Agreement on the execution of work (Dohoda o provedení práce)

§74 – 77 Labor Law

• must be in writing
• limited to 300 hours per year per employer
• number of employers under this type of contract unlimited
• Amount of compensation under this type of contract unlimited
• Gross earnings subject to 15% income tax withholding up to but not including 10.000 kč

Taxation Below 10.000 Kc/month

An employee who is not covered by a health insurance program administered through an employer or State must self-insure with the State as a person without earned income (osoba bez zdanitelných příjmů).

• Employees earning more than 5000 kc/month have the option to pay 15% withholding tax or estimated tax. If they elect to sign a tax declaration (that is, an intent to file a tax declaration through their employer or individually), they will be subject to 15% estimated tax reduced by eligible credits and will receive a confirmation of earnings from the employer at year-end.

Taxation At/Above 10.000 Kc/month

• Employer and employee both contribute to health, social and disability insurance on earnings with a single employer greater than 10.000 Kč
• For employees whose remuneration exceeded in a particular month 10 000 CZK, the employer shall submit an application for re-insurance in arrears in the following month.

Agreement on work activity (Dohoda o pracovní činnosti)

§74 – 77 Labor Law

• must be in writing
• must specify the nature, scope and period (defined/open) of work to be performed
• may not exceed ½ of the average weekly working time in the office (usually, 20 hours)

Taxation Below 2.500 Kc/month

• Neither employer, nor employee pays health, social or disability insurance
• Taxation is subject to 15% withholding or estimated tax if tax declaration is signed
• An employee who is not covered by a health insurance program administered through an employer or State must self-insure with the State as a person without earned income (osoba bez zdanitelných příjmů).

Taxation At/Above 2.500 Kc/month

• Employer and employee both contribute to health, social and disability insurance on earnings with a single employer greater than 2.500 Kč, or on lower amounts if the contract called for compensation at 2500 kc or more.
• Employees earning more than 5000 kc/month have the option to pay 15% withholding tax or estimated tax. If they elect to sign a tax declaration (that is, an intent to file a tax declaration through their employer or individually), they will be subject to 15% estimated tax reduced by eligible credits and will receive a confirmation of earnings from the employer at year-end.

Termination

• Mutual agreement (Pursuant to § 76 paragraph 5 of the Labor Code)
• Unilaterally without cause with 15 days’ notice.
• Immediately if permitted in the agreement

Occasional activity to 20,000 (Příležitostní činnost)

§ 10 paragraph 3) and § 10 paragraph 1 a) of the Income Tax Act.

If the sum of gross income (ie, before deduction of related expenses) earned from occasional activities in a calendar year does exceeds 20 000 CZK, tax payers are obligated to report this income in their individual tax return.

Occasional activities

• Occasional, not related to a registered or unregistered trade
• occasional renting of movable property
• agricultural production (ie, sale of surplus produce from a home garden)
• beekeepers income (ie, income from 40 hives or less earning less than 20.000 Kc or less in aggregate gross income)
• Excludes royalties.

Occasional activity above 20,000 is subject to income tax per applicable rules.

Persons identified to VAT

Prior to January 1, 2013, taxpayers were compelled to register for VAT under certain circumstances. Under new regulations, VAT registration is not compulsory and the taxpayer is merely classified as a “Person identified for VAT.” These circumstances include:

• purchase of goods from another EU country at a price exceeding 326,000 CZK excl. foreign VAT (§ 6f Law on Value Added Tax);
• receipt af services from an EU person who is not established in the country, such as Skype (§ 6h Law on Value Added Tax);
• provision of services having a place of performance in another EU country, for example, Google AdSense ads on your site.

Non-VAT payers can become  an “Identified Person” in the following cases:

• Upon acquisition of goods from another EU Member State that are subject to VAT (excluding specific exceptions relating to three-party trade, see § 6 g) of the Law on VAT);
• Upon date of receipt of taxable transactions with Czech place of supply from a person who is not established in the Czech Republic, if it is for delivery services with installation or assembly, or delivery systems or networks;
• Upon date of provision of services where the place of performance is located in another Member State in accordance with § 9, paragraph 1 of the Law on VAT (excepting provision of services in another Member State that are exempted from tax.) Common example is receipt of income from Google AdSense or sale of software from an EU portal.

VAT Returns, EU Aggregate VAT Returns

Identified persons must submit Czech VAT returns and EU Aggregate VAT returns (these returns summarize EU cross-border supply of goods and services by supplier). The Czech return will also include cross-border transactions for domestic transactions, but the tax payer will remain a non-payer of VAT. (No right of offset from domestic VAT paid)

Registration obligation

Non-payers of VAT that trigger any of the above conditions shall automatically beocme an ”Identified person” and must file an application for registration within 15 days.

Deregistration Option

taxpayers that become VAT payers during 2012 under the prior rules that from 1.1.2013 would cause them to become Identified Persons may apply to deregister as a VAT payer. The request should deregister should indicate the reason is to becoem an Identified person. The deadline for this option is March 31, 2013. Identified persons missing this deadline will be subject to the general conditions available to Identified Persons: they may cancel their registration only if they did not participate in intra-community transactions for a period exceeding six months.

It is a Passive Foreign Investment Company (PFIC)

The IRS knows what it is and will find U.S. Persons who have those policies because:

The Isle of Man, Dublin, Guernsey and all of the United Kingdom have signed an agreement to notify the IRS of all their U.S. clients and quite frankly the IRS knows what a U.K. Style 101% policy is; a British IFA Offshore Investment Products.

If you have not reported it previously and annually as a PFIC then you need to understand your Passive Foreign Investment Company Problem.

The Four Costs of a PFIC (Passive Foreign Investment Company)
1. IF the client has not annually reported his PFIC to the U.S. Treasury the penalty is $50,000 USD Annually.
2. IF the client has not annually reported his PFIC to the IRS from 2011 the penalty is $10,000 USD Annually.
3. If the client has reported it then he has taxes due annually of 36.9% of the growth and if he has not paid that tax.
4. The taxpayer will have penalties and interest charges until he has paid it.

These 101% Life Policies are not a U.S. Insurance Contracts

If you are an American, you are taxed on your worldwide income and assets. No surprise! The surprise comes when you find out that the IRC Sec 7702 has a very precise definition of a life insurance contract for tax purposes. When a life insurance contract violates this provision, IRC Sec 7702(g) dictates how the policyholder will be taxed. Guess what? These policies violate the U.S. definition of life insurance. They also violate IRC Sec 72 as they can not be considered an Annuity because an Annuity can not have a life insurance element. All of these plans have 1% life cover which violates IRC Sec. 72.

In a nutshell, a violation results in the policyholder being taxed on the investment income within the policy annually. The policyholder also needs to file the reporting forms for a PFIC to the IRS.

An important component of these policies that violates IRS code is the requirement that the investment funds must be exclusively available to the policyholders of the insurance company and not include non-insurance investors. In my experience, every non-U.S. variable life or annuity policy or unit linked policy would fail
to meet the requirements of IRC Sec 817(heart) as well as IRC Sec 7702 or IRC Sec 72. The majority of tax treaties dealing with annuity provisions provides for no
taxed on annuity income in the Host Country and only in the Home Country.

Unfortunately, the U.S. tax rules would cause the American owning the foreign life insurance or deferred annuity contract to be taxed currently.

Unfortunately, the U.S. tax rules would cause the American owning the foreign life insurance or deferred annuity contract to be taxed currently.

This all means that when a U.S. Tax payer would understand the PFIC Rules they would not have purchased this vehicle and to cancel this policy carries additional penalties! So what to do?

Please contact us if this applies to you and pass this information on to other Americans you know …

You can view the IRS form W-9 and isntructions here.

When to File?
You generally file a W-9 with your client just once or whenever the business you use to bill the client or your business address changes.

Housekeeping
Since penalties for non- or late filing of information returns rest with the client, it is perhaps more practical for you to manage your suppliers than your clients. If you do not request this form from every sole proprietor or eligible company you do business with, then at the very least do not remit more than $600 in funds to any non-corporate service provider until they provide this form to you.

International business people
This requirement pertains to you, too. If you are an American independent contractor or self-employed person abroad and you pay other American independent contractors for services, make sure that you get a W9 from them. Many Expats think they are outside the “IRS Net” or are not aware of their obligations … protect yourself.

You can view the IRS 1099-MISC here.
You can review the instructions for the 1099-MISC here.
You can review the instructions for  information returns (generally) here.

When is Form 1099-MISC Required?
Businesses must file a Form 1099-MISC for persons, vendors, subcontractors, independent contractors, and others to whom they remitted $600 or more during the tax year for
•cash payments to fishermen
•crop insurance proceeds,
•medical and health care payments,
•prizes and awards,
•proceeds paid to attorneys,
•rents (paid by rental agents)
•services (including parts and materials), and
•royalties of $10 or more

This filing is obligatory with respect to non-corporate recipients (ie, physical persons, partnerships, LLC treated as partnerships or disregarded entities). It is obligatory for corporations only in the case of payments made to lawyers for legal fees and medical and health care payments.

Housekeeping
There really is no alternative to requesting your suppliers to submit to you a completed Form W-9. (IRS instructions, here) Form W-9 contains the legal name, address and taxpayer identification number for the vendor. You should request this well in advance of the reporting deadline (January 31 following tax year).

You should also track all payments made to your vendors in your accounting system, be it actual software or Excel. As covered above, some services are triggered at payments above $10, others at $600. You will need the exact amount to fill in on the 1099-MISC for the year. You or your accountant should be able to provide the information to complete the 1099s no later than January 15.

2012 Late Filing Penalties
The following penalties apply:
•$30 penalty for filing a 1099 not more than 30 days late;
•$60 penalty for filing a 1099 more than 30 days late and before August 1;
•$100 penalty for filing a 1099 on or after August 1;
•$250 penalty for intentional failure to file.

Important Deadlines
If you need more time, you can request the IRS to provide a 30-day extension to file using Form 8809. There is no extension to provide the 1099 to the recipient. The standard deadlines are:
•Remit copy of 1099-MISC to recipient by January 31 for prior year
•Mail forms 1096/Form 1099-MISC to the IRS by February 28.
•Or electronically file 1099s with the IRS by March 31.

Other Forms 1099:
Form 1099-B reports the sale of stocks, bonds, mutual funds and other securities.
Form 1099-C reports debts that were canceled
Form 1099-DIV reports dividends, qualified dividends, and capital gains distributions.
Form 1099-G reports payments from state governments such as unemployment compensation and state tax refunds.
Form 1099-INT reports interest earned.
Form 1099-MISC reports various types of income including rents, royalties, and non-employee compensation.
Form 1099-MSA reports distributions for a medical savings account.
Form 1099-OID reports original issue discount income.
Form 1099-PATR reports patronage dividends paid by a cooperative.
Form 1099-R reports distributions from a retirement plan such as an IRA, 401(k) or pension.
Form 1099-S reports proceeds from the sale of real estate.
Form SSA-1099 reports Social Security benefits paid.
Form RRB-1099 reports railroad retirement benefits.

If you have any questions, please use the contact form to ask us for more information, contact us on skype or call us.

The reason for this is probably because most entrepreneurs prepare to implement new information systems the way most people prepare for extraction of a tooth: positive anticipation that the pain we are experiencing will soon end, but subconscious procrastination, it is known that the process to extract the problems itself heralds an intensified level of administrative investment. And entrepreneurs hate administration – they prefer to get out and build and sell. Perhaps one would feel better if he realized that when it comes to information systems, there is a valuable choice: you can choose an administratively backward-looking and hierarchical accounting system, or we can choose a forward-looking, Enterprise Resource Planning (ERP) System that concentrates actionable data in the hands of all our employees. Forget accounting systems like Pohoda, Helios, and others … we definitely mean to exploit ERP technology.

Some of the international companies in the Czech Republic have already made step forward and utilized a version of the online hosted multilingual, multi-operational system ERP system known as FlexiBee customized by the entrepreneurial accounting firm cfo2go. Their [The ] philosophy simply stated is to create an ergonomically-comfortable platform for the online generation and dissemination of all workproduct, using procedures to generate current accounting  results on a 24 hour cycle. Imagine that: you can have access to all the data in your company knowing that it is current to plus/minus 24 hours! This is a level of performance that previously could only be obtainable by large, well-financed corporations and entailed long installation timelines. Not true anymore.

The reason the system can be so current is directly due to a structure for capture of information. Cfo2go sets up the system so that salespeople enter their orders and invoices directly into the system; Warehouse records withdrawals, issues processing reclamations. Logistics processing deliver notes in and out, logging requisitions directly in the system for later batch orders  Marketing usually works in a specialized CRM module, but the data is transferred into the SW automatically. The system issues all standard documentation, all accounting transactions are recorded immediately in the system. Bank statements and bank wire transfers are uploaded or processed semi-automatically. CRM and eShop and registered cash desks – automatically or semi-automatically linked. Data can be extracted using the API interface to display up-to-the-second information on any process or department for CEO, Sales, Finance … and cfo2go continuously checks, corrects the transactions, introduces new shortcuts or coding to make the system self-regulating and more productive every month.

The customized software and operational/business-focused approach to getting the accounts done is a budget winner for especially small entrepreneurial firms of 5-25 employees and turnover to 20m or local subsidiaries of US or UK-traded multinationals. Interaction between cfo2go and personnel responsible for overall management at the client is frequent and informal, either the local director, asejior admin or often, the their corporate finance department in London or New York. For the latter, who are usually traded on the stock exchanges, the standard is almost always a 24-hour current entry cycle and a 5 day monthly close.  Their employees access the system though Windows, Apple or Linux operating systems on pcs, or through their iPhone and Android smartphones.

Implementation? Can be accomplished in a relatively short time of less than two weeks in most cases. The cost is not as high as you think.
There are only about 2-1/2 months left to take a step you have been thinking about for some time. To take the one step you know has the potential to save your people time, generate the information you need and help your business achieve greater profits and greater communication. Click here to learn more about cfo2go’s business-focused accounting services.