Doing business in the Czech Republic involves a number of legal, financial, and cultural steps. Here is a comprehensive guide to the process:
1. Choose a Legal Entity
Foreigners can generally do business in the Czech Republic under the same conditions as Czech citizens. The most common forms for foreign investors are:
- Limited Liability Company (Společnost s ručením omezeným – s.r.o.):
- The most popular option for small and medium-sized businesses.
- Requires a minimum of one shareholder and one director.
- Minimum registered capital is CZK 1 (though a higher amount is recommended to establish credibility).
- Shareholders’ liability is limited to the amount of their capital contribution.
- Joint Stock Company (Akciová společnost – a.s.):
- Typically used for larger companies.
- Minimum registered capital is CZK 2 million.
- Shares can be freely traded.
- Sole Proprietorship (Živnostník):
- The simplest structure for a single individual.
- The owner is personally liable for all business debts. Requires obtaining a trade license.
- Branch Office (Pobočka):
- Not a separate legal entity, but a representative of the foreign parent company.
- The parent company is fully liable for the branch’s obligations.
2. Registration and Licensing Process
The main steps for establishing an s.r.o. (the most common path) typically include:
- Obtain a Trade License (Živnostenský list): You must apply at the Trade Licensing Office for the specific business activities you plan to conduct. For foreigners, this often requires an extract from their criminal record in their home country, which must be apostilled and translated into Czech.
- Draft and Notarize Founding Documents: Prepare a Deed of Foundation (for a sole founder) or a Memorandum of Association (for multiple founders). This must be in Czech and notarized by a Czech notary.
- Deposit Registered Capital: Open a corporate bank account and deposit the registered capital (minimum CZK 1 for s.r.o.).
- Register with the Commercial Register (Obchodní rejstřík): Apply for registration at the Commercial Court. Once approved, the company is legally established. This must be done within 90 days of establishing the company.
- Register for Tax, Social Security, and Health Insurance: Register with the Revenue Authority (Tax Office), Social Security Administration, and a selected health insurance company within the required deadlines (usually 8 to 30 days after registration in the Commercial Register).
3. Taxation
Key tax rates to be aware of:
- Corporate Income Tax (CIT): The basic rate is 21%.
- Value-Added Tax (VAT – DPH):
- Standard Rate: 21% (Applies to most goods and services).
- Reduced Rate: 12% (Applies to certain goods and services like some foodstuffs, public transport, catering services, and admission to cultural/sporting events).
- VAT Registration: Companies with a turnover exceeding CZK 2 million in a calendar year must register for VAT. Non-resident companies typically have a nil registration threshold if they make supplies subject to Czech VAT.
4. Business Culture and Etiquette
Understanding local customs is crucial for building trust:
- Punctuality: Be extremely punctual for all meetings. Lateness is viewed as disrespectful.
- Formality:
- Initial greetings involve a firm handshake and direct eye contact.
- Address people formally using their titles and last names (e.g., Pan for Mr., Paní for Mrs./Ms., followed by any academic titles like Inženýr (Ing.) or Magistr (Mgr.)). Wait to be invited to use first names.
- Business attire is generally conservative and formal (dark suits).
- Communication: Czech business people value direct, clear, and logical communication backed by facts and data. Avoid aggressive high-pressure tactics.
- Hierarchy: The business environment is hierarchical. Decisions are often made by senior management, and the process can be slow as it requires thorough analysis and multiple meetings to build trust.
- Relationship Building: Be patient. Initial meetings are often focused on getting to know each other and establishing trust before detailed business discussions begin.