The government’s consolidation package includes plans to raise pension contributions for self-employed individuals starting from next year. Under the new measures, each self-employed person will be required to contribute an additional thousand Czech korun to the pension system annually, with further increases in the subsequent two years. These changes will primarily affect small businesses, particularly those that serve as secondary sources of income.

According to tax consulting firm V4 Group, the impact of the increased contributions will vary depending on the income level of self-employed individuals. For example, if a self-employed person previously claimed a 60% flat-rate deduction and had a monthly income of 50,000 Czech korun (equivalent to 600,000 korun annually), their annual social security contribution would have been 35,328 korun. However, under the same flat-rate deduction in 2024, the annual social security contribution would rise to 42,389 korun. This translates to a monthly increase of nearly 600 korun in social security payments for the self-employed.

The impact will be more significant for those self-employed individuals with lower incomes. For instance, those declaring an income of 20,000 korun per month would experience a minimal difference in their annual contributions compared to individuals earning 50,000 korun per month. This means that the government’s measures will primarily affect those self-employed individuals who rely on their self-employment as a means of additional income.

Josef Jaroš, the chairman of the Association of Small and Medium-Sized Enterprises and Self-Employed Persons, expressed concerns about the increased contributions, particularly for small self-employed individuals. He suggested that these individuals may choose to shift their activities solely to the “off-the-books” sector to avoid making contributions altogether.

As part of the consolidation package, the government plans to gradually increase the minimum assessment base for social security contributions for self-employed persons from 25% to 40% of the average wage between 2024 and 2026. This increase will occur at a rate of five percentage points annually. The aim is to ensure that self-employed individuals have more secure and dignified pensions.

Advisors from PKF Apogeo, a consulting company, are currently assessing whether, under certain circumstances, converting self-employment into a limited liability company may be more advantageous for some individuals. However, it’s important to note that the government also intends to raise the contributions for legal entities from 19% to 21%, posing additional considerations for businesses.

While a 2% increase in corporate taxes may not have a significant impact on businesses, Jaroš emphasized that the increased contributions for self-employed individuals present a more complex issue that warrants careful examination and consideration.

Article by Prague Forum