The basics of a limited liability company in the Czech Republic

A limited liability company (in Czech: Společnost s ručením omezeným | s.r.o.) is the most common form of business in the Czech Republic. This company exists independently of its shareholders, and it may be formed either by one person (a natural or legal person) or more persons (the maximum number of persons is not set).

Main Advantages of a limited liability company in the Czech Republic

• Simple company formation
• Minimal contribution requirements – the minimum contribution of each shareholder is in the amount of CZK 1
• Wide scope of business – suitable for the vast majority of business activities and plans, multiple investors can be easily involved
• Easy transferability of shares
• Simple organizational structure
• Limited liability – shareholders are liable only up to the amount of their outstanding contribution to the company’s registered capital as recorded in the Commercial Register
• Tax optimization

Organizational Structure of a limited liability company in the Czech Republic

• Registration of the necessary trade licences (if not completed as a part of the incorporation process) or other specific licenses
• Registration of Corporate Income Tax within 15 days from the day the company is registered in the Commercial Register.
• VAT registration if the turnover exceeds 2,000,000 CZK. The mandatory registration needs to be filed within 10 days from the effective day and becomes payable from the first day of next calendar year. If the company exceeds 2,536,500,00 CZK, it becomes a VAT payer from the following day. If the annual turnover is below this amount, VAT registration can also be done voluntarily.
• Ultimate Beneficial Owner (UBO) registration – business corporations must register their beneficial owners in the Register of Beneficial Owners without undue delay once the company is duly incorporated. If a company fails to do so, sanctions may be imposed against them.
• Insurance registration – employers must notify the competent office of the Czech Social Security Administration of the date of commencement or termination of an employment relationship within 8 days of it occurring.
• Personal income registration – employers must also register with the local tax office for withholding income tax within 15 days of commencing an employment relationship.
• Opening a bank account – company must open a current bank account after its incorporation.

Does a managing director of a limited liability company in the Czech Republic have to be of Czech nationality?

No, the managing director can be of any nationality.

Can we incorporate the limited liability company in the Czech Republic remotely or is our personal presence required?

All but one of the steps can be arranged remotely by a power of attorney. The only step that requires personal presence is the opening of a current bank account once the company is duly incorporated.

Is personal presence required for opening a current bank account?

Yes, the personal presence of the person who will be authorised to use the bank account (usually the managing director) is necessary. This is due to European legislation which sets strict conditions on AML and compliance policy.

Who is an Ultimate Beneficial Owner (UBO)?

The beneficial owner is every natural person who directly or indirectly owns more than 25% of participation in the capital or voting rights in the company; or who is entitled to a share of profit exceeding 25%; or who exercises actual control over the company on other grounds. Other grounds may refer to a partnership agreement, for example.

What is the time limit for registering the UBO after the incorporation, and what are the sanctions in case the UBO is not registered or is registered improperly?

The Czech law does not provide a precise time limit for the registration of UBO. However, it states that the registration should be made without undue delay. In practice, this usually means within two weeks after the incorporation.

Companies that fail to register the UBO without undue delay may face the following consequences:

• Profits will not be paid out
• Shareholders will not be allowed to vote in the general meeting
• A fine of up to CZK 500,000 may be imposed
• Bank accounts may be blocked, problems with auditors may arise, and overall loss of credibility may ensue

What is a Data Box?

The Data Box represents a secure and state-guaranteed electronic communication portal, which can be used to communicate with authorities, courts or other entities, including private entities. It is a kind of e-mail box established upon the registration of each company. As part of our service, we can manage your Data Box and keep you informed of messages received and other necessary actions. The Data Box interface is only available in Czech.

What is the corporate income tax for a limited liability company in the Czech Republic?

Corporate income tax is levied at a standard rate of 21%. Find out more about taxation in the Czech Republic in our dedicated tax guideline.

What is a contract on performance of the office of a member of the statutory body, and is a company obliged to conclude it with its managing directors?

The essence of this contract is to regulate the rights and obligations of the company and the members of the statutory body in their mutual relationship. In practice, this contract is usually concluded (and recommended by us), but it is not obligatory. If the contract on performance of the office of the member of the statutory body is not concluded, it is established that the members of the statutory body perform their function without remuneration and the relationship between the statutory body and the company is governed by the provisions of the Czech Civil Code.

Common setups

In the following table we present an overview of possible setups of shareholders and other company’s bodies in the most used legal forms of business:

Special requirements

Persons who will form the statutory body have to prove their clean criminal history by obtaining and submitting their criminal background check from their country of citizenship.

If the shareholder is a legal person, the proof of its existence (extract from a commercial register) shall be required.

Liability for damages caused by the statutory bodies

It is very important for the statutory body to act with due care and diligence when performing their role in a company. If the statutory body fails to comply with due care and diligence, it becomes liable for damages.

Unfortunately, this liability cannot be limited in any way (for example by an agreement with the company etc.).

In order to protect the statutory bodies, insurance companies in the Czech Republic provide a commercial insurance option, meant to insure against damages caused by the decisions of statutory bodies.

Transfer pricing in the Czech Republic: Local legislation

Income Taxes Act No. 586/1992 Coll. (Section 23 (7))

Section 23 (7) of the Czech Income Taxes Act stipulates that if prices agreed between related persons (parties) differ from prices agreed between unrelated entities in common business relations under the same or similar conditions and the difference is not properly documented, the taxpayer’s tax base shall be adjusted by the ascertained difference.

Transfer pricing in the Czech Republic and international regulations

• Double Tax Treaties
• OECD Guidelines
• Arbitration Convention

OECD Guidelines

As a member of the OECD, the Czech Republic applies principles and recommendations issued by this organization. In this regard, the OECD issued the OECD Guidelines in 1995 which were subsequently updated in July 2010. The OECD Guidelines are not legally binding for the Czech Republic, nevertheless, are widely followed.

The Transfer Pricing principles defined by the OECD Guidelines were implemented into the Czech tax system by Guidance D – 34 of the Ministry of Finance. Even though not legally binding, Guidance D – 34 provides guidance for taxpayers how the Czech tax administration will approach the Transfer Pricing issues. Therefore, it is recommendable to follow the principles included in Guidance D – 34.

Arbitration Convention

The Czech Republic is one of the parties to the EU Arbitration Convention. This Convention establishes a procedure to resolve disputes where double taxation occurs between enterprises of different Member States as a result of an upward adjustment of profits of an enterprise of one Member State. The Convention provides for the elimination of double taxation by agreement between the contracting states including, if necessary, by reference to the opinion of an independent advisory body.

The OECD Guidelines set out three traditional transactional Transfer Pricing methods and two profit-based Transfer Pricing methods.

Traditional transactional Transfer Pricing methods

Profit based Transfer Pricing methods

Obligations

Generally, there is no legal obligation to prepare Transfer Pricing documentation. However, under Section 92 (3) of Act No. 280/2009 Coll. (Tax Code) as subsequently amended, the taxpayer is required to provide documentary evidence of all facts, which he is obliged to state in his tax return or other communication with the tax administration. In this context, the taxpayer may be requested to prove, how the Transfer Prices in its related-party transactions are determined, and whether they comply with the arm’s length principle.

The arm’s length principle requires that Transfer Prices charged between related parties are equivalent to those that would have been charged between independent parties under the same circumstances.

Guidance D – 334

The Ministry of Finance therefore issued the Guidance D – 334 that outlines the recommendations for taxpayers regarding the scope of documentation that may be used for the purposes of Transfer Pricing. Guidance D – 334 was prepared in accordance with the principles defined in the OECD Guidelines and the Code of Conduct issued by the EU Joint Transfer Pricing Forum.

Guidance D – 334 provides legally non-binding recommendations that are, however, advised to follow to ensure a smooth tax audit.

It is essential for the taxpayer to have supporting documentation in case the tax authority inspects the transactions, as the burden of proof lies on the taxpayer. During the tax audit, the tax authority may request any documentation that reasonably justifies the substance of the transaction, its benefits for taxpayers, the appropriateness of the fees and the selected method of transfer pricing in the Czech Republic .

The Advance Pricing Agreements (APA) are binding agreements valid for up to 3 years (if conditions and the law remain unchanged) between the tax authority and the taxpayer, which set out the method for determining Transfer Prices in related party transactions.

This concept of “binding ruling” is set out by Section 38nc of the Income Tax Act, which became effective as of 1 January 2006. First, the taxpayer files a request and, consequently, the tax administrator decides, whether the taxpayer has chosen a relevant Transfer Pricing method, which would result in a transfer price determination on an arm’s-length basis. The binding ruling can be issued only for transactions effective in a particular tax period or in the future.
It is impossible to apply for the binding ruling concerning the business relations that have already influenced the tax liability (tax base or tax loss) for the taxable period.

Guidance D – 32 describes the process for issuing binding ruling and the details for the application. Generally, the decision on the method of Transfer Pricing between related parties is effective for three tax periods following the day when the decision was issued.

The fee for APA in the Czech Republic is CZK 10,000 (approx. EUR 400) for one transaction.

Mutual Agreement Procedure

Mutual Agreement Procedure is a dispute resolution procedure provided by Article 25 of the OECD Model Tax Convention. The subject of this procedure is the negotiation between two governments with the aim to resolve matters of taxation not in accordance with the particular tax treaty and to try to avoid double taxation.

Penalties for transfer pricing in the Czech Republic

There are no specific penalties for transfer pricing in the Czech Republic. Generally, when the tax authority successfully challenges Transfer Pricing, a penalty of 20% of the unpaid tax or 1% of the tax loss reduction will be applied. In addition to this, interest for late payment is assessed at 8% + REPO rate of the unpaid tax.

Additional obligations for taxpayers

Taxpayers are obliged to fill in the mandatory annex to the corporate income tax return related to transfer pricing in the Czech Republic. This annex describes the intragroup transactions. Qualifying companies must state the information regarding related parties (name, registered office) and state the relevant financial amount.

For Czech nationals

No employment permission needed.

For foreigners

• foreigners from the EU, Switzerland and EEA and their family members do not need an employment permit
• foreigners from third countries (except some special categories of employees, such as holders of long-term residency permits, students etc.) need one of the following:

Regular employment

There are two types of regular employment contracts in the Czech Republic:

Work outside employment relationship

Furthermore, an employee may perform work outside employment relationship on the ground of two agreements:

Probationary period

In Czech employment contracts, the probationary period can be concluded as:

A probationary period may not be longer than one half of the agreed period of the employment relationship and must be agreed in writing on the day of commencement of employment at the latest.

The employer is obliged to pay monthly contributions to social and health insurance and advances on the income tax.

Contributions paid by employers for each employee

Contributions paid by employee

Personal income tax

The personal income tax in the Czech Republic is paid by the employee at a flat rate of 15% applicable on a gross salary up to the annual income of 36x the average salary (i.e. CZK 1,676,052 for 2025).

Income exceeding this limit is taxed at a higher flat rate of 23%.

The most common benefits for employees in the Czech Republic are:

• bonuses in terms of financial rewards
• professional trainings
• language courses and personal development
• the option to work remotely
• additional days off (extra holidays, study leave, sick days)
• discounts on company products
• flexible working hours
• meal vouchers
• company phone
• company car or transport allowance
• insurance contributions
• sports and recreation contributions*
• refreshment/beverages at workplace

Certain companies offer also temporary accommodation or housing allowances, recreation in the company’s facilities or holiday allowances, or free ticket by companies operating regular public transportation.

* Non-monetary benefits in the field of culture, education, , recreation and trips, etc., which are provided by the employer to the employee or his/her family members, will now be exempt from tax on the employee’s side only up to half of the average monthly salary for the whole calendar year (for 2025 this amount is CZK 23,278).

From 2025 a new limit has been introduced for health related employee benefits. These benefits are exempt from taxation on the employee’s part up to the average wage for the calendar year, i.e. up to CZK 46,557 for the calendar year 2025. The new limit should not replace the current limit for non-monetary benefits provided to employees by the employer up to half the average wage, i.e. CZK 23,278 for the year 2025, it will be monitored separately. The new limit for health benefits will apply to the purchase of goods or services of a health, medical, hygienic and similar nature from health services or the purchase of medical devices based on a medical prescription, e.g. contributions to medicines and prescription glasses, vaccinations, psychological consultations in registered health facilities, etc.

The main sources of the labour law in the Czech Republic are three acts:

• Act No. 262/2006 Coll., the Labour Code, as amended
• Act No. 2/1991 Coll., the Collective Bargaining Act, as amended
• No. 435/2004 Coll., the Employment Act, as amended

However, the area of labour law in the Czech Republic is governed by other important regulations, such as:

• Act No. 309/2006 Coll., the Act Stipulating Further Requirements for Health and Safety at Work, as amended
• No. 251/2005 Coll., the Labour Inspection Act, as amended
• No. 73/2011 Coll., the Labour Office Act, as amended
• Act No. 187/2006 Coll., the Sickness Insurance Act, as amended
• Act No. 329/2011 Coll., on benefits for people with disabilities, as amended
• Act No. 589/1992 Coll., on social security insurance and state employment policy, as amended
• Act No. 48/1997 Coll., on public health insurance, as amended
• Act No. 592/1992 Coll., on premiums for general health insurance, as amended
• Act No. 326/1999 Coll., on the Residence of Foreigners in the Territory of the Czech Republic, as amended
• Act No. 118/2000 Coll., on protection of employees against the employer’s insolvency, as amended

Basic and reduced VAT rates

The basic VAT rate in the Czech Republic equals 21%. A reduced VAT rate of 12% is applicable to specific goods, such as food and drinking tap water, special healthcare products or pharmaceutical products (incl. drugs and vaccines), public transportation, hotel accommodation, catering or entry to cultural and sport events.

Supply of goods within and outside the European Union

The supply of goods to another EU member state is exempt from VAT, provided that:

• The goods are physically delivered to another EU member state
• The goods are transported by a supplier, customer or third person on their behalf
• The customer provides valid EU VAT ID number for intracommunity purposes
• The transaction is reported in EC Sales List

The export of goods outside the EU is exempt from VAT, provided that:

• The goods are physically transported to third country by supplier or customer
• The supplier has confirmation of custom authorities or other documents confirming export from the EU

Taxable amount

The taxable amount equals the total amount that was received or shall be received for a taxable supply, including any excise duties, however, it does not include the value-added tax.

Voluntary and obligatory registration

Voluntary VAT registration is possible, but only for a taxable person. However, if the turnover threshold reaches CZK 2,000,000 within a calendar year, registration for VAT becomes obligatory.

The application for VAT registration must be submitted within 10 working days after the turnover threshold has been reached. In the application, taxable person may decide since when it would be registered as VAT payer:

1. As of the day following the day on which the threshold has been exceeded, or
2. As of the first day of the following year (i.e. always from January 1).

Once the turnover threshold reaches CZK 2,536,500 a taxable person becomes taxpayer always from the day following the day on which the threshold has been reached.

The due day to file the obligatory VAT registration falls on the 15th day of the calendar month following the calendar month in which the turnover threshold has been reached.

Group registration for taxable entities

In the Czech Republic, taxable entities who have their seat, place of business or fixes establishment within Czech territory and are financially, economically, and organizationally connected, may participate in group VAT registration, and therefore be considered as a single taxable person for VAT purposes.

Other specifications of the VAT registration

In case a taxable person does not fulfil the obligation to register for VAT, the tax authority is entitled to do so ex officio.

Besides the obligatory registration, Czech taxable entities must register for VAT for intra-community purposes in case of service provision to another EU member state or in case of acquisition of goods or services from another EU member state.

Definition of foreign taxable persons

Foreign taxable persons are entities without seat or fixed establishment located in the Czech Republic, who realize the delivery of goods or service provisions subject to Czech VAT obligations.

Obligatory registration for foreign taxable persons

Foreign taxable persons are obliged to register for VAT in the Czech Republic in case they deliver goods or provide services subject to Czech VAT obligations (except when the recipient is obliged to pay the tax) as well as in case of acquisition of goods from other EU member states.

For distance sales the threshold for the relevant transactions (distanced sale of goods and provision of telecommunication services, radio and television broadcasting services and electronically provided services to a non-taxable person), did not exceed EUR 10,000 (approx. CZK 253,000) in the relevant and the immediately preceding calendar year. Alternatively, a single EU VAT return submitted in the OSS (One-Stop Shop) scheme will be an option.

The electronic portal businesses (often participants of distanced sales of goods) selling imported goods to buyers in the EU, might, since 1 July 2021, instead of making the buyer pay the VAT as of import of the goods into the EU, declare and pay the VAT to the tax authorities in IOSS (Import One‑Stop Shop) scheme.

Minimum amount and applicable period

The minimum amount to be refunded is EUR 50 for the respective calendar year. However, the VAT refund may be requested also for shorter periods than the whole calendar year, but such period may not be shorter than 3 calendar months while the value of VAT must exceed EUR 400.

Deadline and place of filing for VAT refund

The deadline for filing of the VAT refund request is September 30 of the subsequent calendar year. The request shall be filed with the local tax authority in the other EU member state where the claimant is established. The deadline for the return of claimed VAT is 10 working days after a decision on the VAT refund is issued. This decision is issued between 4 to 8 months after filing the VAT refund request.

Refund for foreign taxable persons

VAT refund for a foreign taxable person is possible, upon the fulfilment of specific conditions.

Depending on the specific situation, following penalties can be imposed in case of VAT non-compliance:

• Fine up to CZK 300,000
• Late payment interest that is calculated as the National Bank’s repo-rate (currently 4%) increased by 8 %
• Penalty in the amount of 20 % of the assessed VAT amount

There are currently no general limitations on ownership or occupation of real estate by foreign entities or foreign citizens, and this applies to foreign guarantees and security as well.

However, specific limitations could follow from hypothetical economic sanctions imposed by the EU, United Nations or other international organisations of which the Czech Republic is a member. However, such sanctions are extremely rare and very unlikely considering the stability and characteristics of the Czech political and economic situation.

The real estate market in the Czech Republic can be quite confusing for a new investor.

As of 1 January 2014, when the new Civil Code came into force, buildings form part of the land on which they are located. This means that buildings are usually owned by the owner of the land. Buildings also cannot be transferred independently from the land (principle “superficies solo cedit”). This applies to the buildings constructed after 1 January 2014 and to the buildings which had the same owner as the land under the building on 31 December 2013. As always, there are some exceptions to this general rule. But let´s focus on the big picture.

Buildings constructed before 1 January 2014 can be considered as a separate real estate itself. Such a building will remain a separate real estate until it is owned by the same entity as the land under the building.

It has to be pointed out, that for the purpose of a merger of a building with the land under the building, both of the owners have a mutual statutory pre-emptive right, which means the owner of the land has a pre-emptive right to the building and vice-versa.

It is also possible to construct a building on another person’s land (without acquiring the land). This can be arranged by a right to build. Right to build is considered as a separate real estate in a legal sense and as such can be transferred or mortgaged. On the other hand, the building itself is not a separate object and only forms part of the right to build.

All of the information on a real estate can be found in the Cadastre of Real Estate administered by the State Administration of Land Surveying and Cadastre.

The Civil Code states that if a person acquires a real estate from the person registered in the Cadastre of Real Estate for a consideration and in good faith, then the ownership of the real estate is acquired even if the registered person has not been the legal owner of the real estate.

If the relevant Cadastral Office makes an error during a registration in the Cadastre of Real Estate, only a compensation for related damages can be claimed.

Real estate is typically acquired via:

In the past, acquisition of shares was often preferred due to tax reasons, as direct transfers of real estate were subject to the real estate transfer tax of 4%. However, in September 2020 the real estate transfer tax was dropped and currently the asset deal transfer is no longer subject to specific taxation. Still there are a few advantages when it comes to share deal – mainly provision of functioning company with capital to the buyer. This can be a bonus where the buyer/investor is a developer and would need these tools either way.

The disadvantage of share deals is that the investor acquires not only the relevant assets, but all the company’s liabilities as well. This is sometimes mitigated by corporate demerger, where the relevant asset is demerged to a newly established clean company that is subsequently the subject of the share deal.

With an asset deal the registration in the cadastral register is performed based on an application signed by each party to the purchase agreement, accompanied by an original or certified copy of the purchase agreement. The registration is subject to a fee, currently CZK 2,000. The registration proceedings take about one month, provided that the ownership is then transferred retroactively from the date of the filing of the application.

Because of an over 40-year period of communism in the Czech Republic, a kind of settlement of injustices made during these times has been implemented into the Czech law. The so-called restitution of Real Estate property in the Czech Republic is bound to the property unlawfully escheated by the Communist regime in the 1945-1989 period. Restitutions are mainly governed by the so-called restitution acts.

Due to the various restitutions, it is advisable for investors to check thoroughly the legal status of the intended acquisition from the point of being potentially the object of restitution at the Czech State Land Office, even though the risks relating to the restitutions are smaller every passing year.

Asset deals

In the past, real estate transfer tax was payable on the transfer of real estate in an asset deal. The rate of tax was 4 % from the agreed purchase price. This transfer tax is no longer in force since September 2020 and therefore, the transfer is not subject to special taxation.

However, in cases where no exemption (of which there are many, mainly the 2-10 year time test – depending on the time of purchase and personal/investment usage) can be used, the income tax still applies. The rates can be found in the Share Deals section of this material.

Share deals

The cancelled real estate transfer tax never applied to share deals. Instead, the income of the seller from the sale of the shares may be subject to:

• 21% corporate income tax rate (if the seller is a legal entity)
• 15% personal income tax rate (if the seller is a natural person)
• 5% corporate income tax rate (if the seller is a licensed real estate investment fund)

As with asset deals, there are several exemptions to income tax, which are targeted mostly towards natural persons. An advantage is that share deal is not subject to VAT.

VAT in relation to Real estate transactions in the Czech Republic

The following real estates are exempt from VAT:

• Land that does not form a functional unit with a construction firmly connected to the ground;
• Land that is not a building site;
• Other real estate after lapse of 5 year after issuance of:
  1. first occupancy permit, or
  2. occupancy permit after a substantial change in the real estate