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The Czech Republic has great investment potential due to its strategic location, quality workforce and strong industrial tradition. For those entering the Czech market, another significant advantage is the wide range of business real estate available, suitable for production, strategic services or technology centres. Industrial zones and buildings are comprehensively prepared for investors, often already equipped with the necessary infrastructure. Finally, the Czech Republic offers support to investors seeking to enter the Czech market in the form of investment incentives that are fully in line with applicable EU legislation.
Even when investors have good intentions and strong business plans, they often face problems simply because they do not know the local rules and customs. Based on our real experience, here are the most common mistakes we see companies make when entering the Czech market – and how you can avoid them from the beginning.
What mistakes do investors usually make during company formation?
At first glance, forming a company in the Czech Republic appears straightforward. In reality, many investors underestimate the formalities and local specifics, which can cause unnecessary delays or complications right at the start.
Common issues we see include:
Choosing the wrong legal form: Many investors default to a limited liability company (s.r.o.) without considering whether a joint-stock company (a.s.) or a branch of a foreign company might better suit their intended business or financing model. Later restructuring is possible but often costly and disruptive.
Incomplete or unclear founding documents: Founding deeds or shareholder agreements are sometimes prepared using foreign templates that do not reflect Czech legal requirements. Missing mandatory elements, such as clear definition of the company’s business scope or rules for decision-making, can block registration in the Commercial Register.
Failure to secure trade licences: Unlike some jurisdictions, most business activities in the Czech Republic require a trade licence or other form of official authorisation. Investors frequently assume that company registration alone is sufficient, only to discover they cannot legally operate until the licence is granted.
Improper appointment of directors: Directors must meet specific criteria, including having no criminal record and no disqualification in corporate roles. Submitting incomplete affidavits or criminal record extracts from the wrong jurisdiction is a common mistake that prevents registration. In practice, we also see companies setting overly complicated signing mechanisms — for example requiring two directors located in different countries to jointly sign all legal acts. While technically possible, this slows down day-to-day operations significantly, especially where notarised or certified signatures are required.
Overlooking registered office requirements: A company must have a valid registered address with the landlord’s formal consent. Clients sometimes underrate this formality, attempting to use addresses without proper documentation, which leads to rejection by the Commercial Register. Some professional advisors, including us, provide registered address services to ensure compliance and avoid unnecessary delays.
Rushing the process: In the drive to “launch quickly,” investors may skip proper review of founding documents, powers of attorney or translations. This often backfires when registries or notaries refuse filings due to technical errors.
What we wish clients knew beforehand
With proper preparation, company formation in the Czech Republic can be smooth and efficient. However, overlooking key formalities (from trade licences to director eligibility and registered office documentation) can turn what should be a predictable process into a source of repeated delays. Early involvement of local counsel ensures that the company is not only incorporated quickly, but also fully compliant and ready to operate from day one.
What tax-related mistakes do new investors often make?
Foreigners can become founders or co-founders of a Czech company, or they can join an existing one. They may also choose to operate in the Czech Republic through a branch of their foreign company. Depending on the chosen option, the tax planning and the procedures may differ.
From the perspective of CIT registration, it is important to monitor the deadline within which the company should be registered with the locally relevant tax office. The foreign investor should also pay close attention to fiscal year setting of its newly established Czech entity. Non-compliance with registration duties and deadlines could lead to penalties and late decisions related to fiscal year setting could give rise to additional costs in the future.
From a VAT registration perspective, companies often fail to properly assess the flow of goods and services, which can lead to choosing the wrong type of registration or no registration at all. This may result in penalties for late VAT declarations. Certain types of transactions also require mandatory VAT registration within a specific timeframe. Missing this deadline can again trigger penalties. We therefore always recommend discussing the flow of goods and services in advance with the local tax administrator to avoid unnecessary costs and risks arising from incorrect VAT treatment or delayed registration.
What can go wrong when setting up payroll in a new country?
Payroll in the Czech Republic is tightly regulated and overlooking local rules can quickly lead to penalties.
Frequent issues include:
Lack of knowledge of local legislation: Missing minimum wage rates, taxes, vacation entitlements or mandatory deductions. Employment contracts must specify that payroll follows Czech labour law.
Missed registrations: Companies must register with the tax office, social security, health insurers and accident insurance (Kooperativa). A Czech office also triggers registration for TV and radio license fees.
Missed deadlines: New companies and employees must be registered on time. Foreign employees must be reported to the Labor Office on their first day. Late filings or payments can result in fines.
Payroll calculation errors: Wrong net salaries, taxes or contributions. Failing to include benefits, overtime or vacation per Czech law.
Poor document archiving: Payroll documentation must follow strict Czech archiving rules.
Violation of personal data protection rules: Insecure handling of employee data or non-compliance with GDPR and local privacy laws.
Our recommendation is to engage a Czech payroll expert early to ensure compliance and avoid costly mistakes.
What are the most common labour law issues for foreign employers?
New employers on the Czech market may find Czech labour law somewhat tricky. It is characterized by relatively strong regulation. Based on our experience, we would like to draw attention to these most frequent mistakes.
One frequent mistake made by foreign employers is the use of employment contracts prepared for other jurisdictions. While it might be tempting to rely on familiar templates, Czech law imposes strict requirements regarding the structure and content. Failure to adhere can render contracts unenforceable and may result in penalties. It is essential that all employment contracts are concluded in full compliance with local legislation.
Another common issue arises when setting wages and employee benefits. Many foreign employers attempt to implement retroactive wage increases or bonuses, but the Czech Labour Code is explicit: payments must be agreed in advance. Retroactive adjustments are not permitted.
Termination of employment also presents challenges. The legal framework provides strong protection for employees, limiting the reasons for lawful termination. Without specific legal grounds, termination is invalid.
The use of Employees of Record is tightly restricted. Only licensed employment agencies may supply them, and foreign employers must be aware of this to avoid non-compliance.
Finally, when setting employee obligations, some employers rely on unilateral declarations. In the Czech context, rights and obligations must be established by mutual agreement or through internal regulations in accordance with the Labour Code. Unilateral imposition is not permitted and failure to follow proper procedures can lead to legal complications.
What accounting or reporting problems do new companies usually face?
New businesses often underestimate the complexity of accounting and reporting in the Czech Republic. Without proper systems and local expertise, they risk non-compliance and financial penalties.
One of the most common challenges faced by new companies is poor recordkeeping. When businesses delay the establishment of proper accounting systems, they often end up with missing or inconsistent data, which makes tax filings far more complicated.
In addition, missed deadlines are a frequent problem. For example, companies must typically submit their corporate tax returns by 1 July, provided a tax advisor holds power of attorney. Financial statements must be published within 12 months following the balance sheet date.
Not having a local accountant can create further difficulties. Without the support of a Czech-speaking advisor, companies are more likely to misinterpret VAT regulations, audit requirements or tax obligations.
Another issue arises when personal and business finances are mixed. This lack of separation undermines financial clarity and can lead to complications during audits.
Our recommendation is to hire a local accounting partner early. They’ll help ensure compliance, timely reporting and a solid financial foundation.
What practical or legal issues can delay financial setup or operations?
Banking and shareholder structure are two areas where foreign investors often underestimate the practical and legal hurdles. In our experience, these issues can delay the start of operations by weeks or even months.
One of the most common issues encountered is bank account opening delays. Czech banks adhere to stringent AML and KYC procedures. When directors or beneficial owners are based abroad, the banks typically request extensive documentation, which must often be apostilled and translated. They also require detailed mapping of the ownership chain and, in many cases, the personal presence of the client. What investors might assume will be a straightforward process can extend into several weeks or even months.
Another challenge relates to the proof of sufficient funds. Although the statutory minimum share capital for a Czech LLC is merely 1 CZK, in practice, banks and contractual partners expect evidence of adequate resources. Investors who only contribute the legal minimum may find it difficult to open a bank account, secure a lease or conduct larger transactions.
Complicated shareholder structures can also create obstacles. Czech law stipulates that if a legal entity is appointed to a statutory body, it must nominate a specific natural person to act on its behalf, with this individual’s details registered in the Commercial Register. This requirement is often overlooked, resulting in registration delays and queries from authorities.
Unclear ultimate beneficial owner (UBO) documentation is another frequent problem. Banks and registries demand complete transparency. If the UBO is concealed behind nominee structures or offshore entities, incorporation, bank account opening or tax registration can be significantly delayed.
Issues also arise when clients provide missing or non-standard documents. Official extracts, resolutions and powers of attorney from abroad typically need to be notarised, apostilled and translated. Submitting informal or English-language documents without consulting local experts often leads to registration blocks.
Finally, transactions can be frozen by compliance checks even after onboarding. Banks may hold or reject payments if the business purpose is unclear or if a transaction involves a high-risk jurisdiction. The first cross-border transfers are especially likely to be subject to additional scrutiny.
What we wish clients knew beforehand
Company formation in the Czech Republic (especially for an LLC) can be completed in a matter of days if properly managed. It is therefore unfortunate when avoidable issues with bank onboarding, shareholder representation or UBO documentation unnecessarily extend the timeline. With advance preparation of ownership documents, clear designation of representatives and early coordination with local banks and advisors, investors can ensure that administrative obstacles do not block what is otherwise a very efficient incorporation process.
What risks do companies face when trying to manage everything remotely or alone?
The company primarily faces the risk of not fulfilling all its legal, tax and reporting obligations. Tax laws are complex, and their interpretation is not always entirely clear. Each case should always be assessed individually. Most freely available information and resources are of a general nature and may not be applicable to a particular case. Apart from increased costs, non-compliance may result in financial penalties, late payment interest or reputational risks.
Local advisors have not only the necessary deep knowledge, but also the practices, up-to-date procedures and tools for communication with the authorities.
A tax advisor can help identify the correct interpretation of tax regulations, support their practical application, assist with tax filings and represent the company in negotiations with the tax administrator if needed. This helps companies to stay compliant and avoid costly disputes.
It should be borne in mind that all tax registration applications must be submitted electronically, i.e., via a data box or the electronic portal of the Czech tax authority. Moreover, the only official communication language is Czech. If the company’s directors are foreign citizens, they may not have access to the data box, leaving the company unaware of official notices and obligations, which can result in sanctions or enforcement proceedings.
Therefore, the involvement of a Czech administrator can be a very helpful solution for handling this agenda effectively.
Launching your business in the Czech Republic doesn’t need to feel daunting. Through our comprehensive company incorporation services in the Czech Republic, we’ll assist you in selecting the appropriate legal structure, manage all necessary documentation and ensure your setup is smooth and fully compliant from the start.
If you’re still exploring your options or unsure where to begin, book a free market entry consultation with our local experts. We will walk you through the key steps and help you avoid the most common pitfalls of entering the Czech market.
About Accace
Accace is a proactive consultancy and outsourcing partner who bridges the gap between needs and solutions. Combining smart and streamlined technology with a holistic approach, we provide an all-round care to clients and consider their matters as our own. With over 800 experts and approximately 2,000 customers, we have vast experience with facilitating the smooth operation and growth of small to large-scale, global businesses.
About Accace Circle
Accace operates internationally as Accace Circle, a co-created business community of like-minded BPO providers and advisors who deliver outstanding services with elevated customer experience and erase the borders of service delivery. Covering over 60 jurisdictions with more than 7,000 professionals, we support over 80,000 customers, mostly mid-size and international Fortune 500 companies from various sectors, and process at least 800,000 pay slips globally.
