Business presence

Following entities are commonly used for doing business in Czech Republic:

A general partnership (v.o.s.)  is a company of at least two persons who participate in its business or the management of its assets and are jointly and severally liable for its debts. Each partner is entitled to act on behalf of the partnership. Decisions in all matters of the company require the consent of all partners, unless the articles of association provide otherwise. There is no requirement with regard to minimum registered capital or minimal contribution partners.

A limited partnership (k.s.) is a company in which at least one partner is liable for its debts up to the amount of his or her unpaid contribution as registered in the Commercial Register (limited partner) and at least one partner has unlimited liability (general partner). The minimum contribution of the limited partner should be set in the articles of association. Only partners with unlimited liability are authorized to carry out business management of the partnership. Unlike unlimited partners, limited partners are able to transfer their ownership interests.

A limited liability company (s.r.o.) is a company for whose debts the shareholders are jointly and severally liable up to the amount of their unpaid contribution to the registered capital. The statutory body of the company is consisted of one or more executives. The executive is responsible for the company’s business management. The minimum contribution amount to the registered capital is CZK 1, unless the articles of association stipulate that the contribution amount is higher. The minimum registered capital is derived from the amount of minimum contribution of each shareholder. A supervisory board may also be established, but it is not obligatory. The participation interest may be transferred to another partner or third person subject to terms contained in the articles of association. This is the most common form of doing business in Czech Republic.

A joint stock company (a.s.) is a company which registered capital is divided into a certain number of shares. The amount of the registered capital of a joint-stock company is at least CZK 2,000,000 or EUR 80,000. Shareholders of the company are not liable for the obligations of the company. The governance system may be two-tier with a board of directors and supervisory board, or single-tier with a statutory director and administrative board. The administrative board determines the basic focus of the company’s business management and oversees its proper performance. However, it is not entitled to act on behalf of the company towards third parties. The statutory body authorized to act externally on behalf of the company is the statutory director, who is appointed by the administrative board. The company may change the chosen system of its internal structure by amending the articles of association.

A cooperative (družstvo) is a community of an open number of persons, which is established for the purpose of mutual support of its members or third parties, or for the purpose of business. The cooperative has at least 3 members. The amount of minimum registered capital or minimum contribution is not set out.

A branch office (pobočka or odštěpný závod (if registered in Commercial Register)) may be registered with the Commercial Register by foreign entity for the purposes of conducting business in Czech Republic. There is no requirement with respect to minimum registered capital or minimum contribution.

Setting up a company

Process of setting up a company in Czech Republic consists of two stages. In the first stage, the company is established and in the second stage it is registered as a legal entity on the day of its entry in the Commercial Register.

The most important document required when establishing a company in Czech Republic is the articles of association or foundation deed. When the establishing company is a capital company (limited liability company (s.r.o.) or joint stock company (a.s.)) the document must be made in the form of notarial deed.

Other documents required are subject to circumstances. Usually the following documents are also required:

  • a trade license or license for other type of business activity,
  • a deed attesting the legal basis for use of the premises at which the company’s registered office is situated, e.g. a written consent of the owner,
  • a document attesting the fulfilment of the obligation to pay at least statutory minimum contributions into the registered capital, if applies,
  • documents attesting the fact that persons who are to be registered as members of the company’s bodies satisfy the requirements set forth by law, i.e. that they are at least 18 years old, have legal capacity, are without a criminal record related to the business, and that there are no impediments to their operating of a trade in accordance with the Trades Licensing Act and other legal regulations,
  • the consent of the person being registered to their registration in the Commercial Register (members of the company’s statutory body).

When the company is established, then it must be registered in the Commercial Register. An established company acquires legal personality by the incorporation. The corporations are incorporated as of the date of their registration in the Commercial Register.

The Commercial Register is a register of all types of legal persons which have been established in accordance with the Czech legislation and also (under certain conditions) of sole traders. The Commercial Register is administrated by Register Courts. Submission of an application for incorporation to the Commercial Register is a subject to the court fee.

The application must be accompanied by documents that ascertain the information that should be recorded in the Commercial Register and by the documents that form the collection of documents in connection with the registration. The application must be submitted to the competent Register Court. The competent Register Court is a Regional Court, wherein district is the registered office of the corporation.

It is also possible to choose a direct registration by a notary. The notary shall arrange the incorporation in the Commercial Register, if the recorded information is based on a notarial deed. This option is often used and also recommended in event of establishment a limited liability company and joint stock company because these companies must obligatorily have the articles of association in the form of a notarial deed.

The application for incorporation to the Commercial Register must be submitted to the competent Register Court within 6 months (unless the articles of association lay down a different period) of establishing the company, otherwise, the articles of association are no longer valid.

Labor law framework

  • The employment contract must be concluded in writing
  • The duration of a fixed-term employment relationship between the same contracting parties may not exceed 3 years and may be repeated no more than twice
  • The employment contract might include probationary period of up to 3 months (or 6 months for management employees)
  • Termination of employment must be in writing.  The notice period must be the same for both the employer and the employee and is at least 2 months
  • The standard length of the set weekly working time is 40 hours per week
  • In general, the length of the annual leave is at least 4 weeks in a calendar year, 5 weeks for state/municipal/regional employees and 8 weeks for pedagogical and academic employees
  • In case of sick leave wage compensation is paid by an employer up to and including first 14 days of work incapacity. Afterwards (up to 380 days) an employee is entitled to sickness benefit from the state

Acquisition of land

  • Currently, there are no restrictions for foreigners to acquire land
  • The acquisition process consists of two stages. First stage is concluding a land purchase contract. Second stage is the official registration of the ownership right based on the land purchase contract in the relevant real estate register
  • According to the Czech law, the principle “superficies solo cedit” applies. It means that the following items are considered as part of a land:
  • the space below and above the surface of the land,
  • constructions built on the land and other equipment (with exception of temporary constructions),
  • plants growing on the land.

 Taxation in th Czech Republic

  • For Czech legal entities, as well as foreign entities whose place of management is in the Czech Republic, income subject to taxation is generally gross worldwide income (excluding tax exempt income)
  • A special tax regime applies to general partnerships and limited partnerships. Income of general partners is taxed at the partner’s level, while income of limited partners is taxed at the company’s level, with a potential withholding tax on distributed dividends in some cases
  • Income generated by legal entities is subject to a corporate tax rate of 19%. A 5% corporate tax rate applies to income of certain investment funds, and a 0% corporate tax rate applies to pension funds.
  • VAT is generally charged on the supply of goods or services where the place of supply is in the Czech Republic, no matter whether the customer is a private person or a business
  • There are three VAT rates:
  • 21 % for most goods and services;
  • 15 % for some selected goods and services (e.g. most foodstuffs, fitness services);
  • 10 % for some selected goods (e.g. initial and continuing baby food, selected pharmaceutical products, printed books, books for children, certain passenger transport).
  • Certain types of income are taxed by means of a withholding tax, e.g. dividends, royalties and interest