Company in the Czech Rep.

General information

19%

Tax rate

10 days

Time of establishment of the company

None

Minimum capital

The Czech Republic is a landlocked country in Central Europe. It acquired the status of a sovereign state in 1993 as a result of the break-up of Czechoslovakia. Over the past few years, the Czech Republic has become a stable and very encouraging place for foreign investors to do business. Many of them decided to set up a company in the Czech Republic or to open an individual business.

 

What attracts foreign entrepreneurs to invest in the Czech Republic are low labour costs, a free and stable economy with a rapid growth rate and highly qualified staff. Unemployment has been at the same level for several years now, and the inflation rate is one of the lowest in the EU countries. The main export markets for the Czech economy are Germany, Slovakia and Poland, and for imports – Germany, Poland and Slovakia. The Czech Republic continues to be one of Poland’s most important economic partners, ranked 5th in terms of trade flows. In 2012, the Czech Republic was the third largest recipient of Polish goods, while Poland is their third largest trading partner. The Czech Republic offers a much less bureaucratic business environment and often considerable savings in tax and administrative burdens. Availability or ease of obtaining permits and licenses is extremely important for many types of activities.

 

We will provide comprehensive advice on the optimal business structure. In the Czech Republic, we cooperate with a reputable accounting office, which conducts accounting for our clients in accordance with local requirements. For the convenience of our clients – current service is provided in Polish – our Polish-speaking employees are available in our offices in Warsaw, Łódź and Prague. If necessary, we have a network of partners in the Czech Republic – including notaries, attorneys, banks and real estate agents, thanks to which we are able to efficiently transfer the client’s business activity to the Czech Republic. Choosing our offer you get help of Polish and Czech lawyers (legal advisers and attorneys, accountants and tax advisors). All in one place – quickly and efficiently.

Types of companies

  • S.R.O. (společnost s ručením omezeným- limited liability company)

It is the most popular form of business activity in the Czech Republic among foreign entrepreneurs. The share capital is divided into shares, the owners of which subscribe to the commercial register, from 1.1.2014 is at least CZK 1 per each partner of the company. The name “společnost z ručením omezením” must be included in the company’s business name, abbreviation “spol. s r.o.’. or ‘s.r.o.’.  The trade name of the company must comply with the general conditions set out in the Commercial Code, in particular it cannot be identical with the name of another entrepreneur. In order to change the name or registered office of a company to another city, a notarial deed is required. Before submitting an application for registration in the commercial register, at least 30% of contributions must be made, but not less than CZK 100,000. The application for registration in the commercial register must be signed by all persons representing the company. If the founder of the company is one person, the entry in the commercial register takes place after the contribution of 100% of the share capital. The highest body of the company is the general meeting of shareholders. The General Meeting of Shareholders takes the most important decisions concerning the functioning of the company, including first of all: appoints and dismisses of persons representing the company externally, amends the articles of association, approves the annual financial statements. Moreover, if the articles of association provide for the establishment of a supervisory board, it appoints and dismisses its members. The statutory body of the company is one or more persons representing the company externally (jednatel společnosti). If there is more than one such persons, each of them has the right to represent the company independently, unless the articles of association provide otherwise. The limitation of the right of persons to represent the company outside may result from the articles of association, statutes or resolutions of the general meeting. No notarial deed is required to change the management board and the partner. From 2014, new Czech companies do not have to create a reserve fund to cover potential losses. Companies established before 2014 may liquidate the reserve fund if they decide to amend the articles of association. Limited liability companies, just like in Poland, are subject to 19% CIT. Dividends – paid after the end of the year or in the form of advances – are taxed in the country of tax residence of a specific partner. Members of the management board do not have to be employed by the company or pay social insurance, even if the management board is a single-member company. Czech law does not know the concept of tax on civil law transactions. Thanks to this agreement and the very fact of establishing a company is not burdened with additional taxes. In the case of a Czech one-man company, the decision is made by the owner of the company without the need to convene an absurd meeting of shareholders. Neither is a notary required for most activities.

  • A.S. (joint-stock company – akciová společnost)

A joint-stock company is primarily chosen by large entrepreneurs. Due to its legal form, a joint-stock company is only a capital company. The minimum amount of share capital for a joint-stock company in the Czech Republic is CZK 2,000,000,000.  The share capital is divided into shares.  The company name must include the name “akciová společnost”. (joint-stock company), the abbreviation ” acc. spol. or “a.s.”. The trade name of the company must meet the general conditions specified in the Commercial Code, in particular it cannot be identical with the name of another entrepreneur. 3 members of the management board and 3 members of the supervisory board are required for the company’s governing bodies in the Czech Republic. The statutory body of a joint-stock company is its management board. The management board is elected from among the company’s members who represent the company externally. Members of the management board are entered in the commercial register. Any changes in the management board shall also be entered in the register. Members of the management board are generally elected and dismissed by the general meeting.

  • V.O.S. (general partnership – ‘veřejná obchodní společnost’)

A general partnership is the simplest form of partnership, in which all partners are responsible for the company’s liabilities with all their assets jointly and inseparably. A general partnership may be established by at least two shareholders, which may be natural and legal persons. The name of the general partnership should include the wording ‘veřejná obchodní společnost’. abbreviation: “veř.obch.spol. or “v.o.s.”. If the name of the company contains the name of at least one of the partners, it is sufficient to add the words “a spol. The articles of association should include: – the name and registered office of the company, – a list of partners, including the name and registered office of legal entities or – the names and place of residence of natural persons, – the subject matter of the company’s activity. The application for registration in the commercial register should be signed by all shareholders. Partners of a general partnership are not obliged to contribute share capital at the time of its establishment. Possible contributions of the partners may be provided for in the articles of association. Each partner may represent the company outside independently. Possible limitation in the external representation of the company by its partners, stipulated in the articles of association, has no legal effect in relation to third parties. Without the consent of the other partners, none of the partners may conduct business activity consistent with the subject of the company’s activity, including for the benefit of third parties. A general partnership is a partnership – transparent in terms of tax.

  • K.S. (limited partnership – “komanditní společnost”)

There are two types of partners in the limited partnership: general partners, who are responsible for the company’s obligations with all their assets, and limited partners, who are responsible for the company’s obligations up to the amount of the contribution entered in the commercial register. The name of the limited partnership must include the name ‘komanditní společnost’. (limited partnership), abbreviation “kom. spol. or ‘k.s.’. Czech Republic Commercial Code indicates that in the case of a company name that contains the name of a limited partner, the limited partner is responsible for the company’s obligations as a general partner.  The trade name of the company must meet the general conditions set out in the Commercial Code, in particular it cannot be identical to the name of another entrepreneur. The articles of association must contain: the name and registered office of the company, a list of partners, including the name and registered office of the legal person or the name and place of residence of the natural person, the subject of the company’s activity, – specifying which of the partners are the general partners and which are the limited partners, – the amount of contribution of each limited partner. The application to the commercial register must be signed by all partners. Partners are obliged to contribute share capital in the amount specified in the articles of association, but not less than CZK 5,000. The contribution should be made within the period specified in the articles of association, otherwise without undue delay after the establishment of the company or becoming a partner. Only general partners may represent the company externally. A limited partner is liable for obligations which he has contracted on behalf of the company without a power of attorney to the full extent as a general partner. Unless otherwise stated in the articles of association, the prohibition of competition applies only to general partners.

Company registration procedure

The Czech legal system provides for two basic legal acts, which regulate the conduct of business activity: the Commercial Code (Obchodni zakonik) and the Law of Business Activity (Živnostensky zakon). Both Czech and foreign investors are covered by the same rights and are entitled to start business activity in the Czech Republic under the same conditions and to the same extent. Depending on the type of business and the required qualifications, there are three types of economic activity: craft, bonded and free. In order to take up the craft activity it is necessary to graduate from a special school which issues the relevant qualifications. In the case of tied activities, only appropriate professional qualifications, the form of which is not specified, are required. Free activity does not require any qualifications. 

Company registration:

  • Preparation and signing of the articles of association and the articles of association.
  • Contribution to the initial capital account.
  • Obtaining the licenses and permits required to conduct a given type of activity.
  • Registration of the company in the Commercial Register.
  • Registration of the company in the Tax Office.

Shareholders:

No restrictions on the maximum number of shareholders, however, a minimum of one shareholder is required to establish a company. Foreign shareholders are allowed.

Management:

In addition to the general meeting of shareholders, the management of the company is exercised by a director or a board of directors.

Supervision:

The board of supervisory directors may be appointed but is not required.

Registered office:

The company must have a registration address, telephone and mail redirection. It is also possible to have a stationary office (prices vary depending on demand).

Time to set up a company:

The time to establish a company is about 10 days.

Capital:

No minimum capital required.

Taxes and finances

Tax residence of the company

A company is resident if it is registered or managed and controlled in the Czech Republic. Residents pay tax on income from both domestic and non-domestic activities. Non-residents pay tax only on income earned in the Czech Republic.

CIT rate

19%. Investment funds have a rate of 5% and pension funds 0%. All expenses incurred in order to obtain, ensure and maintain profit may be written off provided that they are documented by the payer and that the law provides for their deductibility. Assets can be depreciated on a straight-line or accelerated basis, however, in order to be subject to this process they must have a durability longer than one year and a value higher than CZK 40000. They are divided into 6 categories specifying how long depreciation will last: 3 years; 5 years; 10 years; 20 years; 30 years; 50 years. Starts can be deducted from income for the next 5 years. Retrospective deduction is not permitted. They may also not be written off if there has been a significant change in shareholders’ or management structures, unless 80% of the profits come from the same activity through which the loss occurred. Capital gains are included in income tax (19%).

Double taxation

Double taxation is excluded on the basis of tax treaties concluded with other countries.

Counteracting tax avoidance

Transfer pricing: The same regulations as for the Polish ones apply. If transaction prices between two related parties differ from market prices and cannot be justified for tax purposes, market prices are used. The Czech transfer pricing rules largely reproduce the OECD guidelines. There are no specific documentation requirements, but the tax office has the right to require this during the audit. The thin capitalisation rules apply to loans and credits from related parties. The debt-equity ratio is 4:1 (6:1 if the debtor is a bank or insurance company). The percentage of the debtor’s profits is not deductible.

Accounting

Tax year is a calendar year. A different model of the year may be adopted if the tax authorities give their consent, but it must always be 12 months. The deadline for filing tax returns is the first day of the 4th month after the tax year. However, it may be extended until the first day of the 7th month if the tax return is submitted by a tax advisor holding a power of attorney and if the Tax Office gives its consent. Companies that are subject to statutory audits have this deadline automatically extended. 2 or 4 advance tax payments are required, depending on the liabilities for the previous tax year. The statute of limitations for tax liabilities occurs after 3 years.  In some cases this period may be extended by one year or it may start running anew. The limitation period for the enforcement of underpaid tax is 6 years.

Withholding taxes

Dividends, Interest, Royalties – the standard rate is 15%; the rate of 35% applies when payments are made to a resident of a tax haven.

VAT

The standard rate is 21% (reduced by 15%; 10% and in some cases 0%). The obligation to register VAT rests with companies whose annual turnover exceeds CZK 1 million. Non-resident companies must register as a VAT payer when selling products or services subject to VAT in the Czech Republic (unless it is paid for by the recipient). Other entrepreneurs can register voluntarily. The return must be submitted within 25 days of the end of the tax period (it is a month or a quarter depending on the trader’s turnover).

Other taxes

  • Real estate tax – the tax rate for land is calculated depending on its location or value. In the case of buildings, it is calculated based on the size of the plot or building. The rates are multiplied by a coefficient ranging from 1 to 5 depending on the location of the property.
  • The transfer tax is 4% and is applied either to the sale price or 75% of the market value, whichever is higher.
  • Customs duty is levied on products originating outside the EU. Excise duty is levied on tobacco, alcohol and fuel.
  • Environmental taxes are levied on the basis of fuel and electricity consumption.
  • Road tax levied on vehicles, its amount depends on engine capacity and the number of axles.

Local labor law

Other information