Strengthening Skill use and School-to-work Transitions in the Czech Republic

Fostering Productivity for Income Convergence in the Czech Republic

“…In part, this may be induced by the tax structure, which gives preferential treatment to the self-employed in comparison with employees. The total tax burden for an average employee (including social security contributions) reached 37% in 2013, compared to 28% for an average self-employee, yet self-employees' average gross earnings were 34% higher than those of employees (Araújo and Maleček, 2015). For instance, based on an annual cash-flow threshold of CZK 2 million, self-employees benefit from income tax deductions of up to 80% of their cash-flows or revenues for self-employed workers in agriculture, craftsmen, etc., 60% for other selfemployed workers, 40% for artists, writers and other intellectual activities and 30% for revenues from house rental and associated categories, which comes on top of preferential treatment with respect to social security contributions.…”

“…Selfemployed workers are 17% of total employment (Figure 22). That number is particularly high for a country which does not have an important agricultural sector (Araújo and Maleček, 2015). In part, this may be induced by the tax structure, which gives preferential treatment to the self-employed in comparison with employees.…”

“…Indeed, this tax structure is suspected to have led to the development of strategic sub-contracting by firms which reduces the tax base for both firms and the self-employed. Indeed, the low tax burden for the self-employed has led to a phenomenon of false self-employment (commonly referred to as "švarcsystém" in Czech), with employees not benefitting from a standard contract with their employer, working instead as a self-employed worker (OECD, 2010b;Araújo and Maleček, 2015). Given the negative effect of self-employment on tax revenues and the PAYG pension pillar, an amendment of the Act on Income Taxes imposed ceilings for flat-rate tax deductions for self-employees, effective from 2015, which should somewhat reduce the attractiveness of false self-employment.…”