance or maternity benefits or is on medical leave due to pregnancy and childbirth,
takes personal care of a child under 10 years of age who is dependent on the care of another person,
takes personal care of a person who is dependent on the care of another person at degrees 2-4 of dependence, provided that it is a close person or a person living in the same household,
is in military service but is not a career soldier,
is a dependent child.

The most common case of self-employment as a secondary gainful activity is its concurrence with employment. If the self-employed person does not visit the respective authority personally and uses the Single Registration Form for registration, it may happen that he/she will be considered a self-employed person performing self-employment as a primary activity and will thus be obliged to pay regular health insurance and social security contributions. After receiving the Single Registration Form the relevant authority is obliged to check the national register to verify whether there is any reason to register the particular self-employed person as a person conducting self-employment as a secondary activity. Unfortunately, the information on employment sometimes falls out of the employment register due to a system error, or, in cases where employment has been commenced recently, it may happen that it has not been entered in the register yet. The self-employed person has to provide a statement from the employer confirming that he/she is employed from a certain date. The self-employed person also has to submit a certificate of employment when he/she has been registered as a self-employed person but has changed the self-employment status from a primary activity to a secondary one.

In terms of contributions to public budgets, the following applies to self-employment as a secondary activity:

health insurance contributions are not required,
social security contributions are not required in the first year of self-employment,
if the profit (the difference between incomes and expenditures) from self-employment as a secondary activity for the previous calendar year exceeds the minimum threshold, which in 2017 stood at CZK 67,756, contributions to the social security scheme are paid the following year in at least the minimum amount, which in 2017 stood at CZK 825 a month.

Example

A graphic designer is employed with a PR agency in a part-time job in the extent of 30 hours a week and earns annual gross income of CZK 260,000 on average, from which regular health insurance and social security contributions are paid. Apart from this, he earns an extra income as an author of illustrations for various book publishers, earning an average of CZK 45,000 a year from this secondary activity.

The income from the secondary activity will be exempt from contributions to the health insurance and social security schemes. Such payments are only required in connection with his primary employment with the PR agency, which pays the contributions to health insurance and social security in the sufficient amount. All contributions are therefore paid in connection with the artist’s main occupation only.

If the artist performs his primary gainful activity abroad, as in the example above, he will not be obliged to pay any social security contributions; and if his secondary activity is carried out in the Czech Republic, it will be exempt from social security contributions as well.

Note: For information on income tax related to both primary and secondary self-employment activities see section Income Tax.

A self-employed person or entrepreneur – is there a difference?

From the viewpoint of authorities in the Czech Republic, any autonomous, free and independent activity, including a business enterprise, is referred to collectively as “self-employment”. We can, therefore, more or less disregard the different terminology, as Czech authorities do not actually distinguish between independent free activity and entrepreneurship and consider both essentially the same (leaving aside the fact that certain types of enterprising – especially some trades – require an official permission or licence to be carried out legally, while no permissions or licences are required for free artistic activities).

In the Czech Republic, self-employed persons are subject to a single individual income tax at a rate currently set at 15 percent of the tax base. If an artist’s independent activity reaches a certain scope or volume, the artist has to apply for a tax identification number with the local tax authority. If the artist also performs organisational, production or other similar trading and mediatory activities, he/she will have to obtain a trade certificate. These activities fall within the scope of “free trades” which suffice to be reported to any trade licensing office.

Artists as self-employed persons are allowed to keep simple tax records (they do not have to keep accounting books), provided that their turnover for the previous calendar year does not exceed CZK 25 million. If their turnover is higher, they have to keep balance sheet accounts, i.e. accounting books (formerly called double-entry bookkeeping).