Czech

The Czech Republic is located in the very heart of Europe, offering business owners and entrepreneurs a number of advantages, many of which are not necessarily available in other EU member states.
The country is characterised by stable economy, developed infrastructure, well-educated and qualified workforce. Labour costs and living expenses here are lower than in Western Europe, the average monthly salary in Prague accounting for about CZK 26,500. Another essential feature of the Republic is low tax rates: 15% for individuals and 19% for entities.

The Czech government offers generous tax incentives for enterprises that provide strategic services, such as telephone exchanges and service centres, in developing regions of the country.
The stability of the local economic environment results directly from continuous flow of investment. Since 2000, the Czech economy has been showing constant annual growth rate between 1.5% and 4%. This figure is primarily attributable to increase in production and foreign investment.
The state’s flourishing economy reflects the importance large companies attach to carrying out activities in Prague. Moreover, such prosperity illustrates the recognition of the country’s potential and economic expansion that takes place in Central Europe.

6 simple steps to purchase a company

  1. choosing a country

  2. choosing a bank

  3. payment (by any method)

  4. sending documents

  5. company registration

  6. bank account opening

Advantages of registering a company in the Czech Republic

  1. Anyone who provides services or sells goods in the country or in other EU states may register a company in the Czech Republic. Below are the 10 main advantages of setting up a business here.
  2. The Czechs prefer to deal mainly with the locally registered companies.
  3. VAT refund for various goods and services purchased for the needs of the company may only be received through an entity incorporated in the Czech Republic.
  4. You cannot start a “licensed business” in the country without long-term residence permit, so the only way to carry out business activities in the Republic is to set up a company here.
  5. Financial and accounting issues are much easier to address when running a locally registered entity.
  6. Hiring local employees on legal grounds is possible only through a company incorporated in the Republic.
  7. Despite the fact that the requirements for obtaining a Czech visa were tightened, it is still much easier to receive a business visa through an entity operating in the country.
  8. EU funding is available only for the companies registered in EU member states.
  9. In most cases, a local company would be given priority over a foreign one when participating in government tenders.
  10. Corporate income tax rate in the Czech Republic is lower than in Israel.
  11. In contrast to Israel, the companies registered in the Republic do not pay annual fees.
  12. We highly recommend that everyone willing to distribute products in the EU incorporate an entity in a member state. You may choose any EU country, but registration costs in the Czech Republic are substantially lower than in Western Europe.
  13. If you want to sell goods in the country, you should set up a company or a subsidiary within the territory of the Republic since the Czechs show a clear tendency to give preference to local enterprises over the foreign ones. Potential customers will rely more on a Czech company and opt for buying products from it. An entity that is engaged in trading between Israel and the Czech Republic (import and export in particular) will have to establish a Czech subsidiary in order to start operating in the country.
  14. In case you wish to purchase a property in the Republic, you may act as an individual. However, we recommend that you set up a company since this will allow you to report the assets management costs as the expenses of the business and benefit from the lower amount of tax to be paid.

Company registration procedure

Choosing organisational and legal form of a company

Once you decided on starting a business in the Czech Republic, the desired legal form shall be chosen. The main options are as follows: a self‪-employed business license ‪(živnostníci‪), a Limited Liability Company ‪(S‪.R‪.O‪., společnost s ručením omezeným) or a Joint Stock Company ‪(A‪.S‪., akciová společnost).‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬‬

The present article will focus on establishing a Limited Liability Company since this organisational and legal form is the most common one in the Republic. Additional options available when setting up a company or a franchise are commercial and limited partnerships.

Incorporating a Limited Liability Company (S.R.O.) in the Czech Republic

Since 2014, only a symbolic amount of share capital deposited into the bank account has been required to establish an S.R.O. in the country. This condition shall be met if the government is to approve the company registration.

It is strongly recommended that you avail yourself of the services provided by a company that specialises in setting up a business in the Czech Republic. This will enable you to receive assistance in complying with the local legislation, registering company owners and executives, obtaining relevant trading licences, opening bank accounts, going through certification procedures, and getting various authorisations. All of the above is required of a non-citizen when starting a business in the country.

A list of the essential documents that shall be submitted if setting up a company includes registered office address within the territory of the Republic, the owner’s address, and the certificate of criminal record issued in the name of the owner by the police authorities of the state where he or she resides. All the documents must be translated and notarised. It is worth noting that the company’s share capital shall be deposited into a Czech bank account.

Taxation

Corporate income tax — all taxation-related issues shall be resolved within 30 days from a company registration date (CIT rate is 19%).

Value added tax (VAT) — The Czech legislation provides for three VAT rates. 21% value added tax is levied mainly on supplies of goods and services. 15% VAT rate is applicable for certain goods (mostly, essential items). The third rate of 10% applies to pharmaceutical products, books, and baby food. Limited Liability Company is obliged to file annual VAT returns and make relevant tax payments if its turnover exceeds CZK 1 million in the previous consecutive 12 months. If an LLC is engaged in trading with other EU countries, it shall register as a VAT payer and file all the necessary returns every year even if its annual turnover does not exceed CZK 1 million.

Road tax is levied uniquely in the Czech Republic. This tax is paid by the companies that use vehicles for commercial purposes. Enterprises are free to decide whether to operate vehicles for business or for semi-commercial / semi-private use. The road tax rate varies from CZK 1,200 to CZK 1,400.

Personal income tax rate — any company that hires non-citizens shall consider the issue of such employees’ residency for tax purposes. To be regarded as a Czech resident for tax purposes, an individual must stay in the Republic for at least 183 days in a given calendar year. A non-citizen whose length of stay is less than 183 days will pay the personal income tax in his or her country of origin and in the Czech Republic (provided that no double tax treaties are concluded between the former and the latter), but in the Republic he or she will subject only to tax on income from Czech sources. If a non-citizen stays in the Czech Republic for 183 days or longer, the tax paid locally applies to personal worldwide income.

Reporting

In accordance with the local legislation, the majority of companies registered in the Czech Republic is obliged to file annual financial statements either electronically or in paper form. The amount of information to be published varies depending on the legal form, the size, and the nature of the activities carried out by an entity.

Financial statements reporting is regulated by the Act on Accounting and other normative instruments.

Accounting system in Serbia is based on the International Financial Reporting Standards (IFRS).

Financial statements are filed with the Commercial Register (Obchodní rejstřík) once a year. The standard deadline for submitting reports is 31 March of the year following the reporting one. In certain cases, this time limit may be extended.

Filing financial statements is obligatory for:

  1. legal persons
  2. foreign companies operating in the Czech Republic
  3. sole proprietors who are considered as VAT payers and whose annual turnover exceeds CZK 25 million
  4. individuals who keep standardised accounting records on a voluntary basis

Complete annual financial statement includes:

  1. balance sheet
  2. profit and loss report
  3. statement of cash flows
  4. statement of changes in equity
  5. notes

Small and microenterprises file annual reports under simplified procedure, without statement of cash flows and statement of changes in equity.

Financial auditing is mandatory for:

  1. large companies
  2. medium-sized companies
  3. small companies that are joint-stock companies or trust funds and that meet at least one of the following criteria: total assets over CZK 40 million; net turnover exceeding CZK 80 million per annum; the average number of employees above 50.

Reporting allows to receive detailed information on financial status, creditworthiness, and financial performance of an enterprise.

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