You‪'ve decided to open a new business in the Czech Republic‪.

Are you considering opening your next branch in Prague‪?

The following is a short guide designed to simplify your decision and enable you to understand what your first steps will be in establishing a business or franchise in one of the most attractive European countries for investment‪.

Why Prague‪?

Prague is located in the heart of Europe‪, offering a number of advantages‪ for new business owners and entrepreneurs‪. Many of those advantages aren’t‪'t necessarily available in other European capitals‪.

The Czech Republic offers a stable economy with strong infrastructure‪, an educated and dependable work force‪ and lower wages and living expenses than its western European counterparts. Average monthly salaries in Prague are around 26,500  Czech kronas. Tax rates are low‪, with rate of 15‪% for individuals and a 19 ‪% tax rate for businesses.

The Czech government offers generous tax incentives for businesses offering strategic services such as telephone service stations and service centers in developing areas of the country‪.

The stable Czech economy is a direct product of a constant flow of investment into the country‪. Since 2000 the Czech economy has experienced a constant annual growth rate of between from 1‪.5‪% to 4‪%. This rate is mostly the result of increased production and foreign investment‪.

The flourishing economy is proof of Prague‪'s significane to large companies and recognition of the Czech Republic‪'s potential and economic rise‪ of central Europe.

The first phases‪, before opening a business in Prague

Defining legal form of your business

Once the decision to open a business in the Czech Republic has been made the legal form of business must be categorized‪. The main options are‪: 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).

This article will further focus primarily on the establishment of a limited liability company since this legal form is most commonly used when establishing businesses in the Czech Republic‪. Additional options for starting a company or opening a franchise are commercial and limited partnerships‪.

Establishing a limited liability company ‪(S‪.R‪.O‪.) in the Czech Republic

Since 2014 establishing an S‪.R‪.O‪. in the Czech Republic requires only symbolical registered capital of in the form of deposited bank notes before the company‪'s registration has been approved‪. This is a condition that must be fulfilled in order for authorities to approve a registration‪.

It is highly recommended to use services of a company specializing in the establishment of businesses in the Czech Republic in order to receive assistance in fulfilling Czech legal regulations‪, registering owners and executives, attaining proper trade licenses, opening bank accounts and securing certification, authorizations and legal requirements. All of the mentioned are required of non-Czech citizens in order to open a business.

Additional important documents include the business's registered address in the Czech Republic‪, the owner‪'s address‪ and certification that the potential owner has no criminal record ‪(produced by police in the state in which the potential owner resides‪). All documents must be translated and approved by a notary public‪. It‪ should be noted that after registering an approved company initial capital it must be deposited in a Czech bank for the purposes of .

Required Reports

1. Company Tax‪ - Company tax issues must be settled within 30 days of a company being registered in the Czech Republic. (2009 tax rates were 20%, 19% for 2010).
2. Value Added Tax (VAT) - Czech law has two VAT rates. The first is a 21 % rate levied primarily on sales and services. The second is a lowered rate of 15 % levied on specific products - mostly essential food stuffs. Finally third lowered rate is levied on pharmaceutical products, books and child nutrition products. A limited liability company is obliged to submit annual VAT reports and refunds if annual trade reaches 1,000,000 korunas. If the company in question trades with other EU nations, it is required to register and submit a VAT report for tax offset purposes, and such a company is required to submit an annual VAT report even if annual trade is under 1,000,000 korunas.
3. Road Tax - This is a tax unique to the Czech Republic. If a company intends to use vehicles for business purposes it must pay a road tax‪. Companies are free to choose if they wish to use vehicles for business purposes or semi‪-business‪/semi‪-private use‪. Rates range from 1200 to 1400 korunas‪.
4. Personal Tax Rates‪ - A business employing non‪-citizens should consider the issue of residency for the purposes of income tax‪. Residency is based on a term of 183 calendar days or more‪. A non‪-citizen who is in the Czech Republic for less than 183 days will pay income tax to his or her native country and will be obligated to pay tax to the Czech Republic solely for base income‪. A non‪-citizen residing in the Czech Republic for more than 183 days per year will be required to pay a Czech‪ tax rate. Income tax is generally paid to the country in which business is conducted but for countries with which the Czech Republic has a double-tax agreement other payments can be arranged.
5. Approval for non‪-EU citizens ‪- Tourists who wish to stay in the Czech Republic for more than 90 days must submit a long‪-term visa request‪. The request must be made at the Czech embassy according to the citizenship along with proof of health insurance coverage for the duration of the stay in the Czech Republic‪, proof of residence for the duration of the stay in the Czech Republic and proof that the person submittinh the request has funds for living expenses in the Czech Republic ‪(approximately 80‪,000 korunas per year‪). If the person making the request is not an EU citizen he or she must also apply for an employment visa‪.

Additional Issues Connected to Opening a Businesses in the Czech Reupblic

1. Finding offices or open space‪ - During the initial stages of establishing a businesses it will be necessary to pay only for the virtual seat where the new company is registered‪. In the course of time‪ the procurement of office space may be necessary‪. One can look for such space with or without the aid of a real estate agent‪. Agents‪ generally receive a commission from the tenant in the amount of one month's rent.
2. Manager‪/Director ‪(QFD‪) ‪- This is a service relevant to those companies that plan to grow and are in need of a capable and loyal person who will regularly visit the offices ‪(if he or she is not in the Czech Republic‪) and will be present part‪-time‪ until a regular director is appointed by the company‪. The QFD‪'s responsibilities include but are not limited to management of accounts in Czech banks‪, preparations of informative and management reports‪, purchases and lowering expenses‪.
3. Employment of non‪-citizens ‪- If a business is employing non‪-Czech citizens it will require advising regarding how said employees‪' employment and living accommodations will affect the taxes as well as requests for employment visas‪.

Conclusions

Establishing a company or franchise in the Czech Republic is an important undertaking that may contribute to many of your financial goals‪. The investor or entrepreneur will face many important issues when establishing a business’s‪, from management to tax and legal issues to finding appropriate real estate and employees‪. These issues are best approached during the initial stages of establishment‪.

Conbiz's consultants are experts in their respective fields and have an intimate knowledge of local markets. This allows them the ability to open channels, for you, with relevant bodies and authorities - one of the most important aspects of development for any new business in the Czech Republic. To set up an appointment with Conbiz, please go to our Contact Us page.‪