Navigating Changes: The Implications of Czech Republic's Consolidation Package for Freelancers

The law has significant implications for freelancers, potentially imposing a heavier financial burden through higher taxes and reduced subsidies.

In a bid to shore up public finances, Czech President Petr Pavel signed a consolidation package in late November, introducing significant changes to the country's tax system and reducing various subsidies. Such a transformative move has sent shockwaves through the Czech freelancing community, raising concerns about its potential impact on their livelihoods. 

This article will explore the package's components and how it might impact self-employed residents in the country.

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Consolidation Package: A Comprehensive Overview

Challenges have marked the Czech Republic's economic situation in recent years. The country's budget deficit has widened, driven by rising public spending and a slowing economy. To address these fiscal woes, the government has embarked on a consolidation package to reduce the deficit and foster long-term economic stability.

The consolidation package encompasses a sweeping range of legislative changes, introducing 65 distinct modifications to reshape the Czech Republic's fiscal landscape. Among these alterations are VAT rate adjustments, corporate income tax hikes, property tax increases, selective consumption tax rises, and the cancellation of certain government subsidies, as reported by Expats.cz.

One of the most significant aspects is consolidating VAT rates from three brackets to two, meaning that services and draft beer will now be subject to the higher 21% VAT rate. At the same time, corporate income tax will increase from 19% to 21%. Concurrently, VAT for public transport, magazines, certain medical drugs, and tickets for cultural and sporting events will rise from 10% to 12%. Food will primarily be taxed at 12%, and a gradual increase in consumption tax on alcohol is also on the horizon.

In addition to these broad-based changes, the consolidation package also introduces several targeted amendments. Notably, a 0.6 percent employee health insurance levy will be imposed on income, and tax exemptions such as student school fee discounts will be eliminated. The deduction limit for VAT on passenger cars will be set at CZK 420,000, corresponding to a tax base of CZK 2 million, applicable to car purchases and subsequent technical assessments. This amendment also modifies the coefficients, giving municipalities more control over the proceeds from this tax, and includes several other partial changes.

Freelancers Face Increased Tax Burden and Reduced Subsidies Under New VAT Law