The Labour Code (Act No. 262/2006)
According to Czech law, contractors can only be self-employed individuals, if the self-employed individual´s turnover exceeds CZK 1,000,000 in the past 12 or less calendar months. The self-employed individual is obliged to register as a VAT payer and will be automatically subject to VAT. In the case of self-employed individuals, the client (factual employer) pays the fees gross and the independent contractor will be responsible for payment of their own taxes, including, premiums for social security and general health insurance. If self-employed workers/independent individuals are reclassified as employees, then their “factual employer”, becomes responsible for the additional payment of employment-related taxes. The tax authorities will consider the Contractor´s fee (which was until then paid to him by factual employer) as “net salary” (no matter the fact the contractor himself had already paid all taxes incl. social/health insurance from such a fee); therefore the tax authority will first re-calculate the “net salary” up to “gross salary” (plus another 34%); and only from this new tax base (i.e. original fee + 34%) the tax authority will assess the new tax duty.