Lawyers and law firms are a regulated profession that can operate either as a sole practitioner or through a law-firm company (s.r.o.). From an accounting angle three things stand out in both Slovakia and the Czech Republic: the choice of legal form, the strict separation of client escrow money from the lawyer’s own funds, and the fact that legal services almost always attract VAT. The thresholds and rates, however, differ between the two countries.
Sole practitioner or law-firm company?
In both countries the practice of law is tied to registration with the national bar association and can be run as a self-employed lawyer or through a law-firm s.r.o. The trade-off is the same on both sides of the border: a self-employed lawyer keeps simpler records and may use flat-rate expenses, whereas a company must keep full accounting but separates personal assets and allows profit distributions to be managed.
The practical trigger for incorporating is a stable, higher profit where you want to keep part of the money inside the firm. For a side-by-side view of the company form you can read our comparison of a single-member s.r.o. in Slovakia and Czechia.
Records or full accounting?
This is where the systems diverge most. In Slovakia, a self-employed lawyer who is not VAT-registered may claim flat-rate expenses of 60 % of income, capped at EUR 20,000 a year, plus paid contributions. In the Czech Republic, because advocacy is a profession under a special law, the flat rate is only 40 %, capped at CZK 800,000, usable up to CZK 2 million of income. In both countries a law-firm s.r.o. must keep full double-entry accounting regardless of size.
Once a firm is VAT-registered – which happens to most established practices – the flat rate usually falls away and the lawyer switches to real tax records.
How is client escrow money treated?
Escrow is the most sensitive accounting topic in any law firm, and the principle is identical in both countries. Money a lawyer receives on behalf of a client – typically a property purchase price before transfer – is not the lawyer’s income. It is third-party money that must be kept on a separate account and strictly separated from the firm’s own funds under the bar rules.
In practice this means escrow deposits never enter taxable income or the VAT turnover; they are booked as a liability to the client, not as revenue. Mixing escrow with operating money is not only an accounting error but a breach of professional rules on both sides of the border.
When does a lawyer become VAT-registered?
Legal services are not VAT-exempt, so registration is hard to avoid. The thresholds differ: in Slovakia the limit is EUR 50,000 of turnover in a calendar year (immediate registration above EUR 62,500), while in the Czech Republic it is CZK 2 million of turnover in a calendar year. The standard rate on legal fees is 23 % in Slovakia and 21 % in the Czech Republic.
Cross-border work needs care. Advising a business abroad (B2B) generally shifts the place of supply to the customer, so the invoice carries no domestic VAT – we cover the mechanics in our guide on how to invoice abroad from a VAT perspective. Buying services from the EU triggers a registration duty even for a non-payer (Slovak §7a registration, Czech identified-person status under §6g).
How much tax and contributions will a lawyer pay?
For a self-employed lawyer, contributions are often a bigger item than the tax. The headline income-tax rate is 15 % in both countries, with the Czech system adding a 23 % rate on the part of profit above 36 times the average wage. If the practice runs through a company, profit is first taxed at the corporate rate (10 % up to EUR 100,000 of taxable income in Slovakia, 21 % in the Czech Republic) and the shareholder then pays dividend tax on the pay-out (7 % in Slovakia, 15 % in the Czech Republic).
This two-step taxation of a company, versus the single layer on a sole practitioner, is the key calculation before deciding how to structure the firm.
Which costs and mistakes are typical for law firms?
Where real expenses are tracked, the costs commonly accepted in both countries include:
- bar-association fees and compulsory professional liability insurance,
- legal information systems, case-management software and office licences,
- office rent and running costs, professional literature and training,
- salaries of trainee lawyers and administrative staff.
The single most common mistake is mixing escrow with operating money, which distorts both income and VAT turnover. The others are late VAT registration on a fast-growing turnover and misallocating costs that are also used privately, where only the business share is deductible.
Setting up a law-firm s.r.o., escrow agreements or the articles of association also has a purely legal dimension. The law firm STEINIGER | law firm can help review them.
Not sure whether to run your practice as a self-employed lawyer or through an s.r.o., and how to set up escrow accounting and VAT?
FAQ
Is client escrow money the lawyer’s income?
No. Money a client places in escrow is third-party money that must be kept on a separate account and strictly separated from the lawyer’s own funds. It never enters taxable income or VAT turnover and is booked as a liability to the client. The lawyer must account for it and transfer it to the entitled person. Mixing escrow with operating money breaches professional rules in both Slovakia and the Czech Republic.
What flat-rate expenses can a lawyer claim?
It depends on the country. In Slovakia a non-VAT-registered lawyer may claim 60 % of income, capped at EUR 20,000 a year, plus paid contributions. In the Czech Republic advocacy is a profession under a special law, so the flat rate is 40 %, capped at CZK 800,000, usable up to CZK 2 million of income. Most established firms become VAT payers and then switch to real tax records.
What VAT rate applies to legal services?
Legal services are not VAT-exempt. The standard rate is 23 % in Slovakia and 21 % in the Czech Republic. Mandatory registration starts at EUR 50,000 of turnover per calendar year in Slovakia and CZK 2 million in a calendar year in the Czech Republic. Advising a business abroad generally shifts the place of supply to the customer, so no domestic VAT is charged.