The Czech Republic (CR) is a landlocked country in Central Europe. It has about 10.8 million inhabitants. After the fall of the communist regime in 1989, a period of major economic changes begun. It was necessary to reconstruct the economic system in the country towards a market economy, with an emphasis on private ownership and effective economic competition. In the following years the Czech Republic joined the Organisation for Economic Cooperation and Development – OECD (1994), joined NATO (1999) and the process of system transformations in the entire country was completed significantly when the Czech Republic affiliated with the European Union in 2004. Membership in the European Union means for the Czech Republic a number of economic and other benefits. First of all, it is a single market as an area without internal borders where the free movement of goods, services, persons and capital is applied. The single market of the European Union allows the Czech Republic to maintain close business relations with other members of the European Union. Today the Czech Republic is modern, developed and democratic country with parliamentary democracy and market economy, making it able to guarantee a stable environment for foreign businessmen and investors.

1) Investment of Foreigners

Czech law enables foreigners to conduct trade activities under the same conditions and to the same extent as Czech entrepreneurs. Foreigners may become founders or co-founders of a company, or may join an existing Czech company. Foreign companies may operate in the Czech Republic either by establishing a branch office registered in the Czech Republic or by establishing a Czech company. There are four different legal forms of companies. Unlimited liability company and limited partnership company are little used by foreign investors. Most convenient for the investors is the establishment of a limited liability company or possibly a joint stock company in the Czech Republic.

Limited Liability Company – Ltd. (společnost s ručením omezeným – s.r.o.)

This is the most common form of company for small and medium-sized businesses and subsidiaries of foreign parent companies. Partners in a Limited Liability Company are liable for company’s debts and obligations only up to the amount of unpaid contribution according to the state registered in the Commercial Register.

Limited Liability Company is established by the Memorandum of Association (MOA), or the Deed of Incorporation (DOI) if the company is being founded by one person.

Member of a Limited Liability Company could be a natural or legal person.

Membership Contribution of a Member

Minimum registered capital is CZK 1. The Memorandum of Association or the Deed of Incorporation can determine higher amount of the capital; if non-monetary investments are included, the MOA or the DOI must state the object of such investments and the method of valuation.

Bodies of Ltd.:

• General Meeting
• Executive Director/s – could be also foreigners (even non EU nationals)
• Supervisory Board – Is not required, however, may be set.

Joint Stock Company – JSC. (akciová společnost – a.s.)

A Joint Stock Company is established by the Memorandum of Association (MOA), or the Deed of Incorporation (DOI) if the company is being founded by one person.

Shareholder of a Joint Stock Company could be a natural or legal person.

Shareholders in a joint-stock company are not liable for company’s debts and obligations.

Membership Contribution of a Shareholder

Minimum registered capital is CZK 2,000,000. At least 30% of the amount to be subscribed for in cash must be paid upon incorporation. If non-monetary investments are included, the MOA or the DOI must state the object of such investments and the method of valuation.

Bodies of JSC.:

• General Meeting
• Board of Directors / the Statutory Director – members could be also foreigners (even non EU nationals)
• Supervisory Board / Administrative Board

The Czech law recognizes two systems of a Joint Stock Company’s management. More frequent dualistic system means that the company has the Board of Directors as the statutory body elected by the General Meeting. The Supervisory Board oversees the operation of the company. In the monistic system there is an Administrative Board also elected by General Meeting, the statutory body is represented by the Statutory Director – an individual who may also be the Chairman of the Administrative Board.

Branch Office

A Branch Office of a foreign company is not a Czech legal entity, but functions as the representative of a foreign company and incurs obligations on the foreign company’s behalf. Branch Office must fully list its planned activities in the application for entry in the Commercial Register, as it is only allowed to engage in the listed activities. The name and registered office or location of the branch and the name and registered office or location of the foreign company registered abroad, including the number of its registration in the foreign register, shall also be entered into the Commercial Register.

A director, who may be either a Czech natural person or foreign natural person, must be appointed as head the Branch Office. A director subjects to the same regime as a statutory body of a company.

The law according to which the Branch Office’s parent entity was founded also applies to the Branch Office’s internal dealings.

Joint Venture

Joint Venture of Czech and foreign shareholders may be established as any of the above-described forms of business companies; usually Ltd. or JSC. are established as Joint Venture of Czech and foreign shareholders.

2) Procedure for Setting up a Company

Foundation of the Company:

The company is founded by the Memorandum of Association (MOA), or by the Deed of Incorporation (DOI) if the company is being founded by one person, both in the form of a notarial deed.

For the purpose of the establishing a company it is necessary to determine among others:

• business name (firm)
• registered office address
• business activity
• the person(s) nominated to the statutory bodies

Incorporation of the Company

A company comes into existence through its registration in the Commercial Register. Before submitting an application for entry into the Commercial Register it has to be paid at least 30% on each of the members or shareholders cash contribution.

For setting up the company and its incorporation the following documents are required:

• Power of Attorney granted by the founder(s) of the company with officially certified signature, apostilled/superlegalised depending on the country where it is signed
• Affidavit of the person(s) nominated as the statutory body with officially certified signature, apostilled/superlegalised depending on the country where it is signed
• Excerpt from the Criminal Register of home country of the statutory body, apostilled/superlegalised depending on the country where it is issued
• Trade Certificate
• Declaration proving the registered office address
• The Memorandum of Association or the Deed of Incorporation, both in the form of a notarial deed
• Evidence of payment of the registered capital
• If the shareholder would be a legal entity, then also its extract from the Commercial Register, apostilled/superlegalised depending on the country where it is issued.

The process of registration is carried out through a notary or an application to the local commercial court. Legal assistance is not obligatory but certainly recommendable.

Only after incorporation into the Commercial Register is the company allowed to launch its business activities. The registration usually takes just a few days.

3) Residence permit

The matters related to foreigner’s stay in the Czech Republic are regulated by the Act No. 326/1999 Coll., Act on Foreigner’s Stay and Residence in the CR, as amended.

Members and Statutory Body of Limited Liability Company or Joint Stock Company (non-EU national)

To be a member of Limited Liability Company (Ltd.) or Joint Stock Company (JSC.) incorporated in the Czech Republic basically mean to have property rights or voting rights in it. In such a case there is no special requirement which would relate to citizenship; even non-EU nationals entered in the Commercial Register as authorized person to act on behalf of the company and not regularly present in the Czech Republic needs no working and residency permit.

However, if a non-EU person (member or statutory body) will be active for Ltd. or JSC. (providing activities for running its business, i.e. dealing with day to day business), a working permit and residency permit will be required.

Following from the above, the Czech Ltd. or JSC. could be established and registered into the Czech Commercial Register without its founder’s and statutory body member’s residency permits. However, if the non-EU person intends to be regularly present in the Czech Republic and participate on the local activities of the Czech company as its member or statutory body, it is necessary obtaining a long term residency permit and working permit for the Czech Republic.

The time-limit for issuing a decision on an application for a long term residence permit for the purpose of business is 90 days.

4) Acquisition of Real Estate

Foreign natural and legal persons are allowed to acquire realties in the Czech Republic under the same conditions as Czech persons. The most frequent title for the transfer of the ownership right is a written purchase agreement. The purchase agreement is valid if it contains a specification of the real estate according to the records of Land Register and certified signatures on the same deed. Property rights to real estate are acquired on its entry in the Land Register; this process usually takes 1 month. For the security reasons it is usual for the buyer to transfer funds for the purchase price to an attorney, notarial or bank custody until the entry in the Land Register is successfully processed.

5) Taxation Rules

Personal Income Tax:

• Taxpayers: Natural persons, who can be resident or non-resident. Resident is a person, who has permanent residence in the Czech Republic or habitually resident here (he stays here at least 183 days in a year); he has tax duty related to all of income (from CR as well as foreign countries); Non-resident is the natural person who do not fulfill conditions of a resident; he has tax duty only for income from resources in CR.
• Subject matter of personal income tax: Income from employment, Income from self-employment, Income from capital, Rental income, Other income (for example casual activities, transfers, winnings).
• Tax base: The amount by which the income accruing to the taxpayer in a tax year exceeds the costs demonstrably incurred to generate, assure and maintain the income.
• Tax rate: 15% for the part of the tax base up to 48 times the average wage and 23% for the part of the tax base exceeding 48 times the average wage.
• Taxation period: Calendar year.
• Assessment of the tax: The taxpayer has a duty to assess the tax himself and fulfil a tax return. The tax can be assessed on the ground of the tax return or ex officio (tax assessment). Anyone whose annual income subject to personal income tax exceeds CZK 50,000 is required to file a tax return, unless it is exempt income or income on which tax is withheld at a special tax rate.
• Paying taxes: Advance/at once.

Corporate Income Tax:

• Taxpayers: Legal entities, investment funds, mutual funds, or trust funds. Taxpayers can be residents or non-residents too. Resident is a legal entity, which has registered office or management of the company in the Czech Republic; it has tax duty that applies on both incomes from sources in CR and on incomes from foreign sources. Non-resident is a legal entity, which does not have registered office in CR or international agreement determines it; he has a tax duty, which applies only to incomes from sources in CR.
• Subject matter of corporate income tax: The incomes from all activities and management of all property (unless the law provides otherwise).
• Tax base: A difference by which income exceeds expenses, while respecting their accruals.
• Tax rate: 21 %, in case of investment funds or mutual funds only 5%.
• Taxation period: Calendar year, financial year, the period from the record date of the merger or division of the business corporation or the transfer of assets to the shareholder to the end of the calendar year or business year in which the conversion or transfer of assets became effective; or the accounting period, if that accounting period is longer than 12 consecutive months.

Value Added Tax (VAT):

• Taxpayer: A taxable person who has a registered office or place of business in the Czech Republic and whose turnover exceeds the statutory threshold (CZK 2,000,000 for 12 calendar months in most cases). A person who concludes a contract of association or other similar contract with another taxable person also becomes a taxable person on the date of conclusion of that contract. Another alternative is to become a voluntary VAT payer. This means that a company or an individual applies as a VAT payer of its own volition, in spite of the fact that its turnover has not exceeded the sum required by the law.
• Subject matter: Supply of goods or transfer of immovable property or transfer of immovable property at auction for consideration by a taxable person; the supply of services for consideration by a taxable person; the acquisition of goods from another EU Member State by a taxable person in the domestic territory and the acquisition of a new means of transport from another EU Member State for consideration by a person who is not a taxable person; importation of goods with a place of performance in the domestic territory.
• Tax base: Everything received or to be received by the taxable person as consideration for the taxable supply, including the amount for payment of excise duty, from the person for whom the taxable supply is made or from a third party, exclusive of tax on that taxable supply.
• Tax rate: As of 1 January 2024 there are only two VAT rates, 12% (reduced) and 21% (standard). In practice, there is also a third VAT rate which is 0% (VAT exemption for e.g. books, long-term accommodation rentals, arts, non-profit sport activities, etc.).
• Taxation period: Calendar quarter, if the turnover of the taxpayer for the previous calendar year did not exceed CZK 10,000,000 and it is not an unreliable taxpayer; calendar month in other cases.

Other Business-related Taxes:

• Capital duties: There is no capital duty levied in the Czech Republic.
• Stamp duties: Only on certain legal transactions during administrative or court proceedings.
• Customs duties: In general, all goods crossing the Czech border are subject to customs duties, except from EU.
• Other excise duties: E.g. on tobacco, alcoholic drinks and mineral oils.
• Environmental taxes: For electricity, natural gas or coal supplies.
• Advertising duty: There is no advertising duty levied in the Czech Republic.
• Road tax: For vehicles weighing over 12 tonnes registered and operating in the Czech Republic.
• Immovable property tax: Tax on land and buildings located in the Czech Republic.

Double Taxation Treaties:

In addition to Czech domestic arrangements that provide relief from international double taxation, the Czech Republic has also entered into double taxation treaties with more than 90 countries to prevent double taxation and allow cooperation between the Czech Republic and overseas / EU tax authorities in enforcing their respective tax laws.

6) Investment Incentives

Investments incentives are mainly available to subjects investing in industry: they can be received by investors launching or expanding production, technological centres and strategic service centres (the field of real estate services is not included). Incentives are primarily regulated by Act No. 72/2000 Coll., on Investment Incentives, as amended. The responsible authority is CzechInvest, the Investment and Business Development Agency, which is an agency of the Ministry of Industry and Trade. Maximum amount of incentives may differ depending on the region of the Czech Republic, while projects implemented in the territory of the city of Prague are excluded from the possibility to receive investment incentives.

Investment incentives are usually applied in the form of a corporate tax credit. Other forms of investment incentives are: material support for the creation of new jobs, material support for the retraining or training of employees, material support for the acquisition of tangible and intangible fixed assets for strategic investment projects, exemption from real estate tax and the transfer of land at a preferential price. These forms of aid can be combined with each other. When combining forms of aid, the public aid thresholds cannot be exceeded.

The funds saved in taxes can be used by the company for its further development. To facilitate the creation of jobs in regions where this is desirable, material support is provided for the creation of new jobs.

An application for investment incentives must be submitted to the CzechInvest agency before work begins on the investment project for which the investment incentives are requested. This obligation is based on the Investment Incentives Act which also lists all documents that need to be submitted.

The process of granting investment incentives:

• The investor applies for investment incentives through the agency Czechinvest;
• The competent authorities (Ministry of Industry and Trade, Ministry of Finance, Ministry of Labour and Social Affairs, Ministry of Agriculture, Ministry of Environment, Government of the Czech Republic) assess the application in accordance with the Investment Incentives Act;
• The investor is informed of the result of the evaluation of the application;
• In case of a positive evaluation, the investor receives a promise of investment incentives. The decision on the promise of investment incentives is issued by the Ministry of Industry and Trade;
• The investor applies for investment incentives on the basis of the promise made; The providers of specific investment incentives are the Ministry of Industry and Trade, the tax authorities and the labour offices;
• The investor draws investment incentives in accordance with the terms of the Act.

7) Legal Services for Foreign Investors

Bělina & Partners Law Firm is very pleased to provide potential foreign investors with all legal services associated with the implementation of investments in the Czech Republic or provide the foreign investors with details of doing business in the Czech Republic. We may help with the establishment of companies, purchase of companies or businesses, representation before state authorities, preparation of contractual documents, processing the application for investment incentives or obtaining a residence permit or possibly working permit.

Bělina & Partners Law Firm could also arrange for providing additional services through proven partners with whom we cooperate on long-term basis. These additional services include for example tax consultancy or property management.

Bělina & Partners Law Firm may arrange for help with finding investment opportunities in the Czech Republic based on the specific requirements of foreign investors and we may represent foreign investors in negotiations with sellers or Czech business partners and analyse legal conditions of the investment.

Bělina & Partners Law Firm has many years of experience in providing legal services in the area of investments, establishment of companies, purchase of companies or businesses and shares of them. We have successfully implemented a number of mergers and acquisitions for Czech and foreign clients for example in the area of energy or real estate.

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