Be your own boss, save on taxes

After being banned for much of the 20th century, self-employment became legal in 1990 and has since skyrocketed, reaching an all-time high in the first quarter of 2009 and establishing entrepreneurial individuals as a significant part of the Czech work force. But the days of the country being a safe haven for the self-employed could be coming to an end, labor analysts say.

The number of self-employed in the Czech Republic rose by 2,000 in the first quarter of 2009 to 940,000, or about one-fifth of the work force, according to the latest statistics from the Czech Social Security Administration. The rise in self-employment as a viable way to earn a living has been so astronomical that it is hard to calculate the number of self-employed workers with any degree of certainty, said Jan Vlach, researcher at the Research Institute for Labor and Social Affairs, who noted that the growth is due primarily to tax breaks for those who start their own business or work for themselves.

"The current tax system for the self-employed is very lax. We used to have the lowest taxes, but now we are second to Greece," he said. "No one really knows how many people here are self-employed, but we know about 10 percent are foreigners - mostly people from Ukraine [who build] houses, for example."

Jana Francová, a spokeswoman for the Czech Chamber of Commerce, pointed out several recent political developments which have helped spur the significant increases, including the Trade Licensing Act, effective as of April 1, 2008, which "substantially simplified the conditions for starting a business," she said.

"To establish a business, you now only have to make an announcement to the authorities with one single form, which enables you to start the business immediately, provided you comply with given conditions," she said. "Other legislation that has undergone simplification regulates the tax-collecting system while reducing the rates for taxes and for social security insurance."

Pros and cons

Fifty-year-old Pavel Kubín has been self-employed as a delivery man for more than 15 years, having worked previously as an airline dispatcher at Ruzyně Airport. Kubín said there are huge advantages to being self-employed but that the disadvantages are sometimes more significant, especially since "it's easier to lose a job this way," he said.

"The greatest benefit of being self-employed is definitely the independence," he said. "But, then again, you can't take days off, because, every time you do, you're robbing yourself of money. It's sick leave you have to pay yourself, as well as health and social insurance that otherwise the company [would pay] for you."

According to Vlach's research, the self-employed have been as affected by the recent financial volatility as the rest of the work force. Kubín echoed the findings and said the recession has significantly affected his clients, forcing 50 percent of them to cut orders that have added up to losses that are "impossible to compensate."

"If you have contracts with firms that go bankrupt, you go down with them," he said. "You need thick skin to try over and over again."

'Too many self-employed'

Kubin is at a particular disadvantage because of his age. He hasn't ruled out the possibility of going back to work for a company, but says that, at 50 years old, his chances of getting hired are "very thin."

"My age counts for 90 percent of why I am self-employed," he said.

According to Francová, the Czech Civil Code recognizes only one type of legal self-employment: a person who is licensed to act independently in business. But there are other dimensions present in the law, she said.

"It is also possible to [do] business by means of a 'partnership of physical persons,' where two or more self-employed people can do business together or co-operate on a common project, which they could not manage separately. After finishing the project, they can terminate the partnership," she said. "In principle, it is not another form of enterprise, but just a possibility for self-employed individuals to form a partnership."

Vlach is convinced that such increases in the number of self-employed individuals cannot continue. Once the government realizes it is losing money from taxes and insurance payments from the thousands of self-employed people residing in the country, it will move to curtail the increased interest in self-employment, he said.

"Sooner or later, the government will need to make stricter rules for self-employment," he said. "There are just too many self-employed people."

Stephan Delbos can be reached at
sdelbos@praguepost.com