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Navigating the complexities of accounting in the Czech Republic requires a thorough understanding of the local legislative framework, standards and unique practices. The Czech Republic has a robust accounting system influenced by both national laws and international standards. For businesses operating within its borders, learning the details of accounting in the Czech Republic is essential for compliance and financial success.
This article introduces the key aspects of the accounting landscape, including the relevant legislative acts, the role of the Czech Accounting Standards Board (CASB), differences between Czech Accounting Standards (CAS) and International Financial Reporting Standards (IFRS), as well as practical details on financial reporting, auditing, VAT regulations, and more. By understanding these, businesses can ensure their accounting practices are not only compliant but also optimized for the local environment.
The primary legislative acts providing a framework to accounting practices in the Czech Republic include the Accounting Act (Act No. 563/1991 Coll.), the Commercial Code (Act No. 513/1991 Coll.), and the Income Tax Act (Act No. 586/1992 Coll.).
The Czech Accounting Standards Board (CASB) is the official authority responsible for setting the accounting standards in the Czech Republic. Some of the key standards are formally stated in the document called Czech Accounting Standards (CAS), which cover various aspects of financial reporting such as layout of the financial statements, revenue recognition, and consolidation.
In general, CAS are aligned with IFRS. However, there are differences. The use of IFRS is intended for consolidated financial statements of certain entities, such as those listed on regulated markets in the European Union or those with securities admitted to trading on regulated markets outside of the European Union. In all other instances, CAS should be followed for accounting in the Czech Republic.
The basic structure of the Chart of Accounts recommended for accounting in the Czech Republic is as follows:
Balance Sheet accounts
Profit and Loss accounts
Year-end Closing accounts
Off-balance-sheet accounts
Internal and Managerial accounts
Each entity can adapt the Chart of Accounts to meet the specific needs of the business, particularly by adding various analytical accounts to all the categories listed above. Experienced professionals will not have problems with providing support to create or adapt the Chart of Accounts to the specific conditions of the relevant business environment.
Our Czech experts prepared a handy General Chart of Accounts in Czech and English language for you.
Financial Statements, specifically Balance Sheet and Profit and Loss Statement, need to be presented to the Financial Authority when filing the Declaration of the Filing Income Tax. Nowadays, documents are generally presented electronically. The deadline for the Corporate Income Tax is the 1st of July of the following year for all entities reporting according to the calendar year.
In addition, companies are obliged by law to publish their financial statements no later than 30 days after the approval by the Management Board, but no later than 12 months after the Balance Sheet date. Typically, Balance Sheet report, Profit and Loss Statement including Notes, Cash Flow Report, and Changes in Equity report are to be published. This is a key aspect of accounting in the Czech Republic.
The primary criterion for auditing requirements in the Czech Republic is the size of the company. Micro companies are hardly ever required to conduct an audit. On the other hand, middle and large companies are required to have their accounting audited nearly always, with very few exceptions.
Small companies are required to have their accounting audited when 2 of the following criteria are exceeded:
Small-sized shareholding companies are required to have their accounting audited when exceeding only one of the thresholds stated above. This ensures thorough auditing standards within accounting in the Czech Republic.
In the Czech Republic, the legal framework for archiving accounting documents is relatively strict. The periods vary from 3 years to 45 years, based on the type of the accounting documents. The legal framework provides guidance not only on archiving but also on the ways of disposing of the documents.
A popular alternative to old-fashioned archives of documents in hard copies is digitalization. Electronic archiving is possible if the company can prove the genuine origin of the documents, inviolability, and legibility. This modern approach is transforming accounting in the Czech Republic.
VAT regulations in the Czech Republic do not vary much from regulations in other EU countries. Companies can register voluntarily or are obliged to register if their turnover exceeds 2 mil CZK annually. Companies can register electronically with the relevant Tax Authority. VAT declarations are then filed monthly or quarterly, always by the 25th day of the month following the VAT period. The same deadline applies also for the VAT payment.
As of 2024, Corporate Income Tax in the Czech Republic is set at 21%. Entities following the calendar year should file the Declaration by the end of March. If filed electronically, the deadline is postponed by one month to the end of April. If the company is audited or the Declaration is filed by a Tax Advisor, the deadline is postponed until the end of June.
Declarations are usually filed electronically on forms stated by the Czech Financial Office via Databox. Foreign entities can delegate these specific tasks to skilled and experienced professionals who can file the declarations on their behalf. This is an important consideration for corporate accounting in the Czech Republic.
There are many specifics to accounting in the Czech Republic. From our experience, foreign investors find it surprising that specific personal costs are not tax-deductible. The same applies to costs related to company events or business partner entertainment, which are not tax-deductible either.
In many countries, expenses related to business traveling are reimbursed on a receipted basis, while in the Czech Republic, employees are entitled to per diem amounts which are not subject to personal income tax. Another unexpected obstacle is that the Czech Tax Office requires all communication to be in the Czech language only, making it impossible to communicate in English, the unofficial language of international business.
Just like in the rest of the developed world, digitalization has become a significant topic in the Czech Republic recently. Companies are encouraged to archive their accounting documents electronically. Companies, as well as individuals, have been assigned their unique Databoxes to use for communication with official institutions and are highly encouraged to use the Databox as the only means of communication with all the offices. In some instances, filing hard-copy declarations instead of using the Databox can result in a penalty. Fortunately, Databoxes have been well tested in the past and are working well. Again, we recommend delegating these tasks to experienced local professionals who can relieve foreign managers and business owners of the burden, especially those handling accounting in the Czech Republic.
We are expecting the new Act on Accounting to become valid as of 1st January 2025. Currently, the Act is being commented on by various stakeholders and there seem to be many comments on the document. This upcoming change is critical for accounting in the Czech Republic.
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