An overview of selected legislative changes that will affect both companies and employees from the new year is presented by BDO and its experts in tax, law and corporate sustainability. The year 2025 will bring in particular innovations in VAT, flat tax, self-employed persons' levies, minimum wage, probationary period, notice period, conditions for agreement workers, guaranteed wages, ESG reporting and employee benefits.
Deductions for self-employed persons will increase by about 1,000
Starting in January 2025, entrepreneurs and sole traders will see their levies increase again. The minimum social insurance deposit for self-employed persons (with main activity) will increase by CZK 907 in the new year and the minimum health insurance deposit will increase by another CZK 175, for a total increase of CZK 1,082 per month.
In the case of social insurance for self-employed persons, the minimum monthly assessment base will be calculated as 25% of the average wage until 2023. However, the consolidation package brought a change in the calculation and a gradual increase in this base. In 2024 it was increased to 30% of the average wage, for 2025 it will be 35% of the average wage and from 2026 the calculation will be stabilised at 40% of the average wage. The minimum monthly advance for self-employed persons for the main activity for 2025 is therefore CZK 4 759.
Calculating the minimum health insurance contributions is a bit simpler. As in the past, the minimum health insurance assessment base will be set at 50% of the average wage in 2025. The increase is therefore only due to the rising level of average wages. The minimum monthly advance for self-employed persons for the main activity for 2025 is therefore CZK 3,143.
Self-employed persons with a secondary activity do not have a minimum advance payment for health insurance: either they do not pay it at all (in cases where they are also employed) or they pay it on the basis of the calculation of the last known contribution obligation (in other cases). The monthly health insurance payment for persons without taxable income is also increased to CZK 2 808.
The minimum advance payment for sickness insurance has also been increased to CZK 243. However, sickness insurance is voluntary for self-employed persons, so they do not have to pay it. However, participation in sickness insurance is a prerequisite for receiving maternity benefits - for self-employed workers at least 180 days in the year before the start of maternity leave and at least 270 days in the last two years.
The flat-rate tax will increase by more than CZK 1,200
The minimum social security and health insurance payments of self-employed persons directly affect the amount of the flat-rate tax set for the first band, which is the most used by entrepreneurs and sole traders. It will amount to CZK 8,716 per month in 2025. The flat-rate tax in the first band will thus increase by CZK 1,218 per month from January 2025. The flat-rate tax for zones 2 and 3 will remain unchanged at CZK 16,745 and CZK 27,139 per month respectively.
Entrepreneurs and sole traders using the flat-rate tax regime pay the fees at once; in addition to the tax itself, the amount paid also includes social security and health insurance contributions. Self-employed persons under the flat-rate tax scheme also do not have to submit a tax return.
Health benefits are in for a welcome adjustment
Among the benefits perceived by employees as the most valuable are those in the area of health. And these are the ones that they could see to a greater extent in the new year.
From 2024, the exemption of leisure benefits from employment income tax has been limited to half of the average wage per year. Such a limitation is undesirable for most companies. Health benefits are now excluded from the benefits that were exempt up to the average wage for the tax year (for 2025, the limit is CZK 46,557). For other benefits, the limitation of exemption up to half of the average wage (for 2025, the limit is CZK 23,278) continues to apply. The two limits should be monitored separately.
After thirteen years, the limits will increase for DPP contractors
From January 2025, agreement workers will be able to earn more without having to pay social security and health insurance on their earnings. Employees working under an agreement to perform work will see an increase in the limit for paying insurance premiums. The limit will no longer be a fixed amount but will be 25% of the average wage for the year. Specifically for 2025, the limit will be CZK 11,500 per month. Until now, the limit was CZK 10,000, which was valid for 13 years. It is therefore an increase of CZK 1 500 per month.
For activity performance agreements (APAs), the limit is also changing for 2025. However, a similar automatic mechanism has been in place for some time, so the conditions are unchanged. The limit will increase from the current CZK 4,000 to CZK 4,500 per month in 2025.
Other conditions that had already been approved were originally supposed to change for contract workers starting in January, but legislators voted to repeal them before they took effect. This is primarily the so-called notified agreements regime.
ESG reporting will expand
In 2025, the ESG reporting obligation, i.e. the need to report on sustainability according to the European Directive, will be extended. The following types of companies will be required to collect and subsequently publish data in their annual report. From 2025, ESG reporting will now apply to large companies that meet at least 2 of the following 3 criteria: net turnover of at least €50 million, average number of employees of at least 250, net assets of at least €25 million.
These companies thus follow banks, insurance companies and large listed companies with more than 500 employees, which became subject to the obligation a year earlier.
Companies should prepare properly for the new obligation. It takes approximately 3-4 months to prepare an ESG report. The price depends on the size, structure and scope of the client's activities. It can range from the lower hundreds of thousands to a million CZK.
The vast majority of companies no longer see ESG as just another obligation, but as the key to success. This is according to a survey conducted by our consultancy BDO in cooperation with the research agency Mercuri Urval, which was participated by approximately 150 companies in thirteen European countries, including the Czech Republic.
Today, as investors and customers place increasing emphasis on sustainability and social responsibility, companies that integrate ESG considerations into their operational and strategic decisions not only contribute to a better society, but also build a stronger, more resilient and innovative business. ESG principles should therefore be seen not as a mandatory task, but as a key element that can open up new opportunities for growth, improved efficiency and strengthened relationships with all stakeholders.
VAT to be extensively adjusted
A major amendment to the Value Added Tax (VAT) Act will come into force in January 2025. The fundamental change will be the need to track not one, but two turnovers. While now a taxable person who exceeds CZK 2,000,000 in domestic turnover in twelve consecutive months becomes a taxpayer, from 1 January 2025 it will also be necessary to track a second turnover. In this case, the limit will be CZK 2,536,500. At the same time, as part of the EU-wide harmonisation, it will now be a full calendar year rather than twelve consecutive months.
When a taxable person becomes a VAT payer will also change. Up to now, the taxpayer became a taxpayer on the first day of the second month following the month in which the taxpayer exceeded the turnover limit of CZK 2 million. However, he will now become a taxpayer, for example, on the day after he exceeds the second turnover from domestic transactions (approximately CZK 2.5 million). For example, this situation allowed a new developer to sell the first property without VAT, exceed the turnover limit, but still manage to sell more properties in the interim period before actually becoming a taxpayer. This will no longer be possible under the new conditions.
Other major changes include the obligation to refund VAT deductions in the event of an unpaid liability six months after the due date. This new provision will apply to liabilities arising from 1 January 2025.
The so-called small business regime will be completely new, resulting from European legislation, so that it will be harmonised across the EU.
For example, a craftsman from Slovakia will be able to voluntarily take advantage of the small business regime and will no longer have to pay VAT in the Czech Republic as before, but will voluntarily register in the register for small businesses in his home country, Slovakia. As long as his annual pan-European turnover does not exceed €100,000, he will not have to pay VAT.
The guaranteed wage will be abolished and a new mechanism of minimum wage indexation will be introduced
One of the most significant changes in the minor amendment to the Labour Code, which will take effect in January 2025, is the abolition of the guaranteed wage. Until now, this has determined minimum earnings in the private sector in eight levels according to the difficulty of the work. From January, however, the minimum wage will be the only legal limit for remuneration. Until now, the minimum wage in the private sector has been determined in eight levels according to the intensity of work. From January, however, the minimum wage will be the only legal limit for remuneration.
In the public sector, the current system of guaranteed wages will be replaced by the so-called guaranteed salary. This new system will have only four levels, taking into account the skill requirements of the positions. The lowest level of the guaranteed salary will be equal to the minimum wage, while the highest will be 1.6 times this amount.
One of the most significant changes to the amendment is the introduction of an automatic mechanism of minimum wage indexation. Its amount will be derived from a forecast of the average gross wage in the national economy, multiplied by a coefficient set by the government for a two-year period.
This mechanism ensures that the minimum wage is more responsive to economic developments. On the other hand, a sudden increase in the average wage may pose a challenge for smaller firms that could face unplanned cost increases.
The probationary period is to be extended and the notice period shortened
The much-discussed so-called flexible amendment to the Labour Code also has a proposed effective date of 1 January 2025, but its adoption is likely to be delayed and will eventually take effect somewhat later. The amendment aims to increase the flexibility of employment relationships. The Labour Code is often rightly considered too rigid, which brings difficulties not only for employers but also for employees.
The amendment is to extend the probationary period for ordinary employees from three to four months and for managers from six to eight months. Other changes concern changes to notice and notice periods. The notice period will start from the date of delivery of the notice, not from the first day of the following month. The notice period will be reduced to one month in the event of breaches of duties, failure to meet the employer's requirements or requirements.
The amendment also allows employees to earn additional income during parental leave by means of a work performance agreement or a work activity agreement with the same employer, including the same type of work they perform under an employment contract. It is also proposed that the return to the same job and workplace should be guaranteed for employees who return to work from parental leave before the child reaches the age of 2.
Work in "light" temporary jobs is to be made available to minors aged 14 and over during the summer holidays. The maximum working time is to be 35 hours per week, with a limit of 7 hours per day.
Many of the planned changes represent a move towards modernisation of employment law and bring welcome simplification of employment relations, as well as solving some of the practical problems we have often faced. However, there is no revolution and employment law remains firmly gripped by regulation.