Freelancer Tax Guide: Italy vs. Czech Republic, tax regime comparison
Both Italy and the Czech Republic allow self-employed individuals to choose between the standard tax regime and a simplified one (also called the flat-tax regime). This simplified regime offers reduced administrative requirements and lower tax and social security contributions.
In Italy, self-employed workers earning less than €85.000 per year can opt for the “regime forfettario”. In the Czech Republic, the income threshold for the “paušální daň” is CZK 2 million per year.
Italy – Regime Forfettario: Practical Example
The flat-rate regime is a simplified tax scheme. It applies a fixed tax rate (5% or 15%) and simplified social security payments. Freelancers operating the initial 5 years who fall into the bracket of standard profitability coefficient are taxed initially 5%, but after this point are obligated to pay 15% of their taxable income.
For freelancers with an approximate amount of €30,000 revenue a standard profitability coefficient is applied, specifically 78% for professionals. It’s implied that 78% of revenue becomes taxable income, while 22% remain untouched, since it is considered as a cost of operating a business.
- INPS contributions are 26.07% of the taxable income.
- No VAT, no sector studies, and less bureaucracy.
Example with €30,000 in revenue:
| Rate | Tax | Contributions | Total | Net Income |
|---|---|---|---|---|
| 5% | €1,170 | €6,103 | €7,273 | €22,727 |
| 15% | €3,510 | €6,103 | €9,613 | €20,387 |
Czech Republic – Paušální Daň: Practical example
The Czech flat-rate regime (paušální daň) is a super simplified scheme where you pay one fixed monthly fee that covers taxes, health insurance, and social contributions. Entrepreneurs earning an amount of €30,000 (~740 000 Kč) a year fall into a category of the lowest tax rate.
Example with €30,000 in revenue:
| Taxable Income | Income Tax | Contributions | Net Income |
|---|---|---|---|
| €30 000 / ~740 000 Kč | €48,72 /~1200,71 Kč (monthly pay of 100 Kč) | €4193,64 / ~103 352,47 Kč (monthly pay of 8616 Kč) | €25 757,64 / ~634 798,33 Kč |
As these practical examples illustrate, self-employed individuals in the Czech Republic can retain a higher net income after taxes compared to those in Italy. Now, let’s look at how the ordinary tax system works in each country.
Italy – Ordinary Regime
This is the standard regime for those with higher revenues or deductible expenses. It includes progressive IRPEF, VAT, regional and municipal taxes, and full INPS contributions.
Example:
| Item | Amount |
|---|---|
| Gross income | €30,000 |
| Deductible costs | €5,000 |
| INPS contributions | €6,517 |
| IRPEF + local taxes | €4,651 |
| Total | €11,168 |
| Net Income | €18,832 |
Deductible costs are estimated and vary from individual to individual. These costs are actual business expenses that reduce your taxable income. They have to be proven with real, documented invoices, receipts that are recorded in proper accounting books.
Contributions instead refer to the sums paid by fulfilling IRPEF and INPS obligations.
IRPEF (Personal Income Tax) is a progressive tax that finances general public services. The amount to be paid varies, on a progressive scale, from 23% to 43%, depending on income.
INPS (Istituto Nazionale della Previdenza Sociale) is the Italian social security and welfare system. INPS contributions are not taxes, but compulsory payments intended to finance mainly pensions and healthcare.
Czech Republic – Ordinary Regime
The Czech ordinary tax regime offers two alternatives: forfait reduction, where a fixed percentage is deducted from your gross income as presumed expenses, and cost reduction, which allows you to deduct actual, documented business expenses.
Elaboration does not cover the cost reduction method, as for most freelancers it is generally more advantageous to use the forfait option. Freelancers’ real expenses rarely exceed the fixed percentage, making the forfait more beneficial. Forfait reduction (Výdajový paušál) implies that a fixed percentage (usually 60%) is deducted from gross income as a substitute for real expenses. The difference is that, in comparison to Italy, in Czech Republic there is no proof or any detailed expense records needed. If a freelancer earns CZK 1,000,000 and qualifies for a 60% forfait, then only CZK 400,000 is taxed. No need to track real expenses.
Simulation for €30,000 revenue:
| Item | Amount |
|---|---|
| Gross income | €30,000 |
| Forfaited deduction | €18,000 |
| Taxable income | €12,000 |
| Income tax | €570 |
| Total contributions | €3,300 |
| Total taxes | €3,870 |
| Net Income | €26,130 |
Side-by-side comparison of ordinary and flat-rate regimes reveals how big of a difference countries’ regimes affect the gross income of potential freelancers. The percentages from a total revenue that go to taxes in Italy and in Czech Republic vary largely, with a bigger proportion in Italian system.
Side-by-Side Comparison – Ordinary Regimes
| Country | Taxes + Contributions | Net Income | % of Gross Income |
|---|---|---|---|
| Italy | €11,168 | €18,832 | 37.3% |
| Czech Republic | €3,870 | €26.130 | 12.9% |
Side-by-Side Comparison – Flat-Rate Regimes
| Country | Taxes + Contributions | Net Income | % of Gross Income | Notes |
|---|---|---|---|---|
| Italy (5%) | €7,273 | €22,727 | 24.2% | Reduced flat rate |
| Italy (15%) | €9,613 | €20,387 | 32.1% | Standard flat rate |
| Czech Republic | €4,242 | €25 758 | 13.9% | Flat-rate regime |
For self-employed individuals, moving your business to the Czech Republic could seriously pay off , lower taxes, easier paperwork, and a bigger share of income in the pocket. As it’s shown, with the same €30,000 revenue, the net income could be €6,000 higher just by changing countries.
Contact our tax consultants for better insight view for your personal business goals and ideas!
