Limited liability company in the Czech Republic (in Czech: Společnost s ručením omezeným | s.r.o.) is the most common form of business. 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).

Download our 2024 guide on limited liability company in the Czech Republic, or read more below

What is a limited liability company or LLC?

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

Supreme Body

General meeting; or

Sole shareholder who exercises the powers of the general meeting
Statutory Body One or more managing directors
Supervisory Board (optional) Optional body which supervises the managing directors, various documents, and accounts

Incorporation procedure of a limited liability company in the Czech Republic

The incorporation procedure of a limited liability company in the Czech Republic consists of the following steps:

Adopting the Memorandum of Association / Foundation Deed by the Notary Public

Arranging consent to the provision of the company’s registered office address

Registering the necessary trade licences of the limited liability company in the Czech Republic

  • Either before or after the registration of the company in the Commercial Register

Opening a bank account for contribution payments

  • This applies if the contribution is more than CZK 20,000; otherwise, the contribution can be paid to the contribution administrator

Registration of the company in the Commercial Register of the competent District Court

The incorporation time of a limited liability company in the Czech Republic is approximately 1 week after receiving the incorporation documentation.

How we can help you with our limited liability company in the Czech Republic

We will prepare all the necessary documents and advise you on the formalities (e.g., notarisation, legalisation).

We will incorporate the company and proceed with all the steps under the powers of attorney granted to us.

Once the limited liability company in the Czech Republic is duly incorporated, we will guide you through all the necessary steps and registrations and help you with them.

What documents are required from you?

  • A written consent on the provision of the registered office address (we can arrange this for you)
  • Documents relating to the appointment of the statutory body
    • Criminal background extracts of the appointed managing directors (for non-Czech citizens)
    • Personal data of the appointed managing directors
  • Extracts from the Commercial Register of shareholders and/or managing directors, if they are legal persons

Overview of obligations after incorporation 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)
  • Registration of Corporate Income Tax within 15 days from the day the company is registered in the Commercial Register.
  • VAT registration if the annual turnover exceeds 2,000,000 CZK. 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.

Frequently asked questions about the limited liability company in the Czech Republic

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 KYC 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, but it is not obligatory. If the contract on performance of the office of a member of the statutory body is not concluded, the relationship between the statutory body and the company is governed by the provisions of the Czech Civil Code.

Other forms of business*

*This list is not exhaustive

Joint-Stock Company (Akciová společnost | a.s.)

A joint-stock company is another form of business whose share capital consists of shares which are represented by securities. The company may be established by a sole shareholder. It may be formed by a private agreement to subscribe to all shares, or by a public offering.

Features of a Joint-Stock company:

  • High share capital requirements – CZK 2,000,000 or EUR 80,000
  • More complex and costly administration
  • Shareholders are not liable for the company’s debts or obligations
  • Suitable form of business for a large number of shareholders

Branch

A branch (in Czech: odštěpný závod) is a part of a company located in a different country from the parent or founding company. It is an economically and functionally independent part of the parent company, which is registered in the Commercial Register. It has its own registration number, registered office and its own accounts.

Features of a Branch:

  • Short establishment period and no liquidation requirements
  • No share capital
  • Easy administration
  • It does not have legal personality (e.g., all agreements must be concluded through the parent company).

Company formation in the Czech Republic is regulated by the Civil Code and Business Corporations Act. Czech or foreign investors entering the Czech market may choose between several corporate forms. There are no limitations for foreign investors when it comes to setting up companies. A foreign natural or legal person may establish any form of company either together with other foreign or Czech persons, or alone as a sole shareholder. In this respect, foreign natural and legal persons enjoy the same rights and bear the same obligations as Czech persons and may not be discriminated against.

Download our 2024 guide on company formation in the Czech Republic, or read more below

Legal forms of business, minimum capital, contribution

General Partnership (Veřejná obchodní společnost | v.o.s.)

A General Partnership is a company in which at least two persons carry out business activities under a common business name and bear joint and several liabilities for the obligations of the partnership with all their property. There is no requirement of a minimum registered capital, nor for the minimal contribution.

Limited Partnership (Komanditní společnost | k.s.)

A company in which one or more partners are liable for the partnership’s liabilities up to the amount of their unpaid contributions (limited partners), and one or more partners are liable for the partnership’s liabilities with their entire property (general partners).

The minimum contribution of the limited partner should be set in the Articles of Association. Again, there is no requirement of a minimum registered capital.

Limited Liability Company (Společnost s ručením omezeným | s.r.o.)

This is the most common form of doing business in the Czech Republic. The company exists independently of its members, and it may be established either by one (natural or legal) person, or by two or more persons (the maximum number of persons is not set).

According to the Business Corporations Act, the minimum contribution of each shareholder is in the amount of CZK 1. The minimum registered capital is not set in the legislation, so it is derived from the amount of minimum contribution of a shareholder (for a Limited Liability Company with one shareholder the minimum registered capital is CZK 1).

A Limited Liability Company is liable for the breach of its obligations with all its assets, while shareholders guarantee for the breach of the obligations of the Limited Liability Company only up to their committed but unpaid contributions to the registered capital registered with the Commercial Register.

ESTABLISHING AN LLC IN THE CZECH REPUBLIC HAS NEVER BEEN EASIER

Did you know that LLC is the most common form of business in the Czech Republic? Benefit from our 2024 Limited Liability Company formation guide and learn more about the incorporation procedure, obligations and how we can help you with the establishment process.

Joint Stock Company (Akciová společnost | a.s.)

The company may be established even by a sole founder. A Joint-Stock Company may be formed by a private agreement to subscribe for all shares, or by a public call for the subscription of shares.

The minimum registered capital required is CZK 2,000,000 or EUR 80,000.

Cooperative (Družstvo)

The purpose of a Cooperative is to undertake business activities or to ensure the economic and social or other benefits of its members.

A Cooperative is a community of an indefinite number of persons, but it shall have at least 3 members.

The Business Corporations Act does not set out the amount of minimum registered capital or minimum contribution.

Branch (Odštěpný závod)

Foreign companies may conduct business in the Czech Republic provided that they have their business or branch offices located in the Czech Republic, registered with the Czech Commercial Register.

No minimum registered capital or contribution is required.

Other forms of business

There are other 3 legal forms of business – entities primarily regulated by EU regulations – which are legally binding for all EU Member States:

  • European Company (or “SE”, Societas Europaea)
  • European Cooperative Society
  • European Economic Interest Group

Minimum documentation and incorporation time

The most important document required when establishing a company in the Czech Republic are the Articles of Association / Foundation Deed adopted in the form of a notarial deed.

Other documents required are subject to circumstances. Usually the following documents are also required:

an affidavit of a managing director on their ability to perform on a position of statutory body of the company

a clean Criminal Register extract for non-Czech managing directors

a declaration on registered capital payment

a consent with the provision of a registered office address (from the office landlord)

Incorporation time varies based on company type. For example: the establishment of a capital company could be finished within 7 working days, while the establishment of a partnership is generally less time consuming, and it could be completed in 5 working days.

Shareholders and company´s bodies

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:

Common setups Limited Liability Company Joint Stock Company Limited Partnership General Partnership
Shareholders Natural person(s) or legal entity(ies) Natural person(s) or legal entity(ies) At least 2 natural persons or legal entities At least 2 natural persons or legal entities
Company’s bodies

Managing director(s)

Supervisory board (voluntary)

Sole shareholder

or general meeting

General meeting

Monistic system: Managing board

Dualistic system: Supervisory board, board of directors
The statutory body consists of all of the general partners. The Articles of Association may specify that the statutory body is formed of only some of the General Partners or one of them. The statutory body consists of all of the Shareholders. The Articles of Association may specify that the statutory body is formed of only some of the Shareholders or one of them.

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 (excerpt from a commercial register) shall be required.

General overview of corporate taxes

Company formation in the Czech Republic and related taxes

Both corporate income tax residents and tax non-residents are subject to Czech corporate income taxes. A corporation is a tax resident if it is incorporated or managed and controlled from the Czech Republic. Tax residents are taxed in the Czech Republic on their worldwide income while tax non-residents only on their Czech-source income.

The taxable income is calculated on the basis of the accounting profits. As a general rule, expenses incurred on obtaining, ensuring and maintaining the taxable income are tax deductible.

Corporate income tax is levied at a general (standard) rate of 21%. Moreover, lowered corporate income tax rate of 5% applies to basic investment funds while pension funds are subject to a corporate income tax rate of 0%.

The tax period may be a calendar year or a fiscal year. The taxpayer has the obligation to calculate the tax due in the corporate income tax return (self-assessment). The time-limit for corporate income tax return filing is three or six months depending on certain conditions.

Advance tax payments are paid semi-annually or quarterly depending on the amount of the last known tax liability.

Find out more about taxes in the Czech Republic in our dedicated tax guideline.

Investment incentives

Czech and foreign legal entities, as well as natural persons engaged in business activities in the Czech Republic, can apply for investment incentives. The supported areas include:

manufacturing industry

technology centres (R&D)

production of strategic products for the protection of life and health

strategic service centers

When meeting the conditions, investment incentives can be provided in the form of:

  • corporate income tax relief for a period of 10 years
  • financial support for acquisition of tangible fixed assets up to 10% of the eligible costs
  • cash grant for job creation
  • cash grant for training of employees

Other aspects

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 is liable for damages sustained by a company.

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.

The insolvency proceedings, described in this publication, is a legal proceeding concerning a debtor’s insolvency or impending insolvency and the method of its solution. The Act No. 182/2006 Coll., on Bankruptcy and Settlement (Insolvency Act), governs insolvency proceedings in the Czech Republic. Our experts summarised the key proceedings and liabilities, to provide you a complex overview on the matter.

Download our 2024 eBook on insolvency proceedings in the Czech Republic, or read more below.

Introduction

The debtor is insolvent if:

the debtor has more than one creditor

the financial obligations are for more than 30 days overdue

the debtor is unable to fulfil its obligations

The debtor is unable to fulfil its obligations if:

  • the debtor stopped to reimburse a substantial part of its financial obligations; or
  • the debtor has financial obligations for more than 3 months overdue;
  • it is not possible to satisfy any outstanding monetary claims against the debtor by enforcement execution; or
  • the debtor has not fulfilled the obligation imposed by the court to provide lists enumerated in Section 104 par. 1 of the Insolvency Act.

Preventive restructuring

In 2023, Act No. 284/2023 Coll., on Preventive Restructuring (the Preventive Restructuring Act) was adopted to help entrepreneurs prevent bankruptcy and avoid the need to initiate insolvency proceedings. The option of preventive restructuring can be used by all commercial corporations, with exceptions provided for by the Preventive Restructuring Act (banks, insurance companies, financial institutions, health insurance companies and others).

If an entrepreneur is interested in using the institute of preventive restructuring, it must meet the following conditions:

  • being in good faith in maintaining or restoring the operability of its business plant;
  • not being insolvent;
  • facing real financial difficulties to such an extent that failure to adopt restructuring measures would lead to bankruptcy.

Preventive restructuring is inadmissible if it is initiated or continued by an entrepreneur pursuing a bad faith purpose and also by the entrepreneur:

  • is in liquidation;
  • which has been declared bankrupt in the last 5 years; or
  • for which a preventive restructuring has been terminated in the last 5 years prior to its reopening by a declaration of inadmissibility of the preventive restructuring for bad faith.

In the process of preventive restructuring, the role of the entrepreneur is crucial, as it is obliged to monitor its situation and, if necessary, take the necessary preventive measures in time.  To facilitate the identification of potential problems, the Ministry of Justice has launched the Financial Health web application.

Preventive restructuring begins with a call for negotiations on a restructuring plan and a proposal for a so-called rehabilitation plan. The entrepreneur is also obliged to notify the restructuring court, which is the regional court, of the commencement of the restructuring.  Within six months at the latest, the entrepreneur is obliged to submit the restructuring plan to the parties concerned for a vote.

Preventive restructuring may end:

  • by fulfilling, or not fulfilling, the restructuring plan;
  • by the court’s decision not to confirm the restructuring plan or its subsequent revocation;
  • by the court’s decision on the bankruptcy of the entrepreneur in insolvency proceedings.

Unlike insolvency proceedings, preventive restructuring is primarily intended to enable entrepreneurs experiencing financial difficulties to find a solution together with their creditors and thereby reach a mutual agreement on how to enable the entrepreneur to continue its activities and ensure satisfaction of all (or at least the majority of) creditors’ claims. Preventive restructuring is essentially a private and private law process in which not all documents (incl. the rehabilitation plan and the restructuring plan) need to be made public.

Types of insolvency resolution methods

If the preventive restructuring was not successful or could not be used and the debtor finds itself in bankruptcy, it can be resolved by the following three main methods:

bankruptcy liquidation – debtor’s business activities are stopped and all the debtor’s assets are sold. The creditors’ receivables are proportionally satisfied through distribution of the proceeds of the sale;

reorganisation – debtor’s business activities continues according to a reorganisation plan approved by the creditors. The creditors’ receivables are paid off gradually;

debt relief (“personal bankruptcy”) is a way of dealing with bankruptcy available for:

  • legal entities that are not considered entrepreneurs under the law and do not have debts from business (e.g. unit owners’ associations or non-business associations); and
  • natural persons.

The debtor is released from all its debts subject to the conditions approved by the creditors and the court.

In addition to the three main methods of insolvency resolution, there are also special methods provided by the Insolvency Act for certain entities or for certain types of cases.

Stages of the insolvency proceedings

Stages of the insolvency proceedings are as follows:

  • initiation of insolvency proceedings by filing of an insolvency petition;
  • the declaration of insolvency;
  • decision on the resolution method of the debtor’s insolvency;
  • implementation of the method; and
  • termination of insolvency proceedings.
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Insolvency proceedings

Initiation of insolvency proceedings

Insolvency proceedings may be initiated only by the insolvency petition filed either by a debtor or by a creditor. The insolvency proceedings begin on the date when the insolvency petition is filed with a competent insolvency court.

The insolvency petition can be filled either in paper or electronic form.

If an insolvency petition is filed by a creditor against a legal entity, the petitioner is obliged to make a deposit of CZK 50,000 for the costs of the insolvency proceedings.

If the petition is filed against a legal person who is not an entrepreneur or against a natural person, the petitioner is obliged to pay a deposit of CZK 10,000.

In addition to the deposit, the creditor filing a petition for the commencement of insolvency proceedings is obliged to pay a court fee of CZK 2,000.

Declaration of insolvency

The insolvency court shall issue a declaration of insolvency if the evidence proves that the debtor is insolvent. The insolvency should be declared within a maximum of 15 days, without a court hearing.

The declaration of insolvency also contains decision on:

an appointment of an insolvency administrator

information on when the consequences of the insolvency decision will come into effect

an invitation to creditors to register their claims

date and place of the creditors’ meeting

and other information acc. to Section 136 (1) of the Insolvency Act

Moratorium

If the debtor is an entrepreneur, he can use the moratorium as protection from his creditors. The moratorium is declared by the insolvency court after the filing of the insolvency petition for a maximum of 3 months. It makes sense to use the moratorium when the debtor has become insolvent but can prove that he will be able to meet his obligations again after the moratorium period (e.g. production failure, secondary insolvency, pandemic).

For the duration of the moratorium, the debtor cannot be declared insolvent and the same effects as by the commencement of insolvency proceeding are triggered. However, creditors may still file claims and intervene in the proceedings during the moratorium. Although the effects of filing and intervening in the proceedings only take effect when the moratorium period is over.

Legal effects of initiation of insolvency proceedings

Legal effects of initiation of insolvency proceedings are as follows:

  • claims and other rights relating to the insolvency estate cannot be applied through an action;
  • the right to be satisfied from security relating to property owned by the debtor or property belonging to the estate may be exercised and acquired anew only under the terms of the Insolvency Act;
  • the exercise of judgment or execution may be ordered, but it cannot be performed;
  • it is not possible to execute an agreement between the creditor and the debtor on deductions from wages or from other income.

Set-off is generally available to the creditors in respect of mutual claims until the declaration of insolvency, or until the filing of a proposal for reorganisation. However, set-off is not possible after the declaration of insolvency, if the creditor:

  • has not become a registered creditor with regard to the set-off of its claim;
  • obtained a set-off claim by ineffective legal action;
  • was aware of the debtor’s bankruptcy at the time of acquisition of the set-off claim; or
  • has not yet paid the debtor’s outstanding claim to the extent that it exceeds the creditor’s set-off claim.

Registration of Claims

Creditors whose receivables are secured by property of the estate under a mortgage or a title transfer security arrangement are secured creditors. Other creditors are unsecured.

Creditors have to register their claims on a special form. You can find the application form here. Applications of claims and their annexes shall be submitted in duplicate to the insolvency court.

Applications shall be submitted by data box or in electronic form with a recognised electronic signature. If electronic submission is not possible, applications shall be submitted in paper form in duplicate, including all annexes.

The insolvency court shall invite creditors, who wish to submit their claims in the insolvency proceedings, to submit applications. Creditors may file applications until the insolvency decision is made and the court may not shorten this period in any way.

The insolvency court is obligated to set out the deadline for the registration of claims in the decision on declaration of insolvency. The creditors shall register their claims in period of 2 months. This period is a procedural one, which means that it is sufficient to send the claim application on the last day of the deadline. No excuse for missing the deadline for filing applications shall be admissible.

Satisfaction of the registered claims

When all assets pertaining to the insolvency estate are monetised, it’s time to satisfy the registered claims.

If the proceeds from the monetisation of the insolvency estate are not sufficient to meet all of the registered claims, following claims are satisfied in full:

  • insolvency administrator’s fee and cash expenses;
  • claims of creditors arising during the moratorium;
  • creditors’ claims from credit financing (provided to finance the debtor during insolvency proceedings);
  • costs associated with the insolvency estate administration and maintenance
  • labour-law claims of the debtor’s employees;
  • creditors’ claims to maintenance and to compensation for damage to health.

Other claims are satisfied proportionally.

Claims secured by an asset of the debtor are satisfied from the proceeds from the monetisation of the security. If the proceeds exceed the claim, the exceeding amount is distributed between the unsecured debtors. If the proceeds are not sufficient to meet the secured claim, the unsatisfied part of the secured claim is deemed as unsecured claim.

Closure of insolvency proceedings

The closure of insolvency proceedings depends on the selected insolvency resolution method.

The bankruptcy liquidation is usually terminated after the final report drawn up by the insolvency administrator is approved by the insolvency court. Although unsatisfied claims do not cease to exist, the termination of the bankruptcy liquidation is followed by cessation of existence of a corporate debtor.

Reorganisation ends with the insolvency court’s decision on acknowledgement of the fulfilment of the reorganisation plan or substantial parts thereof. In cases stipulated by law, reorganisation may be also transformed into bankruptcy liquidation. In particular such situation occurs when the debtor is unable to comply with the reorganisation plan.

Debt relief ends with the insolvency court’s decision acknowledging the implementation of debt relief. If the debtor complies with all obligations under the approved debt relief method, the insolvency issues an order freeing the debtor the payment of debts included in the debt relief procedure to the extent to which they have not yet been met. Debt relief can be also transformed into bankruptcy liquidation when the debtor fails to comply with debt relief conditions.

Liability of creditors for denied claims

Penalties

In case the creditor registers a claim, which is then denied or admitted in amount of less than 50 % of its originally registered amount, the entire claim is disregarded by operation of law. The court may decide to impose on the creditor to pay to the insolvency estate a penalty in the amount of the difference between the amount of the claim filed by the creditor and the registered amount.

Liability of the statutory bodies

Members of statutory bodies of companies are obligated to file an insolvency petition without undue delay when the company becomes insolvent. A member of a statutory body who did not submit an insolvency petition regarding “their” insolvent company is responsible for damages or other injuries related to the breach of his obligation.

According to section 66 of the Czech Business Corporations Act, in case the member of the statutory body of the company contributed to the company’s insolvency:

such a member of the statutory body might be obliged to return the remuneration or other benefits acquired according to the management agreement for a period of two years preceding the declaration of insolvency, provided the insolvency proceedings were initiated by a creditor; and

if the bankruptcy is declared, based on a petition from the insolvency administrator, the member of the statutory body may be obliged to provide the company with the funds equal to the difference between the company’s assets and its obligations.

As can be seen from the above, insolvency proceedings can have serious consequences for a member of the company’s statutory body. In particular, if he/she fails to act with due care and diligence or fails to file an insolvency petition on time. In this context, it should also be noted that the tax authorities quite often file criminal charges against members of statutory bodies in cases where the amount of CZK 50,000 or more in tax has not been paid. In order to reduce the potential financial risk – especially in large corporations – it is necessary to have a well-drafted agreement on the performance of the office and appropriate insurance.

Data regarding insolvency proceedings in the Czech Republic

During 2022, the number of insolvency petitions fell by 14% compared to 2021.

A total of 21,375 insolvency petitions were filed in 2022, the lowest number of petitions since 2011.

However, insolvencies can be expected to gradually increase again. It will mainly depend on the escalation of war conflicts and their impact not only on the domestic but also on the global economy.

The number of company bankruptcies declared in 2022 was only 696, and in this area there was again a slight decrease compared to 2021.

The number of personal discharge of debts also fell to a total of 19,650 in 2022, the lowest number since 2013. Similarly, there was a decline in the number of bankruptcies filed by citizens (176 in 2022) and sole entrepreneurs (152 in 2022).

The only increase seen in 2022 is in the number of reorganizations, which amounted to 23 in 2022.

The average satisfaction of the unsecured creditors remains at the level of 7% of their registered receivables in the bankruptcy proceedings.

Even though the average satisfaction of the unsecured creditors is quite low, it is highly recommended to register your receivable against an insolvent debtor. The registration of the receivable in the insolvency proceedings is one of the conditions to create accruals on the unpaid receivable in the full amount and claim a full refund on the amount of VAT paid.

We will be more than happy to help you with the receivable registration as well as with all the relating tax issues.

As in previous years, our tax experts have prepared a comprehensive overview of taxes in the Czech Republic.

Our guideline provides useful information that shall matter to you when considering doing business in the Czech Republic

Download our 2024 overview of taxes in the Czech Republic or read more below.

Legal forms of business

General rules on purchasing of real estate

The real estate investor can acquire real estate located on the territory of the Czech Republic by way of an asset deal (e.g. direct acquisition of real estate) or a share deal (e.g. acquisition of a corporation owning real estate).

Asset deal

Foreign entities (natural or legal) may directly acquire real estate in the Czech Republic.

Share deal

As an option, the investment can be done through a resident corporation which directly owns the real estate.

 

The form of business The minimum capital (approx. in EUR) Corporate Income Tax treatment Tax rates
English Czech
Unlimited Partnership Veřejná obchodní společnost (v.o.s.) N/A Income tax base is calculated at the level of the partnership and then transferred to partners; tax is levied at the level of the partners. No need to file a tax return. 15%1)
or
21% 2)
Limited Partnership Komanditní společnost (k.s.) N/A Income tax base attributable to general partners is transferred to general partners and tax is assessed at the level of general partners. The remaining part of the income tax base is taxed at the level of the entity. 15%1)
or
21% 2) 21% 3)
Limited Liability Company Společnost s ručením omezeným (s.r.o.) N/A Non-transparent, fully liable to tax. 21%
Joint Stock Company Akciová společnost (a.s.) CZK 2,000,000 (approx. EUR 83,3304)) Non-transparent, fully liable to tax. 21%
Branch Organizační složka N/A Income tax base attributable to the Czech branch is taxable. 21%
Cooperative Družstvo N/A Non-transparent, fully liable to tax. 21%
Sole entrepreneur Živnost N/A Taxed as part of the overall liability of the individual. 15%

1) In the case that the general partners are individuals, personal income tax rate of 15% applies.
2) In the case that the general partners are corporations, the corporate income tax rate of 21% applies.
3) Tax base attributable to limited partners is taxed at the level of the partnership at 21% corporate income tax rate.
4) Exchange rate used – 24.000 CZK/EUR, rounded to the nearest 10.

Social security and labor law aspects

General social security and health insurance

Contribution for Maximum ass. base per year Employee Employer Sole entrepreneur
Social security        
–         Pension insurance CZK 2,110,416 (approx. EUR 87,934) 6.5% 21.5% 28%
–         Sickness insurance 0.6% 2.1% 2.7%1)
–         Unemployment insurance N/A 1.2% 1.2%
Health insurance N/A 4.5% 9% 13.5%
TOTAL   11,6% 33,8% 45.4%

 

1) The contribution is voluntary.

Social security and health insurance assessment base of an employee is derived from taxable employment income. In case of sole entrepreneur, the assessment base is calculated as the half of the personal income tax base.

The maximum base for social security contributions amounts to CZK 2,110,416 (approx. EUR 87,934) per year/per employer.

If the assessment base exceeds the limit, the amount of income that is above the limit is not subject to social security. When an employee has more than one employer during the year, the limit for social security contributions (24,8%) is applicable for each employer separately.

Residents of the EU are covered by the provisions of EC Regulation 883/2004 regulating social security and health insurance rules in case of cross-border activities. If non-EU residents work in the Czech Republic or Czech nationals work in a third country a bilateral social security agreement may provide for the applicable social security legislation (where such agreement is concluded). Provided that a bilateral social security agreement is not concluded, the local legislative applies only.

General comments on Czech labour law

Main features of employment relationship Applicable law on labour
Contract type

Labour contract (either for definite or indefinite period)
Agreement on work performance
Agreement on working activity

  • Act No. 262/2006 Coll. Labour Code
  • Act No. 589/1992 Coll. on social insurance
  • Act No. 48/1997 Coll. on health insurance
  • Government regulation No. 567/2006 Coll. on minimum salary
  • Act No. 309/2006 Coll. on safety and health protection at work
  • Act No. 251/2005 Coll. on labour inspection
Contract must include

Type of work
Place of work
The day the employee shall start his / her work
(The contract must be concluded in writing)

Working time 40 hours per week
Holiday entitlement per year 20 days
Other comments Trial period (max. 3 or 6 months), statutory rules in case of employment termination, notice period (minimum of 2 months)

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Taxes on corporate income

Corporate income tax (“CIT”) – rates

Corporate income tax is levied at a general rate of 21%.

Corporate income tax rate of 5% applies to basic investment funds. Pension funds are subject to tax rate of 0%.

Corporate income tax – general information

Residence

A company is treated as resident if it has its legal seat or place of effective management in the Czech Republic.

Taxable income

Resident companies are taxable on their worldwide income. The taxable income is calculated on the basis of the accounting profits according to Czech accounting regulations and is adjusted for tax purposes. Non-resident companies are taxed only from Czech source income.

Tax period

The calendar year or the fiscal year.

Tax returns and assessment

The taxpayer has the obligation to calculate the tax due in the corporate income tax return (self-assessment). The time-limit for filing the tax return is generally three months after the end of the tax period. If the CIT return is filed electronically, the time-limit for filing the tax return is four months. If the CIT return is filed by a tax advisor or the taxpayer is subject to a statutory audit, the time-limit for the submission of the CIT return is six months.

Tax advancement

Advance payments have to be paid semi-annually, if the last known tax liability is between CZK 30,000 – 150,000 (approx. EUR 1,250 – 6,250). Then the advance payment is 40% of the tax liability.

If the last known tax liability is higher than CZK 150,000 (approx. EUR 6,250), the advance payment is ¼ of the previous tax liability and is paid quarterly.

Deductions

Generally, expenses incurred in obtaining, ensuring and maintaining taxable income are fully tax deductible, unless they are listed as non-deductible items or items which are deductible only up to a limit set by the law.

Deductions on research and development

Expenses on research and development projects can be deducted from tax base up to 100%, resp. 110% of the expense. In fact, research and development costs are claimed twice, because the cost of research and development project remains in the calculation of the tax base. Deduction can be made for up to 3 years.

Education tax deduction

Companies can obtain tax deductions in two forms. A deduction for assets acquired for professional education, can be made twice:

1

by the depreciation of asset which decreases the tax base

2

by the deduction of up to 110% of value of asset in the year of acquisition

Companies providing professional education can deduct CZK 200 (approx. EUR 8) per hour of educational activity, which is the second form of deduction.

Tax losses

Tax losses derived after 1993 may be carried forward
5 tax years

%
Starting from July 2020, the tax losses can be carried backwards
2 tax years

%

Tax losses derived after 1993 may be carried forward for 5 tax years.

Starting from July 2020, the tax losses can be carried backwards for 2 tax years. The maximum amount that can be claimed is CZK 30 million (approx. EUR 1,250,000).

Exemption from taxation

The following types of income are tax exempt:

Dividends paid by a subsidiary (CZ or another EU Member State resident) to its parent company (CZ or another EU Member State resident).

Income from sale of participation in a subsidiary (CZ or another EU Member State resident).

Dividends and income from sale of participation in a subsidiary if the subsidiary is a non-EU resident from a “double tax treaty” country and is subject to corporate income tax which is not lower than 12%.

There are several conditions which must be met to be able to claim the exemptions in the situations 1-3 above. The key condition is that the parent company holds at least a 10% share in the subsidiary for at least 12 uninterrupted months. Income under situation 1 above is tax exempt if it is paid to a resident of Switzerland, Norway, Iceland and Liechtenstein as well.

Incentives

Investment incentives are available to Czech Republic seated entities owned by both Czech and foreign investors for the following supported areas:

Manufacturing industry

Technology centers

Business support services centers – shared-services centers, software-development centers and high-technology repair centers, call centers and data centers

While meeting the conditions, investments incentives can be provided in the following forms:

  • Income tax relief for up to 10 years
  • Financial support for creation of new jobs
  • Financial support for training and retraining new employees
  • Financial support in the case of strategic investments in manufacturing or in technology centers
  • Transfer of public land at a favourable price
  • Real estate tax exemption for up to 5 years
  • Grant of investment incentives is subject to government approval

Withholding tax

Dividends

Dividends paid to residents and non-residents are subject to 15% withholding tax.

However, under the EU parent-subsidiary directive, dividends paid from subsidiary to parent company are exempted from taxation under the following conditions. Dividends paid from a subsidiary (CZ, EU) to its parent company (CZ, EU) are exempted from taxation, if the parent holds at least a 10% share in the subsidiary for at least 12 uninterrupted months. Similar treatment applies also to dividends paid by a CZ subsidiary to a parent company seated in Norway, Iceland, Switzerland and Liechtenstein.

Withholding tax of 35% applies when dividends are paid to other jurisdictions than EU/ EEA states or states with which the Czech Republic did not conclude a double tax treaty.

Interest

Interest paid to non-residents is subject to a 15% withholding tax. Exemption can be applied when interest is paid by a Czech resident to a company with permanent residency in the EU, Switzerland, Norway, Iceland or Liechtenstein. Taxpayers from EU/EEA are permitted to file a tax return to deduct costs related to interest payment.

A 35% rate applies when interest is paid to other jurisdiction than EU/ EEA states or states with which the Czech Republic did not conclude double tax treaty.

Royalties

Royalties paid to non-residents are subject to 15% withholding tax. Royalties can be exempted from taxation when paid from Czech tax resident to company from EU member state, Switzerland, Norway, Iceland or Liechtenstein. Taxpayers from EU/EEA are permitted to file a tax return to deduct costs related to royalties.

A 35% rate applies when royalties are paid to other jurisdiction than EU/ EEA states or state with which the Czech Republic did not conclude double tax treaty.

Anti-avoidance rules

Thin capitalization

It is prohibited to deduct interest expenses from loans provided by related parties when the sum of loans during a tax period exceeds six times the equity if the recipient of a loan is a bank or insurance company or exceeds four times the equity for other recipients of loans.

Excessive borrowing costs

Excessive borrowing costs are tax deductible only up to a predefined limit. The limit is set at 30% of tax profit before taxes, interest, depreciation, respectively CZK 80 million.

At the same time, the Income Tax Act allows the tax base or the difference between income and expenses to be reduced in the following tax periods by amounts that have under the proposed rule increased the tax base or the difference between income and expenses in previous periods. The mentioned reduction of the tax base or the difference between income and expenses is allowed in a tax period in which the taxpayer does not reach the limit of excessive borrowing costs.

Controlled foreign company

In determining its tax base, the controlling company considers the so-called included revenues achieved by the controlled foreign company. Included revenues cover e.g. license fees, dividend income, income from sale of ownership share, income from sale of goods and provision of services from/to affiliates without added value/ with little added value, insurance, banking and other financial services, etc.

The so-called included revenues form part of the tax base of the controlling company in proportion to the share capital of the controlled foreign company. The adjustment of the tax base of the controlling company by the included revenues shall not be done provided that such an adjustment would lead to decrease of the tax base of the controlling company.

DAC6

The Czech Republic implemented DAC VI EU guideline under which cross-border arrangements the implementation of which can lead to a tax advantage must be reported to tax authorities. The first reporting deadline was set at 31 January 2021.

DAC7

The Czech Republic implemented DAC VII EU guideline that requires operators of digital platforms in the EU to report information about their providers.

The directive impacts platforms with the following activities:

  • Rental of immovable property, both residential and commercial
  • Rental of any mode of transport
  • Providing personal services
  • Sale of goods

The first reporting period is scheduled for 2023 and the first reporting deadline is set at 31 January 2024.

Transfer pricing

The transfer pricing rules apply between related parties (both resident and foreign). Parties are related if one has direct or indirect participation of 25% in capital or voting rights of the other party. Parties can also be related when the same person participates in management or control of both parties.

When prices in transaction between related parties differ from market prices and the difference is not justified, tax base is adjusted by the difference.

International aspects

Double tax treaties

Elimination of double taxation (credit or exemption) is available under the relevant double tax treaty. The unused part of foreign tax may be deducted as a tax expense in the following period.

Taxes on individual income

Personal income tax – rates

The tax rate of 15% is applied to income up to CZK 1,582,812 (approx. EUR 65,951)/monthly employment income up to CZK 131,901 (approx. EUR 5,496) and the tax rate of 23% is applied to income exceeding this amount for 2023.

Certain types of income are not aggregated but are subject to a special final withholding tax of 15% or 35%.

Personal income tax – general information

Residence

Individuals who have their permanent residence or habitual abode in the Czech Republic are treated as Czech tax residents. An individual has his/her habitual abode in the Czech Republic if he/she is present in the Czech Republic for at least 183 days (in aggregate) in a calendar year (except individuals who stay there for the purposes of studying or receiving medical treatment). All other individuals are treated as Czech tax non-residents. Should an individual be also regarded as a tax resident in another country based on the other country’s domestic law, the double tax treaty determines his/her final tax residency status based on tie breakers stipulated in the respective double tax treaty.

Taxable income

Individuals who are residents for tax purposes in the Czech Republic are taxed on their worldwide income. Czech tax non-residents are taxed only on Czech source income only. Taxable income of an individual is usually calculated by aggregating the separate net results of the following income categories:

Employment income: salaries, wages, bonuses, remuneration of executives and board members

Capital income: interests and dividends (also from foreign sources for Czech tax residents)

Other income: income from the sale of securities, sale of property (if not tax exempt)

Income from the independent activity: income from business activities and professional services

Rental income: income from lease of immovable property

Related expenses can be applied only for the income from the independent activity, rental and other income. Specific exemptions and deductions differ for each income category, for the income from the independent activity and rental income, expenses can be applied as a percentage of income or as actual expenses.

Exemption from taxation

There are several exemptions from taxation stipulated in the Income Tax Act e.g.:

  • Income from sale of house or flat is exempted from taxation, if the seller has a permanent residence for at least 2 years before the sale.
  • The time test for exempting income from the sale of real estate not used / intended for residential purposes was extended from 5 to 10 years. Income from sale of immovable asset is exempted from taxation, when the period of ownership of the asset exceeds 10 years before the sale. This applies to sales of properties acquired after 1 January 2021.
  • Income from sale of movable property (some exceptions apply).
  • Income from sale of a share in a limited liability company entity is exempted from taxation if the share was held for at least 5 years before the sale.
  • Income from sale of securities is exempted if they are held for at least 3 years before the sale or if the total income does not exceed CZK 100,000 (approx. EUR 4,160).
  • Social transfers.
  • Pensions are exempted up to CZK 680,400 (approx. EUR 28,350).

Tax period

Calendar year.

Tax assessment

Tax return must be filed by 1 April of the following year (paper form) or by 1 May electronically via a data mailbox or with an electronic signature. The deadline can be extended until 1 July if the tax return is prepared and filed by a tax advisor or by an attorney based on a power of attorney. An employee, who does not have to file the tax return, may take part in the process of annual tax reconciliation arranged by the employer, the request has to be signed by 15 February.

Losses

Tax losses generated from independent activities and rental activities may be set off against all types of income (except of employment income). Losses that cannot be set off may be carried forward or carried back. The standard carry-forward period is 5 years. A taxpayer may also claim the tax loss in 2 preceding tax periods up to the maximum total amount of CZK 30 million via a supplementary tax return.

Personal deductions

The following deductions can be applied by an individual:

  • Donations – minimum of 2% of personal income tax base or CZK 1,000 (approx. EUR 42), maximum of 15% of personal income tax base.
  • The maximum limit for the deduction of interests on a mortgage loan was reduced from CZK 300,000 (approx. EUR 12,500) to CZK 150,000 (approx. EUR 6,250). The lower limit applies to mortgage loans concluded from 1 January 2021.
  • Private pension insurance – except for first CZK 12,000 (approx. EUR 500), maximum of CZK 24,000 (approx. EUR 1,000).
  • Private life insurance – maximum of CZK 24,000 (approx. EUR 1,000).

Allowances

Basic personal tax relief

In 2024, the annual basic personal tax relief can be claimed in the amount of CZK 30,840 (approx. . EUR 1,285).

Dependent–spouse relief

Allowance of up to 24,840 CZK (approx. EUR 1,035 can be claimed by a resident taxpayer whose spouse does not have annual taxable income higher than CZK 68,000 (approx. EUR 2,830) and only if he/she takes care of a child in age up to 3 years. The basic dependent-spouse relief doubles in case of disability of the spouse.

Other reliefs

Taxpayers with disability may apply a relief from CZK 2,520 (approx. EUR 105) to CZK 16,140 (approx. EUR 670), depending on the extent of the disability.

Children tax allowances

Resident taxpayers are entitled to a tax allowance for each child living in the same household with him. The amount depends on the number of children. Annual tax allowance is CZK 15,204 (approx. EUR 630) for the first child, CZK 22,320 (approx. EUR 930) for the second child and CZK 27,840 (approx. EUR 1,160) for any other child.

All the reliefs and allowances mentioned above are annual and can be applied for any resident of EU/EEC, if the income from the Czech Republic is at least 90% of overall taxpayer’s income.

The summary of 2024 tax benefits for individuals
Tax reliefs Amount/year Conditions Documents required
Taxpayer relief CZK 30,840 No conditions – applicable for everyone No documents needed
Spouse relief CZK 24,840 Spouse living with the taxpayer in common household Confirmation from the spouse’s employer or filled in and signed document Spouse Affidavit if the spouse is not employed
The income of the spouse not exceeding CZK 68,000 (excluding social security benefits, e.g. parental allowance with the exception of financial help in maternity) and only if he/she takes care of a child in age up to 3 years.
Disability relief CZK 2,520 The taxpayer receives disability pension for the first or second degree of disability General statement about receiving a disability pension* and annual confirmation about payments received
CZK 5,040 The taxpayer receives disability pension for the third degree of disability
Relief for the holders of Card of person with disabilities (ZTP/P) CZK 16,140 Card of person with disabilities (ZTP/P) Card of person with disabilities (ZTP/P)* which indicates the validity period
Allowance on 1st dependent child CZK 15,204 The child is living with the taxpayer in common household. It covers the taxpayer’s child, a child at alternative care of taxpayer, an adopted child a child of a spouse living with the taxpayer in common household, the grandson/granddaughter living with the taxpayer in common household. If the child is a holder of ZTP, the tax allowances is doubled Birth certificate of the child* and confirmation from the employer of the other parent that he/she does not apply tax allowance on the child. If the spouse is not employed the document Spouse and child affidavit needs to be filled in and signed. If a child is older than 18 years and is studying confirmation of study for the whole year is needed (student at university up to age of 26, PhD student up to 28 years). If a child is holder of ZTP/P card the copy of this card is needed
Allowance on 2nd dependent child CZK 22,320
Allowance on 3rd and next dependent child CZK 27,840
Donation for charitable purposes including blood donation Max 15% of tax basement
CZK 3,000/blood donation
At least 2% of tax basement, minimum amount is CZK 1,000 (in total) Confirmation of the gift donated (gift contract, confirmation of a recipient of a gift), confirmation about blood donation
Mortgage interests Max CZK 300,000 / Max CZK 150,000 per a household (for loans concluded from 1 January 2021) Interest on building savings / mortgage loans or related contracts Copy of Mortgage contract*, Confirmation of mortgage interests paid in the period, copy of Statement from real estate cadastre*
Direct contractor
Ownership of an apartment, land, building, membership share in a cooperative
Use for permanent housing
Life Insurance Contributions ** Max CZK 24,000 Payment of insurance benefits after 60 months (5 years) and simultaneously not earlier than on 60 years of age (unless the insured amount is agreed) Copy of Life Insurance contract*and Confirmation of life insurance paid in the period
Pension Insurance Contributions** Max CZK 24,000 Payment of insurance benefits after 60 months and at the earliest in the year of reaching the age of 60 years. The tax base deduction is applicable from the amount exceeding CZK 12,000 of the contributions paid (up this amount a state subsidy is applicable) Copy of Pension Insurance contract* and Confirmation of pension insurance paid in the period

*If the contributions were already deducted in the past and the related documents were provided to the Czech tax authorities, we do not require these documents.
**Please note that in case of pension insurance/life insurance contributions paid to insurance company seated outside the Czech Republic, all related documents need to be translated into Czech (if not issued in Czech). As tax deduction can be applied contributions paid to an organization within EU.

Value added tax

Value added tax – rates

Standard rate: 21%.

Reduced rate 12% applies 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.

Value added tax – general information

Legislation

The VAT rules are based on the principles of the Council Directive 2006/112/EC on the Common System of Value Added Tax. The Directive is implemented in the Czech law by Act No. 235/2004 Coll., on Value Added tax.

Taxable person

Legal entities and individuals that carry on an economic activity.

Taxable event

  • the supply of goods and services in relation with an economic activity within the territory of the Czech Republic;
  • the intra-Community acquisition of goods for consideration within the territory of the Czech Republic from another EU Member State; and
  • the importation of goods into the Czech Republic

Taxable amount

Total consideration charged for the supply, excluding VAT but including any excise duties or other taxes and fees.

Tax period

Calendar month or quarter, based on turnover for 12 previous consecutive calendar months. Compulsory tax period for newly registered VAT payers is calendar month.

Tax assessment

Periodical VAT returns: monthly or quarterly, by the 25th day of the following month.

The amount of VAT liability consists of the VAT due on supply of goods and services carried out by the entrepreneur less input VAT of the same period.

In addition, taxable person carrying out intra-Community supplies or providing services according to the basic rule for “business to business” services has to file an EC Sales List (that shows the VAT identification numbers of his business partners and the total value of all the supplies of goods and services performed by the entrepreneur) on a monthly or quarterly basis depending on the situation.

VAT control statement

From 2016, VAT registered persons are also obliged to file a recapitulative statement that contains details of transactions subject to VAT in the Czech Republic as well as of transactions where input VAT deduction is claimed.

Reverse charge

Reverse charge applies to the intra-community acquisition of both goods and services. Local reverse charge is applicable in certain cases between two Czech VAT payers.

A permanent reverse charge regime applies, regardless the taxable amount, to supply of gold, supply of intangible property when VAT is included in the price voluntary, supply of construction and installation services and provision of workers who provide construction and installation services and, also to supply of selected goods – mainly scrap.

A temporary reverse charge regime applies, if the total amount of the tax base for the taxable supply exceeds CZK 100,000 to the following commodities:

  • corn and industrial crops, including oilseeds and sugar beets,
  • metals, including precious metals, except those covered by the special regime pursuant to Article 90 of the VAT Act and those subject to a reverse charge mechanism pursuant to Article 92c of the VAT Act,
  • mobile phones,
  • integrated circuits such as microprocessors and central processing units,
  • portable automatic data processing devices (such as laptops, tablets etc.),
  • video game consoles,
  • and further, regardless the taxable amount, to provision of telecommunications services, transfer of emission allowances, or supply of electricity and gas to a trader.

VAT registration

The threshold for mandatory VAT registration for taxable person with registered office, place of business or fixed establishment in the Czech Republic is the turnover of CZK 2,000,000 (approx. EUR 81,300) for a period of 12 previous consecutive calendar months. Voluntary VAT registration is possible as well.

A foreign taxable person that makes long-distance sales (mail order business) in the Czech Republic to any person that is not registered for VAT in the Czech Republic has to register for VAT in the Czech Republic if the total value of 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 246,000) 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.

Person identified to tax

Taxable person must register as an identified person in the following situations:

  • purchase of services from persons established outside the Czech Republic with place of supply in the Czech Republic,
  • supply of services with place of supply in another EU Member State,
  • intra-community acquisition of goods from another EU-Member State.

VAT group registration

Several taxable persons who have their seat, place of business or fixed establishment within the territory of the Czech Republic and are connected financially, economically, and organizationally, may be deemed as a single taxable person.

Other taxes

Taxes on capital

Net worth tax

There is no net worth tax in the Czech Republic.

Real estate tax

This tax consists of land tax and building and apartment tax. Amount of the real estate tax depends on the purpose of the land, building or apartment and location. The basic rates can be increased by decision of municipality.

Other business-related taxes

Road tax

Levied on road vehicle of category N2 and N3 and their trailers of category O3 or O4, if they are registered in the register of road vehicles in the Czech Republic.

Excise duties

Excise duties are levied on mineral oil, beer, wine, spirits, electricity, coal, natural gas and tobacco products.

Customs duties

Goods imported from non-EU countries are subject to import customs clearance.

Disclaimer

Our calculator has been set for simulation purposes only and might not include all factors that determine the VAT calculation, according to the Czech laws.

Accace is not responsible for any person’s or entity’s decisions taken based on the results of the calculator. Before taking any action, we recommend you to consult a specialist in any matters related to VAT/taxation in the Czech Republic.

The regulations of transfer pricing in the Czech Republic deal with the determination of prices in transactions (e.g. sale of goods, provision of services or provision of loans) realized between economically or personally related companies. The aim is to ascertain that the arm’s length principle is met.

Download the latest 2024 Transfer Pricing Overview for the Czech Republic or read more below

Applicable legislation

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 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.

Related parties

The term „related persons” (“related parties”) concerning transfer pricing in the Czech Republic refers to:

Parties that are related through capital, where:

  • one person (party) directly participates in another person’s (party’s) capital or voting rights, or one person (party) participates in the capital or voting rights of more persons (parties) and this person (party) has a holding of at least 25% in the others’ registered capital or voting rights – in such a case all are regarded as mutually related directly through capital
  • person (party) indirectly participates in another person’s (party’s) capital or voting rights, or one person (party) indirectly participates in the capital or voting rights of more persons (parties) and has a holding of at least 25% in the others’ registered capital or voting rights – in such a case all are regarded as mutually related through capital

Otherwise, related parties:

  • one person (party) participates in the management or control of another person (party)
  • identical persons or close persons participate in the management or control of other persons (parties) and such other persons (parties) are otherwise related persons (parties); as otherwise related persons are not considered persons participating in supervisory board of the both persons (parties)
  • involving a controlling person (party) and a controlled person (party), and/or also persons (parties) controlled by the same controlling person (party)
  • being close person (as provided by the Civil Code)
  • being persons (parties) having established a legal relationship predominantly for the purpose of reducing their tax base or increasing their tax loss

Methods

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

Traditional transactional Transfer Pricing methods

comparable uncontrolled price (“CUP”) method

resale price minus (“R-”) method

cost plus (“C+”) method

Profit based Transfer Pricing methods

profit split (“PS”) method

transactional net margin method (“TNMM”)

Documentation

Obligations

Generally, there is no legal obligation to prepare documentation for transfer pricing in the Czech Republic . 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 were 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 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 – 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 .

Advance Pricing Agreements (APA)

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 January 1st, 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 that will be effective 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 390) 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.

Other aspects

Penalties

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.

Take no risks with penalties when it comes to transfer pricing in the Czech Republic! Book expert consulting through our eShop.

Labour law in the Czech Republic regulates the legal relations arising in connection with the performance of dependent work between employees and their employers, labour relations of collective nature and other aspect related to employment.

The fundamental principles of labour relations are especially legal protection of employee status, satisfactory and safe working conditions for performance of work, fair remuneration and equal treatment of employees and prohibition of their discrimination.

Download our 2024 guide on labour law and employment in the Czech Republic, or read more below

Entitlement to work in the Czech Republic

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:

Work Permit – most common in cases of seasonal work, or applicants for international protection etc.

Blue Card – for a long-term stay involving the performance of a highly skilled job

Employee Card – for long-term stay in the territory of the Czech Republic where the purpose of the stay (longer than 3 months) is employment

Intra-Company Transfer Card – for transfer within a group of companies (from a group company outside the EU into Czech Republic), where the purpose of the stay is work (longer than 3 months) as a manager, specialist or employed intern

Employment types

Regular employment

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

Employment Contract for a definite period: generally, it can be concluded for a maximum of 3 years and it is possible to prolong such contract only twice (maximum length 3×3 years)

Employment Contract for an indefinite period: an employment relationship shall last for an indefinite period unless a definite period has been expressly agreed

Work outside employment relationship

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

Agreement to complete a job: the scope of work for which an agreement is concluded may not exceed 300 hours in one calendar year.

Agreement to perform work: the scope of work shall not exceed a maximum of one half of determined weekly working hours (20 hours)

Probationary period

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

Maximum 3 consecutive months for regular employees

Maximum 6 consecutive months for managers

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.

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Termination of employment

Cases

Employment relationship may be terminated with the Czech employee:

  • by agreement between the parties in writing
  • by notice of termination
    • the notice of termination shall be made in writing and delivered to the other party
    • the employee may give his employer notice of termination for any reason or without stating a reason
    • the employer must specify the reason based on a list of reasons provided by law
    • the Czech law prohibits giving notice to an employee during the protection period (while the female employee is pregnant or is on maternity or parental leave, the employee is unfit for work, the employee is released to exercise a public office, etc., given that other conditions are met) (note: even the protection period has its own conditions which need to be met. For example, an employee is not protected if his/her incapacity for work was caused by intoxication)
  • by immediate termination only for reasons specified in the Labour Code
  • by termination within a probationary period
  • on the expiry of agreed period in case of employment contract for a definite period
  • upon lapse of validity of a work permit of a foreign employee, or due to deportation or revocation of a residence permit
  • upon death of the employee

In some specific cases, an employee is entitled to severance pay upon termination of employment.

Notice period

Where notice of termination has been given, the employment relationship will come to an end upon the expiry of the notice period. The notice period must be the same for both the employer and the employee.

Notice period
2 months

%

The notice period shall be at least 2 months and can be extended only by agreement between the employer and the employee in writing. The notice period shall start to run on the first day of the calendar month following delivery of the notice.

The length of the notice period is regulated differently for agreements on work outside of an employment relationship. Unless agreed otherwise, the notice period for these agreements is 15 days and starts on the date on which the notice is delivered to the other party.

Social contributions and income tax

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

Social security contribution: 24.8%* of gross earnings

* (from 1 February 2023, it is possible to apply a discount on the contribution of 5% for certain groups of employees, e.g., under 21 years of age, or those with shorter working hours who are over 55 years of age or caring for a child under 10 years of age, etc.)

Health insurance: 9% of gross earnings

Contributions paid by employee

Social security contribution: 7.1% of gross earnings

From 2024, employees are paying sickness insurance as part of their social security contributions, at a rate of 0.6% of their gross wages. The employee’s social security contribution will therefore be 7.1% instead of the previous 6.5%.

Health insurance: 4.5% of gross earnings

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 1,582,812 for 2024).

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

Working time and vacation

Working time

40 hours/week is the length of standard weekly working hours, except for some employees. Working hours are usually distributed over a five-day working week. Part-time work may be agreed between the employer and employee.

12 hours is the maximum length of a shift. The employer shall distribute working hours and determine the start and end of shifts.

25% of the average earnings is the minimum premium that the employee is entitled to for overtime work in addition to the attained wage, or a compensatory time off.

Besides an evenly distributed work time schedule, employers may also introduce uneven or flexible schedules, as well as a work time account. Specific requirements are indicated in the Czech Labour Code.

Time off

Regarding the vacation and other circumstances under which the Czech employee can take time off, the main cases are:

Annual leave

The employee in an employment relationship who performed work for the employer for 52 weeks in the extent of the weekly working hours (standard or shorter part-time working time) in one calendar year is entitled to annual leave. The basic statutory period of leave is 4 weeks.

Proportional part of annual leave

The employee who worked for the employer in the extent of the weekly working hours for at least 4 weeks, is entitled to 1/52 of the leave entitlement for each fully worked weekly working time.

Additional leave

The length of additional leave in the Czech Republic is 1 week and it is provided for specific groups of employees engaged in particularly hard work when an employee performs such work for the entire calendar year. In case that this type of work was not performed during the whole calendar year, a proportional part of the additional leave is provided (1/52 of the yearly entitlement for each work week).

Annual leave of employees on DPP/DPČ agreements

As of 1 January 2024, employees working under an agreement for work performed outside the employment relationship (agreement to perform work or agreement to complete a job) are now also entitled to annual leave. The entitlement arises if the employment relationship under the same agreement lasted at least 4 weeks in the relevant calendar year and if the employee worked at least 80 hours. With the statutory 4-week annual leave entitlement, the employee is entitled to approximately 1.5 hours of leave for every 20 hours worked.

Unpaid leave

Due to family circumstances or for other personal reasons the employee may be given a leave without pay, the duration of which is determined usually under the agreement between the employee and the employer. It is applicable upon request, but in certain cases prescribed by law. For example, the employer is obliged to provide unpaid leave when the employee moves or seeks another employment (both subject to further conditions). In some cases, the employee is even entitled to paid leave (e.g. medical examination, wedding, bereavement).

Most common employee benefits

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, purchase of services and goods from medical institutions, 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 2024 this amount is CZK 21,983).

Agency employment and posting

Agency employment

An employment agency temporarily assigns its employee to perform work for a client on the basis of a temporary assignment agreement entered into by and between the agency and the client.

The agreement must be in writing. The employment agency assigns an employee to perform temporary work with the client on the basis of a written order.

The employment agency and the client are obliged to secure that the working and wage conditions for the temporarily assigned employee are not or would not be worse than those under which a comparable employee works or would work.

The time of temporary assignment to perform work for the same client shall not exceed 12 consecutive calendar months, although some exceptions apply.

Posting of employees and the necessity to carry an A1 certificate

In case an employee of an employer based in one of the EU member states is sent to work within the framework of the posting of employees in the territory of the Czech Republic, such an employment must comply with the European legislation, as well as that of the Czech Republic.

An A1 certificate is a form that states the country in which an employee is covered by social insurance. In principle, all employees are covered by social security in the country where they work and hence to prove this, employees must carry an A1 certificate.

Inspections in several EU countries are strict and may cause unpleasant situations to the employees and their employers if they do not have A1 certificates.

If the posting is short-term (i.e. up to 12 months), the employment must comply with the following Czech basic work conditions:

  • maximum work periods and minimum rest periods
  • remuneration, including overtime rates; this does not apply to supplementary occupational retirement pension schemes
  • occupational safety and health
  • minimum paid annual leave
  • working conditions for pregnant employees, breastfeeding employees and employees up to the end of the ninth month after giving birth and minors
  • equal treatment of male and female employees, ban on discrimination
  • working conditions for agency employment
  • conditions of employee accommodation
  • allowances or reimbursement of expenditure to cover travel, board and lodging expenses for employees away from home for professional reasons.

In case of long-term postings (i.e. exceeding 12 months), it is necessary to ensure that also any other local work conditions are applicable to the posted employee, with the exception of conditions governing the establishment, changes or termination of an employment relationship.

Local legislation is not applicable if the legislation of the posting country is more favourable to the employee, which is to be considered individually.

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Overview of applicable legislation

The main sources of the labour law 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 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

Our payroll calculator for the Czech Republic is set for full-time employees and is meant for general information. It does not take into account the maximum assessment basis for social security contributions, which is monitored on an annual basis.

Disclaimer

Our calculator has been set for simulation purposes only and might not include all factors that determine the end salary, according to the Czech laws.

Accace is not responsible for any person’s or entity’s decisions taken based on the results of the calculator. Before taking any action, we recommend you consult a specialist in any matters related to salary, employee rights and employment in the Czech Republic.

Cross-border employment brings a new set of responsibilities when it comes to fiscal obligations. Our overview on the taxation for global mobility in the Czech Republic, prepared by our local tax experts, provides you a comprehensive overview on tax residency conditions, personal income tax, social security and health insurance contributions or penalties for non-compliance.

Download our guide on expat tax in the Czech Republic, or check out our infographic summary below.

Overview of key facts related to expats in the Czech Republic

Our local tax, payroll and labour law experts are here to help you – as an expat or an employer – to obtain essential professional advice, so that you can effectively address all the matters related to cross-border mobility in the Czech Republic and other locations globally.

Tax residency

An individual is considered a Czech tax resident if:

The individual has a permanent place of residence in the Czech Republic in which they intend to stay permanently

The individual stays for 183 days or more in the Czech Republic continuously or intermittently in the calendar year

Types of taxable income

Based on the Czech legislation, the following types of income are subject to taxation:

Employment income: Salaries, bonuses, remuneration of executives and members of the board of directors.

Self-employment income: Revenues from business and professional services.

Capital gains: Interests and dividends (from foreign sources), dividends and interests from Czech sources are usually subject to withholding tax at source and may not be included in the annual personal income tax return.

Rental income: Proceeds from the lease of real estate and flats, long-term rental of movables.

Other income: Proceeds from the sale of securities, sale of property (unless they are exempt from taxation).

Employee benefits

A specific group of income from dependent activities are employee benefits, such as:

 

Provision of company car for work and private purposes: 1% / 0.5% (low-emission vehicle) / 0.25% (emission-free vehicle) of the purchase price of the car (including VAT) is considered taxable income (min. CZK 1,000), this income is also subject to social security and health insurance contributions.

Pension and life insurance contributions: exempt from tax up to CZK 50,000 / year.

Non-monetary benefits in the field of culture, education, purchase of services and goods from medical institutions, recreation and trips etc., which are provided by the employer to the employee or his/her family members, are exempt from taxation on the employee’s part only up to half of the average wage for the whole calendar year. For 2024, the threshold is CZK 21,983. The employee’s taxable income is the amount exceeding the limit. The tax non-deductibility on the employer’s part is linked to the exemption on the employee’s part i.e. expenditure on non-monetary benefits will always be tax non-deductible if it is also exempt on the employee’s part. Excess amounts might be tax deductible on the employer’s part if the entitlement to non-monetary benefits is based on an internal regulation, collective agreement or employment contract.

Meal vouchers, employer canteen and meal cash allowance: exempt up to 70% of the upper limit of the meal allowance that can be granted to employees for a business trip lasting 5 to 12 hours (CZK 116.20). For exemption from taxation, it is also necessary to meet the condition of the employee’s presence at work which lasts at least 3 hours. For shifts lasting at least 11 hours, it will be possible to grant double the amount. The amount above the stipulated limit is considered employee’s taxable income subject to social security and health insurance contributions (both on the employee’s and the employer’s side). The claim should be stipulated in an internal directive/employment contract.

Tax rate

Tax rate on income up to CZK 1,582,812 (approx. EUR 63,312)
15%

%
Tax rate on income exceeding CZK 1,582,812 (approx. EUR 63,312)
23%

%

Tax period

Calendar year

Social security contributions

Rate for the employer
24.8%

%
Rate for the employee
7.1%

%

Health insurance contributions

Rate for the employer
9%

%
Rate for the employee
4.5%

%

Information obligation when employing EU citizens

If an employer employs an EU citizen, they have the following information obligation:

Must inform the relevant regional branch of the Labour Office of the Czech Republic in writing about the entry of an EU citizen or their family member into employment or to perform work within the framework of posting.

This obligation must be fulfilled by the employer at the latest on the day of taking up employment or performing work within the framework of the posting. Notifications can be submitted via a data box, in person or by e-mail.

In the event of termination of employment or posting, the employer is obliged to inform the relevant regional branch of the Labour Office of the Czech Republic also about termination of employment or of the posting within 10 calendar days at the latest.

When renewing an employment contract, the employee must be reported again.

If the contract is for an indefinite period, termination must be reported.

The employer faces a fine of up to CZK 100,000 for non-compliance with the information obligation.

Information obligation when employing foreign citizens

As with the employment of EU citizens, employers have almost the same obligations:

Must inform the relevant regional branch of the Labour Office of the Czech Republic in writing about the foreigner’s entry into employment or the performance of work within the scope of posting. The regional branch of the Labour Office of the Czech Republic is competent according to the foreigner’s place of work.

This obligation must be fulfilled by the employer at the latest on the day of taking up employment or performing work within the framework of the posting. Notifications can be submitted via a data box, in person or by e-mail.

In the event of termination of employment or posting, the employer is obliged to inform the relevant regional branch of the Labour Office of the Czech Republic about the termination of employment or performance of work within the posting within 10 calendar days at the latest.

When renewing an employment contract, the employee must be reported again.

If the contract is for an indefinite period, termination must be reported.

The employer faces a fine of up to CZK 100,000 for non-compliance with the information obligation.

Furthermore, the employer is obliged to keep copies of documents proving the right of residence of foreigners, for the duration of employment and for a period of 3 years from termination, including translation into the Czech language.

Tax return filing

The tax return is due 3 or 4 months after the end of the tax period. More precisely, the deadline is the following:

April 1, if submitted in paper form

May 1, if submitted electronically via data mailbox

July 1, if the tax return is filed by a tax advisor based on a power of attorney

Deadline extension by further 3 months, or until November 1 in case there is a foreign income

Penalties related to tax

Delayed filing of the tax return: 0.05 % of tax assessed, 0.01 % of tax loss, max. 5% or CZK 300,000.

Delayed payment of the due tax: the CNB’s annual repo rate at the first day of the relevant calendar half-year increased by 8%

Delayed or missing registrations at tax authorities: up to CZK 500,000

Delayed or missing report on monthly salary or withholding tax from salary: up to CZK 500,000

Penalties related to social security

Not requesting an A1 form from the respective authorities: up to CZK 20,000

Delayed report on social security: up to CZK 50,000

Delayed payment of the social security contributions: Late interest payment calculated on the CNB’s annual repo rate at the first day of the relevant calendar half-year increased by 8%. The late interest payment is issued only if exceeds CZK 1,000.

Delayed or missing registrations for the purposes of social security: up to CZK 20,000

Delayed report on health insurance: up to CZK 50,000

Delayed payment of the health insurance contributions: Late interest payment calculated on the CNB’s annual repo rate at the first day of the relevant calendar half-year increased by 8%. The late interest payment is issued only if exceeds CZK 1,000.

Delayed or missing registrations for the purposes of health insurance: up to CZK 10,000 or CZK 20,000 in case of repeated failure

Affecting both domestic and foreign businesses, a number of actions triggers the obligation to register for VAT in the Czech Republic. To provide a basic overview, our Czech experts prepared a comprehensive eBook on value-added tax. Find out more about VAT rates, registration of taxable persons, communication with local tax authorities, compliance and VAT return filing, VAT refund to EU member states or third countries and penalties.

Download our free eBook on VAT in the Czech Republic or read more below

VAT rates

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.

VAT registration of domestic taxable persons

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 any 12-month period, registration for VAT becomes obligatory.

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.

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VAT registration of foreign taxable persons

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 256,000) 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.

Communication with authorities

Local statutory representation for VAT

In the Czech Republic, local representation by a tax advisor is not obligatory.

In specific cases, foreign entities are very likely to use the services of a tax advisor.

Statutory language

In communication with the Czech tax authorities, only Czech language may be used.

Communication with authorities

A taxable person can communicate with the tax authorities in written form, verbally to the protocol or electronically via the data box.

The VAT return and EC sales must be filed electronically.

VAT compliance and return filing

Tax period and deadline for VAT return filing

In the Czech Republic, the calendar month is considered as a tax period. A later change to calendar quarter is possible under specific conditions. The VAT return shall be filed until the 25th day following the respective tax period.

EC sales list and other documents

The EC Sales List shall be filed until the 25th day following the respective tax period which is in general a calendar month; eventually a calendar quarter.

Besides the VAT return, a control statement listing information from issued and received invoices must be filed as well.

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VAT refund to EU member states

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.

Value of VAT for shorter periods
400€

%
Value of VAT for the calendar year
50€

%

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.

VAT refund to third countries

VAT refund conditions

Upon the fulfilment of specific conditions, including reciprocity (currently applicable to Switzerland, Norway, Macedonia, United Kingdom), VAT refund to third countries is possible.

Minimum amount and applicable period for VAT refund

The minimum amount to be refunded is CZK 1,000 for the respective calendar year. However, the VAT refund may be requested also for shorter periods than a whole calendar year, but such period shall not be shorter than 3 calendar months and the value of VAT must exceed CZK 7,000.

Value of VAT for shorter periods
7000CZK

%
Value of VAT for the calendar year
1000CZK

%

Deadline and place of filing for VAT refund

The deadline for filing a VAT refund request falls on June 30 of the subsequent calendar year. The request shall be filed with the Tax office in Prague, Czech Republic. The deadline for the return of claimed VAT is 6 months after filing the VAT refund request.

Penalties for VAT non-compliance

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 6.75%) increased by 8 %
  • Penalty in the amount of 20 % of the assessed VAT amount
Take no risks with penalties – consult your legal matters with our experts. 
 
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