Foreign employees working in the Czech Republic – Personal income taxation and social security
The Czech Republic, with its location in the heart of Europe, is a strategic location for the operations of employees of foreign companies.
Working in the Czech Republic as an employee of a non-Czech company may result in Czech income tax and/or social security obligations for the employee as well as for their foreign employers.
Before an analysis of the resulting Czech tax obligations is done, the following questions should be answered:
- Who is the legal employer of the employee working in the Czech Republic?
- For benefit of which company will the employe work and who will manage his/her work in the Czech Republic?
- From which territory is the employee planning to work, considering the work from Czech company office or home office?
- What is the expected employee’s travel pattern between the Czech Republic and home/other countries?
- Where are the personal ties of the individual?
- What is the estimated duration of work in the Czech Republic?
- Are there any other employees of the same employer working in the Czech Republic?
Czech tax implications for the employees
The alfa and omega in the personal income taxation is to assess the tax residency position of the individual. While the Czech tax non-residents are obliged to declare for Czech tax purposes their Czech source income only, Czech tax residents must declare their worldwide income.
In case the individual is considered a tax resident in more countries at the same time, the tie-breaker rules of the relevant double tax treaty bring the final position.
Once the employee becomes taxable in the Czech Republic, he might be liable to file Czech annual income tax return, unless his Czech tax liabilities are fully met via a Czech payroll run by the company.
Czech tax implications for the companies
Due to Czech work of foreign employee(s), some income tax related duties may arise for the company (home or host), e.g.:
- Registration at the Czech Tax Office, if not done already.
- Running of Czech actual/shadow payroll for the employee.
- Creation of a Czech permanent establishment and processing the resulting corporate tax obligations.
Social Security
For employees migrating within European Union, an EU social security regulation is in place, under which the individual should pay the mandatory social security/health insurance in one country only, once the EU regulation states the competent country.
Moreover, bilateral social security treaties are concluded between the Czech Republic and some countries helping to avoid double payment of contributions too.
Otherwise, both countries apply their local rules what usually ends with the social security contributions paid to each country.
Once the employee becomes subject to the Czech social security scheme it triggers additional administration for the companies involved.
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Petra Bobková |
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