A trade licence in Czechia for a Slovak — tax residency and where you pay tax

It is precisely the term tax residency that causes confusion. Many assume that once they have a Czech business ID and invoice from Czechia, they automatically pay tax only there. The reality is subtler — tax residency attaches to the person, not to the trade licence, and it decides which state has the right to tax your worldwide income. Let us set it out practically, without unnecessary legal depth.

If you are only weighing whether to start, we described the licence itself in the guide on how to get a trade licence in Czechia. This piece follows on from a step many underestimate — to whom and where you will actually pay tax on the business.

Residency matters more than where the licence sits

Under the Czech Income Tax Act (Act No. 586/1992 Coll., §2), a Czech tax resident is a natural person who has a residence here — a permanent home they intend to occupy on a lasting basis — or who habitually stays here. Whoever is a Czech tax resident taxes their worldwide income in Czechia. A non-resident, by contrast, pays tax here only on income from sources on Czech territory. Slovak law follows the same principle, which is exactly why both states can "reach" for the same person at once.

Example: a Slovak who continues to live with his family in Žilina and only travels to Prague occasionally for contracts will generally be a Slovak tax resident — even with a Czech trade licence. Conversely, someone who actually moves to Prague, rents a flat there and spends most of the year there becomes a Czech resident. The trade licence itself does not decide this — it is proof of the right to do business, not of where your taxes belong.

When you become a Czech tax resident

The law recognises two routes to residency. The first is a residence — a permanent home available to you, where the circumstances make clear you intend to stay on a lasting basis. The second is physical presence: whoever stays in Czechia for at least 183 days in a calendar year (continuously or across several periods) becomes a resident under the so-called 183-day rule. Every started day of presence counts towards this total, including the day of arrival and departure, weekends and public holidays.

The 183-day threshold is therefore a practical guide, but not the only criterion. You may fall short of it, yet if you have a permanent home and the centre of your life in Czechia, you become a resident anyway. If you are unsure where you belong, it pays to sort it out before you file your first return — an error in determining residency is hard to undo and is resolved retroactively for the whole year.

What if you are a resident of both countries

It happens that under each country's domestic law you are a resident of both Czechia and Slovakia at once. For this case there is the double taxation treaty between Czechia and Slovakia (No. 100/2003 Coll. of International Treaties), which takes precedence over domestic law and settles a single tax domicile. It is decided step by step down a ladder of criteria:

• where you have a permanent home;
• if in both, where your centre of vital interests lies — closer personal and economic ties, meaning family and the main source of income;
• then where you habitually stay;
• and finally by citizenship.

For an ordinary sole trader this means one thing: even with a Czech business ID, your tax home is decided by where you actually live and where your family and income centre lie. The treaty ensures that as a "resident of both" you are not taxed by two states on the same income — one of them treats you as a resident for tax purposes and the other as a non-resident. When it is even worth moving the centre of your business across the border is something we examined in the piece on whether it is worth for a Slovak to move their business to Czechia.

How to avoid double taxation

Even when it is clear where you are a resident, part of your income may be taxable in the other state — for example profit from a trade carried on through a permanent establishment in Czechia. The treaty is designed for exactly this: it splits the right to tax between the two states and sets the method for avoiding double taxation (usually crediting the tax paid in the other state, or exempting the income). In practice you do not pay full tax twice on the same profit — but you may end up filing a return in both countries.

Czech personal income tax is calculated at 15%, or 23% on the part of the base above the statutory threshold; as a sole trader you can also apply flat-rate expenses or enter the flat-tax regime. What suits whom we compared in the article on sole trader taxes in Czechia — flat tax versus actual expenses. The key is to know what belongs where and to keep your documents in order — a certificate of tax residency, an overview of income and proof of tax paid make dealing with both tax authorities easier.

Conclusion

Where you will pay tax on a Czech trade licence is decided not by the business ID but by your tax residency — and that is settled by your residence, your centre of vital interests and the 183-day rule, not by where the licence sits. A Slovak who genuinely lives and works in Czechia will generally become a Czech resident and tax their worldwide income here; someone who stays in Slovakia and only commutes to Prague tends to remain a Slovak resident. Disputed cases are resolved by the double taxation treaty. The practical foundation is order in your documents and a reliable Prague address — comfortably in a carefully managed house for just thirty companies.

Frequently asked questions

Where do I pay tax if I have a Czech trade licence but live in Slovakia?

It is decided by tax residency, not by where your business ID is. If you continue to live with your family in Slovakia and only commute to Czechia for contracts, you will generally be a Slovak tax resident and tax your worldwide income in Slovakia. In Czechia, as a non-resident, you would only tax income from sources on Czech territory, such as profit from a permanent establishment. Disputed situations are resolved by the double taxation treaty between the two states.

What does the 183-day rule mean?

It is one of the criteria for tax residency under the Czech Income Tax Act. Whoever stays in Czechia for at least 183 days during a calendar year, continuously or across several periods, habitually stays here and becomes a Czech tax resident. Every started day counts, including arrival, departure, weekends and public holidays. It is not the only criterion, however — you can also become a resident when you have a permanent home and the centre of your life in Czechia, even without reaching 183 days.

Am I at risk of paying tax twice?

In practice, not full tax twice on the same income. That is exactly what the double taxation treaty between Czechia and Slovakia (No. 100/2003 Coll. of International Treaties) is for. It settles which state is your tax domicile, splits the right to tax individual types of income and sets the method for removing double taxation — usually crediting the tax paid in the other state or exempting the income. You may, however, file a return in both countries, so it pays to keep your documents in order.