Establish your business
There are multiple ways to establish a business in the Czech Republic. Here is what you should know before you decide which way you want to go.
Suitable investment vehicle
When starting a business in the Czech Republic, one must decide in what form the business should be established. There are essentially two basic ways of starting a business – setting up a branch office of a foreign entity or establishing a company under the laws of the Czech Republic. It is important to mention that foreign entities have the same rights to conduct business in the Czech Republic as domestic ones. The key differences between branches and newly established entities are shown in the table below:
| Branch office of a foreign entity | Czech legal entity (company) | |
| Legal capacity | No legal capacity by itself | Full legal capacity |
| Contracts |
Enters into contracts on behalf |
Is a party to contracts itself |
| Governing law |
Governed by the law of the country |
Governed by Czech law |
| Founders/shareholders |
Can be established by a single entity |
Can be established by an unlimited |
|
Contribution during establishment |
No contribution required |
Obligatory contribution |
| Ownership |
Ownership of property held by |
Ownership of property directly |
Legal entities
Most investors choose to establish a Czech legal entity. The two most popular forms are limited liability company (LLC) and joint-stock company (JSC). The main differences between the two are:
- The obligatory minimum amount of registered capital, which is CZK 1 per shareholder in an LLC and CZK 2,000,000/EUR 80,000 in total for a JSC.
- Corporate governance is more complex in the case of a JSC (mainly in a JSC with a dualistic structure, as shown below).
- Transfer of shares in a JSC can be simpler than transfer of ownership interests in an LLC, where the transfer is usually subject to the approval of the general meeting.
- The shareholders of an LLC are liable for the company’s debts up to the amount of their unpaid contributions, whereas the shareholders of a JSC are not liable at all.
The LLC form also differs from JSC by the structure of its bodies. Also, when setting up a JSC, one has to decide whether they want the JSC to have a dualistic or monistic structure of bodies. The different corporate structures are shown in the table below:
| Company bodies | LLC | Dualistic JSC structure | Monistic JSC structure JSC |
| Supreme body | General meeting | General meeting | General meeting |
| Statutory body | Executive(s) | Board of directors | Administrative board |
| Supervisory body | Optional | Supervisory board | Administrative board |
Overall, the JSC fom is usually recommended for bigger businesses with multiple investors, where small numbers of shares are transferred more frequently. LLC is the most frequent starting point of most entrepreneurs, as it is cheaper and easier to establish.
LLCs and JSCs are not the only types of companies that can be established in the Czech Republic. Furthermore, it is possible to establish an unlimited partnership and limited partnership, which can be suitable for small businesses and are characterised by a lower tax burden and a greater liability for debts (unlimited liability of unlimited partnership members and general partners in a limited partnership). Furthermore, the Czech legal system supports companies established under European law, such as European Companies and European Economic Interest Groupings.
Representing the branch office/company
A branch office is represented by its appointed branch manager. On the other hand, representation of a company can be modified in various ways. Members of the statutory body can act either independently or collectively (two or more together) in some or in all instances, or some of them may be allowed to act independently and some of them collectively. There can also be only a single member of the statutory body. It is up to the shareholders how they modify the company’s representation within the boundaries of the law.
Time and costs of establishment
The timeline varies in different situations, but it usually takes 1-2 weeks after the initial decision to establish and register the branch office/company in the Czech Republic. First of all, the articles of association are adopted – this has to be carried out in the form of a notarial deed. After that, a couple of initial steps must be taken, such as opening a bank account in the Czech Republic, transferring contributions to the registered capital (at least partially, as described below) and registering a trade licence. Once all necessary steps have been completed, the company can be registered in the Commercial Register and can officially start conducting business. The company can be registered in the Commercial Register by a notary directly or by filing a registration motion with a registration court. The estimated costs of establishment are shown in the table below:
| Branch office | LLC | JSC | |
|
Estimated local fees (excluding legal, tax and other advisory services) |
No less than EUR 300 | No less than EUR 470 |
No less than EUR 1,106 + registered capital of EUR 80,000 (min) |
It is also worth mentioning that the registered capital does not have to be fully paid up prior to the company’s registration in the Commercial Register. It is necessary to pay 30% of every monetary contribution and the whole contribution premium prior to the filing of the application for registration with the Commercial Register for an LLC and 30% of par value of shares and the whole share premium prior to the filing of the application with the Commercial Register for a JSC.
As previously mentioned above, before registering a company in the Commercial Register, it is necessary to obtain the relevant business authorisation according to the Trade Licensing Act or another specific law. The Trade Licensing Act divides trades into notifiable (and those into vocational, professional and unqualified trades) and permitted, each of them having different requirements for its acquirement. The most common type is unqualified trade, which is not subject to any special conditions. However, for vocational and professional trades, it is necessary to prove the ability to perform the profession (e.g. qualifications, experience). The hardest one to get is a permitted trade, which is often linked to qualification, experience and consent of the ministry or authorisation granted by another competent authority. The division of specific trades into individual categories is contained in the annexes to the Trade Licensing Act. A company can prove its professional capability via members of its statutory body or via registered representatives, who are the company’s employees or contractual partners supervising the relevant business activity within the company. Pursuant to specific laws, it is necessary to obtain an authorisation other than a trade licence for some business activities. These includes the activities of pharmacists, banks, tax advisors, architects and many others.
As in all countries of the European Union, it is possible to establish a so-called “100-EUR company” in the Czech Republic. Such establishment is suitable for the requirements of fast establishment and incorporation of a company at the lowest possible costs. Such a company takes the form of an LLC, the articles of association include only the mandatory parts and the contributions to the registered capital are only monetary. Registration in the Commercial Register is carried out by the notary who drafted the articles of association and the cost of the notarial deed is lowered to CZK 2,000 (approx. EUR 75) with no other costs for registration in the Commercial Register.
The Czech Republic and taxes
Just like any other country, the Czech Republic has many different taxes and other similar burdens. The most important ones and their rates are shown in the table below:
| Tax | Rate |
| Corporate income tax | 19% |
| Natural-person income tax | 15% |
| Value-added tax |
21% for most products and services 15% food, plants, medicine, wood, etc. 10% baby food, special medicine, books, etc. |
In addition to the natural-person income tax, social-security and health-insurance contributions have to be paid for each employee. For the employer, these contributions amount to an additional 34% on top of the gross salary base. Contributions amounting to 11% of the gross salary are then paid by the employee.
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Radka Konečná |