What Kind of Compensation Can You Pay Yourself as a Company Owner?An Interview with Payroll Expert Filip Krejčí

How can an executive director or owner of a Czech limited liability company (s. r. o.) legally pay themselves a salary or other form of compensation? What tax, insurance, and legal considerations must be taken into account? In this interview, payroll accounting expert Filip Krejčí from Connect Economic Group (CEG) discusses the various forms of remuneration, the tax implications of each, and key risks to avoid in order to stay compliant with Czech financial regulations.

Filip Krejčí, Chief Accountant, CEG

What are the main legal ways an executive or owner of a limited liability company (s. r. o.) can pay themselves?

The main methods of remuneration include:

• A salary based on an employment contract

• Compensation under a work performance agreement (DPP) or work activity agreement (DPČ)

• A remuneration agreement for executive duties (contract for the performance of the office of executive)

• Profit distributions (dividends)

• Invoicing through a separate freelance (OSVČ) business

What are the tax and insurance implications of these different compensation forms?

Employment income is generally subject to health and social insurance contributions.

For a DPP (agreement for work performance), no insurance contributions are required if the gross monthly income is under CZK 11,499.

For a DPČ (agreement for work activity), the threshold is significantly lower, at CZK 4,499 per month.Once these thresholds are exceeded, both health and social insurance must be paid.

Under a contract for the performance of the office of executive, health insurance contributions apply regardless of the amount, and social insurance becomes mandatory if the monthly remuneration exceeds CZK 4,500, the same as with a DPČ.

Profit distributions (dividends) are paid from after-tax profits and are subject to a 15% withholding tax.

Invoicing through a sole proprietorship (OSVČ) has the advantage of not being subject to social or health insurance contributions, but it's critical to carefully distinguish the nature of the invoiced activity.

The invoiced service must be clearly separate from the executive's standard responsibilities in the company. It should be a service the company would otherwise procure externally—such as cleaning, landscaping, etc. The price must reflect market value. This is a common area of non-compliance among business owners.

Are there legal ways to optimize compensation and reduce the tax burden?

Yes. Employment contracts or executive agreements can include tax-efficient employee benefits, such as:

• Pension contributions

• Life insurance

• Meal allowance (cash equivalent of meal vouchers)

• Private use of a company car

  
  

Even an executive working without formal compensation can be granted such benefits.

How does compensation affect future pension entitlements and social security?

It’s important to note that dividends, which are only subject to withholding tax, do not count toward pension contributions or qualifying periods for retirement insurance.

Also, if the executive is not insured by the state for health insurance purposes, they are typically required to pay health insurance based on the minimum assessment base.

These are all factors to consider when setting up compensation as the executive of your own s. r. o.

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About the Author:

Ing. Šárka Pelikánová

Managing Director and Tax Specialist at Connect Economic Group s.r.o.

Šárka is dedicated to improving the financial literacy of entrepreneurs in the Czech Republic through the publication of expert articles and by leading popular seminars such as Accounting and Tax Basics for Entrepreneurs. She founded CEG at the age of 22 and has since focused on its development. Her professional background includes work in Japan as an analyst for an investment fund, alongside completing part of her MBA studies there.

For companies and many entrepreneurs, accounting is a legal obligation. For our team of professionals, it's also a passion. We’re ready to help you—whether you’re a sole trader (OSVČ) or run a company with employees. Learn more about the accounting and tax services we offer our clients.