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Thanks to its strategic geographic location, stable economy and human capital resources, doing business in the Czech Republic attracts many foreign investors who are planning to enter the European market or expand their businesses to more countries in the region.
The Czech workforce is known-to be well-educated, skilled and multi-lingual, consisting of both local and foreign professionals. On the other hand, the wages are relatively low compared to Western Europe.
In general, around 37% of the economically active population is employed in industries, which is the highest ratio among EU countries. The largest part works in the automotive industry (about 180,000 employees), on the second place ranks the service industry with 60% of employees. In comparison, the agriculture sector employs only about 2% of the economically active. Another interesting fact is that the Czech Republic has the most self-employed (OSVČ) per capita in Europe, about 9%.
Industrial production has a long tradition in the Czech Republic as well as significant position – it accounts for more than one third of the Czech economy. The most important industries include mechanical engineering and especially the automotive and transport industry. In addition to the production of cars and trucks, led by Škoda, buses, trams and airplanes are also produced in the Czech Republic. Furthermore, the chemical, food, metallurgical and consumer industries form substantial part of Czech manufacturing. The fast-growing industry is construction.
Of interest is the exceptional position of nanotechnologies. The field is developing incredibly fast and encourages the creation of new scientific workplaces. The Czech Republic has been one of the world’s leaders of nanotechnology in industry and consumer goods for many years. The production of various nanofibers and nano fabrics is common, but also the use of nanotechnologies in nanooptics.
In recent years, information, and communication technologies (ICT) have come to the forefront, as in many other countries. However, they are hampered by a shortage of qualified IT professionals.
Tourism is also an important sector of the Czech economy. The capital city of Prague has long been one of the most visited cities in Europe, and other tourist regions are also attractive. As a result of the coronavirus pandemic and related measures, the number of tourists visiting Czech Republic has dropped dramatically – as it has everywhere else in the world. However, tourists are returning and reviving this economic sector.
Within the industry department, the automotive industry is the most prevalent, it generates circa 10% of country’s GDP, 26% of Czech construction and 24% of Czech export. Within the services department accommodation, food and hospitality industries have traditionally been the most dominant. However, information & communication services as well as transportation & storage are quickly catching up. Compared to previous years, however, year-on-year growth in the services sector has slowed.
There is a wide range of investment incentives for various economy sectors when doing business in the Czech Republic.
Manufacturing industry
Production of strategic products for the protection of life and health, chip production, e-mobility and energy saving
Technology centres
Strategic service centres
Strategic service centre can be implemented in the form of software development centres focusing on the creation of new or innovation of existing software, data centre focusing on data storage, sorting and management, repair centre focusing on the repair of technically advanced equipment, or shared services centres focusing on taking over the management, operation and administration of internal activities.
The maximum state aid varies from 15% to 60% based on size of the enterprise applying for investment incentives, region to which the investment project is located and the value of eligible costs.
Type of granted investment incentives: corporate income tax relief for 10 years.
Applications for investment incentives are assessed and approved by the Ministry of Industry and Trade (except for requests relating to strategic investment actions, which should be addressed to the government) in co-operation with other ministries which throughout their decision process take into account especially the benefits of the contemplated investment for the given region and the state. In practice, this means that all investment-incentive applicants must quantify their anticipated contributions to public budgets and their impact on the labour market in their applications. In addition to that, they must also describe the means by which they intend to incorporate research and development into their activities and to cooperate with research institutes and schools, and how they will utilise the potential of local suppliers and contribute to the development of the local infrastructure.
Czech as well as foreign investors entering the market for doing business in the Czech Republic may choose between several corporate forms. There are no limitations for foreign investors when it comes to company formation and both domestic and foreign investors enjoy identical rights and obligations.
The most common legal form is a limited liability company (LLC). Each shareholder is required to contribute a minimum of CZK 1. The LLC is suitable for the vast majority of business activities and plans and multiple investors can be easily involved. An executive director can be of any nationality and there is no requirement to have employees.
The LLC can be incorporated under Powers of Attorney granted to us, meaning that personal presence of the directors / shareholders in the Czech Republic is not required during the incorporation process.
The documentation required for establishing the LLC includes:
The incorporation process typically takes approx. one week from the moment we receive all required powers of attorney and other supporting documents.
Every LLC must have a defined scope of business which must be based on a valid trade licence or another form of authorisation. For most common business activities, an unqualified (general) trade licence under the Trade Licensing Act is sufficient.
The fee for establishing the LLC with us is EUR 850 excl. VAT disbursements, while and additional costs, such as notarial and trade license fees, amount to approximately EUR 450. Translation fees depend on the number of pages and the language of translation. Registered office fees vary depending on the chosen provider. If the registered office is set up with Accace, the one-time implementation fee amounts to EUR 140 (excl. VAT) and the monthly fee is EUR 90 (excl. VAT).
To establish the LLC, at least one shareholder (either a natural person or a legal entity) and one director are required – these may be the same person. If more directors are appointed, the Memorandum of Association may stipulate whether they are authorised to act independently or jointly.
The Commercial Register in the Czech Republic is maintained by the Registry Courts, and publicly accessible at www.justice.cz. At the moment, the Register is available only in Czech. It is possible to directly download electronically signed company extracts, either in current form or with full history free of charge.
For more information about company formation in the Czech Republic, take a look at our dedicated eBook.
Corporate income tax (CIT) applies to the profits generated by all companies, including branches of foreign companies. Corporate partners in general partnerships (i.e., unlimited) and corporate general partners (i.e., unlimited) in a limited partnership are subject to CIT on their share of the profits in the partnership.
Resident companies doing business in the Czech Republic are required to pay CIT on income derived from worldwide sources. Non-resident companies are required to pay CIT on income sourced in the Czech Republic.
A company is resident in the Czech Republic for CIT purposes if it:
Has a registered seat in the Czech Republic
Has a place of management located in the Czech Republic
Under domestic law, the creation of a PE of a foreign tax resident doing business in the Czech Republic is triggered by a fixed place available for carrying out business activities, long-term provision of services (for more than six months in any 12 consecutive months), or presence of a dependent agent, unless an applicable double taxation treaty (DTT) stipulates otherwise. For interpretation purposes, the commentary OECD Model Tax Convention is followed. The Czech Republic tends to have a ‘service PE’ clause (i.e., clause stipulating that a PE is created by provision of services on the territory of the Czech Republic even without the existence of a fixed place of business) included in its DTTs.
It is possible to request the tax authority for a legally binding ruling confirming a chosen method of determination of the CIT base of the PE.
The accounting result as per the Czech accounting standards represents the base for corporate income tax base determination. Companies keeping books of accounts under the International Financial Reporting Standards (IFRS) are liable to recalculate the accounting result to follow the rules of the Czech accounting standards.
The accounting result is subsequently modified by tax non-deductible expenses and non-taxable revenues as specified by the income tax legislation.
Expenses may generally be treated as tax deductible provided that the following conditions are met:
Tax losses determined for the tax period may be carried forward to offset tax profits for five immediately following taxable periods. The amount of the tax losses that may be carried forward is not limited. Starting from 2020 tax losses may be carried back for two immediately preceding tax periods. The maximum amount of the tax losses to be carried back is CZK 30 million.
No separate capital gain tax is applied in the Czech Republic. Revenues from sale of shares form part of regular corporate income tax base of the tax period in which the gain is realised (provided that the capital gain is not exempt from taxation under the participation exemption).
Dividends received by Czech tax resident corporations from non-resident entities are subject to a special tax rate of 15% (unless exempt from taxation under the participation exemption).
Dividends paid by Czech tax resident corporations to Czech resident entities are subject to 15% final withholding tax (or WHT, in short), unless exempt from taxation under the participation exemption.
Dividends paid by Czech tax resident corporations to Czech non-resident entities are subject to 15% final WHT, unless exempt under the participation exemption or unless the applicable WHT rate is reduced by the relevant DTT. An increased WHT rate of 35% applies to dividends paid to entities that are not tax residents in any EU or European Economic Area member state or in a country with which the Czech Republic concluded a DTT or agreement on exchange of information in tax area.
Income generated from sale of shares or dividend income may be exempt from taxation in the Czech Republic provided that the following criteria are met:
Provided that the above conditions are fulfilled, withholding tax exemption on dividend income applies also to a situation when Czech subsidiary pays dividends to parent entity being tax resident in Switzerland, Norway, Liechtenstein or Iceland.
In case of dividends or capital gains received by a Czech parent company, the participation exemption may be applied in a situation when the subsidiary is a tax resident of a country which concluded a DTT with the Czech Republic, the subsidiary has a legal from similar to a limited liability/joint stock company, it is subject to a corporate income tax at the minimum nominal rate of 12% in the year in which the dividends are paid and in the preceding year, and the time test of holding at least 10% share for at least 12 consecutive calendar months in that subsidiary is met.
Interest and royalties received by tax residents doing business in the Czech Republic are included in the standard tax base subject to the 21% CIT rate.
Czech-source interest and royalty income received by Czech tax non-residents is subject to 15% WHT, unless subject to tax exemption or reduced withholding tax rate applicable under the relevant DTT. An increased WHT rate of 35% applies to interest and royalties paid by Czech tax residents to entities that are not tax residents in any EU or EEA member state or in a country with which the Czech Republic concluded a DTT or agreement on exchange of information in tax area.
Arising based on the EU Interest and Royalty Directive which was incorporated into the domestic legislation interest and/or royalty income is exempt if it is paid by a Czech resident to an EU resident recipient who is a beneficial owner of the interest and/or royalty income, provided that for at least 24 months before the payment:
VAT is generally charged at 21% on supplies of goods and services within the Czech Republic. There is also a reduced VAT rate of 12%which 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 sports events.
Companies seated and doing business in the Czech Republic whose turnover exceeds 2 million CZK in within a calendar year (from 1 January to 31 December) are liable to register as a VAT payer.
For non-resident companies no registration threshold applies. These are, however, liable to VAT registration if they:
A company can register as a VAT payer voluntarily even if its turnover does not reach the threshold if it renders or is going to render taxable supplies or VAT exempt supplies with an entitlement for VAT refund in the Czech Republic.
Under certain circumstances, companies that are not VAT registered in the Czech Republic may become so called VAT identified persons if they acquire goods or services from EU or third countries. VAT identified person is liable to pay VAT from received supplies but is not entitled to VAT deduction.
VAT returns must be filed, and VAT liability paid within 25 days from the end of the taxable period. The taxable period is a calendar month or, under specific circumstances, a calendar quarter. An essential and inseparable part of the VAT return is so called control statement through which the VAT payer provides that tax authority with specific information about all transactions carried out with business partners. Both the VAT return and the control statement must be filed with the tax authority electronically.
Excise tax is imposed on production and import of certain products, such as tobacco, and tobacco products and heated tobacco products, wines, semi-products, spirits and pure ethanol, beer, fuel, and mineral oils.
Excise tax is imposed on production and import of certain products, such as tobacco, and tobacco products and heated tobacco products, wines, semi-products, spirits and pure ethanol, beer, fuel, and mineral oils.
There are no regional or local taxes on income in the Czech Republic.
There is no wealth tax in the Czech Republic.
Staring from 2014 gift tax and inheritance tax are not governed by separate acts. Both taxes were incorporated into the income tax legislation. For individuals the income is subject to progressive tax rate, however various exemptions from inheritance tax are available. On corporations the standard corporate income tax rate applies.
Property tax applies on immovable property that is in the ownership of the taxpayer as of 1 January of the respective calendar year. The amount of tax is dependent on several aspects, namely type of the real estate, nature of its use, size, place where it is located.
In 2020, tax on real estate acquisition was abolished with retroactive effect for real estate registered in the cadastre as of December 2019 onwards. Prior to this, the tax rate of 4% on the real estate value (purchase price agreed/determined based on expert valuation or value assessed by the tax authorities) applied. The taxpayer was the acquirer.
Starting from 2022 the subject of the road tax was significantly limited. Newly, the road tax will only be paid for trucks with a maximum permitted weight of 12 tons and more and their trailers with a maximum permitted weight of 12 tons and more. The parameters decisive for determining the amount of tax are determined primarily from the data listed in the vehicle’s technical license.
Starting from 2023 windfall tax applies to excess profits of large banks and companies in the energy industry. The tax will only apply for a limited period in the years 2023, 2024 and 2025.
The tax base is calculated based on the CIT base of the entity generated in 2023, 2024 and 2025 that exceeds the average of tax bases that the entity generated during the period 2018, 2019, 2020 and 2021 increased by 20%. Those selected entities are therefore subject not only the standard 21% CIT but also to the additional 60% CIT surcharge.
Starting from 2024, two completely unique taxes on profits were introduced: the Czech top-up tax and the associated top-up tax. This tax is applied to companies that are members of large multinational or large domestic groups. The purpose of the Top-Up Taxes is to ensure that these tax payers are taxed at least at a minimum 15% effective tax rate.
In the Czech Republic, the following natural persons may perform work:
Foreigners from the EU, Switzerland and EEA and their family members do not need an employment permit and have free access to the Czech labour market.
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.
Employee cards
For long-term stay in the territory of the Czech Republic where the purpose of the stay (longer than 3 months) is employment
Blue cards
For a long-term stay involving the performance of a highly skilled job
Intra-Company Transfer (ICT) cards
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
For completeness we would also like to mention the Schengen visa for the purpose of performance of seasonal work. This type of visa is a short-term visa issued for the period of 90 days only, i.e. suitable for short-term period of work in the Czech Republic.
The following employment types are available in the Czech Republic:
The above employment types differ not only in the permissible scope of work, but also in the termination conditions, certain rights and safeguards of the employees, insurance payments regimes etc. In general, work outside employment relationship tends to be more flexible and favoured for certain situations (e.g. student work, seasonal work or project-based work).
Czech tax residents are generally subject to taxation of their worldwide income while Czech tax non-residents are taxed on their Czech-source income only.
According to the Czech tax legislation, an individual is considered a Czech tax resident, if he or she has a permanent place of residence in the Czech Republic in which he or she intends to stay permanently, and/or stays for 183 days or more in the Czech Republic continuously or intermittently in the calendar year. If the individual is considered a tax resident abroad as well, tie breakers stipulated in the respective avoiding double tax treaty apply.
For personal income tax purposes, the taxable period is set as the calendar year.
The basic tax return filing and tax liability payment deadline is 1 April of the year following the tax period. As of 2021, an automatic extension to 1 May is possible for taxpayers filing their tax returns electronically. The deadline of 1 July applies if a Czech registered tax advisor is empowered to file taxpayer’s personal income tax return.
Starting from 2021 the Czech Republic returned to progressive taxation. Gross income up to the social security cap (2025 threshold CZK 1,676,052) is subject to a 15% rate. Gross income (with the exception of foreign capital income) exceeding this threshold is subject to 23% rate.
The progressive tax rate is applicable to all types of income.
The standard tax rate of 15% applies to all types of income up to CZK 1,676,052.
The tax rate of 23% applies to all types of income exceeding CZK 1,676,052.
All forms of compensation, whether in cash or in kind, are generally considered as taxable income (except for some tax-exempt benefits/income). According to the Czech tax legislation the following types of income are taxable here:
Employment income: Salaries, wages, bonuses, remuneration of executives and board members
Self-employment income: Income from business activities and professional services
Capital gains: Interests and dividends (also from foreign sources); Czech-source dividends and interests are, in general, subject to withholding tax at source and do not need to be included in the annual tax return
Rental income: Income from lease of real estate and flats
Other income: Income from the sale of securities, sale of property (if not tax exempted)
Remuneration of managing directors and members of other statutories, who are not Czech tax residents, is subject to a withholding tax of:
Remuneration paid to managing directors and members of other statutory bodies who are Czech tax resident is taxed through payroll withholding.
Both tax resident and non-resident directors from EU member states and other countries from the European Economic Area may, however, file the personal income tax return through which they utilise their personal tax deduction(s).
As of 2021 investment income (e.g., dividends and interests from abroad) of non-Czech source fall within a special tax base on which 15% tax rate applies.
Tax allowances or tax-deductible items are not applicable to reduce this tax base.
Social security contributions provide funding for three separate funds: pensions, unemployment benefits, and sickness (together with other benefits). Entrepreneurs can choose whether to contribute to the sickness fund.
Health insurance covers medical care. An individual can choose the health insurance company to which he will pay the health insurance contributions.
Social security and health insurance contributions are calculated from the individual’s gross remuneration (including most allowances and benefits).
The contribution rates for the employer are 24.8% for social security and 9% for health insurance. The contribution rates for the employee are 7.1% for social security and 4.5% for health insurance. The payments are done by the employer (for both employee and employer parts of contributions).
For self-employed personnel the social security contribution rate amounts to 29.2% from the assessment base (55% of revenues decreased by expenses). The contributions to health insurance amount to 13.5% from the assessment base (half of revenues decreased by expenses).
The maximum annual cap for the assessment base for calculation of contributions into the social security system is 48 times the average monthly wage per year (i.e., CZK 2,234,736 for 2025). This cap applies to both employees and entrepreneurs.
Since 2020, reporting of employees’ sickness in the Czech Republic has been fully digitized. Paper sick notes have been replaced by their electronic version, known as eNeschopenka, which has transferred the sharing of information between doctors, employers, and the Czech Social Security Administration (ČSSZ or SSZ) to an online environment. These changes have simplified, accelerated, and clarified all processes related to the administration of sick leave.
After five years of running eNeschopenka, ČSSZ started sending SMS and email notifications as part of the eNeschopenka service, effective January 1, 2025. This service allows insured persons to receive electronic notifications about important documents and changes. Our practical ebook will guide you through the entire process of how digital employees’ sickness reporting in the Czech Republic – eNeschopenka works.
The doctor issues a three-part sick note, known as eNeschopenka.
An e-sick note contains the following forms to be filled in by the employee’s treating physician:
Besides these basic forms, doctors can fill in and issue the following additional forms:
The process concerning administration of a sick leave of an employee requires the following steps:
Thanks to the CSSZ ePortal, employers can immediately receive information on the following:
The employee sees a doctor who, after examining the employee, establishes that the employee is unfit for work.
Doctors have two equally valid options of how to issue an e-sick note since they can use their own medical software or the free online application available at the CSSZ ePortal. The technical solution employed does not require the use of an electronic signature or any other new identifier and doctors can use the system certificate issued by the State Institute for Drug Control which they already use for e-prescription. Regardless of whether the doctor uses his/her special software or the online application, the patient’s personal data, including information on the patient’s employer, upload automatically. The doctor only fills in the diagnosis, the date of the beginning of the sick leave, or possibly other additional information.
The doctor sends the first part of the e-sick note – Notification of the beginning of a sick leave – electronically to the responsible SSZ. At the same time, the doctor sends the employee an ID number for the onset of temporary incapacity for work via SMS or email. If the employee does not provide contact details or requests a paper copy of the decision, the doctor prints out the second part of the eNeschopenka – Certificate of Incapacity for Work of an Insured Person (one page in A5 format). This form is given to the employee and is used for records of checks by the attending physician, by the Czech Social Security Administration, and for marking the confirmation of the duration of incapacity for work and its termination. The employee does not take it anywhere, does not hand it over to the employer, but keeps it for the above purposes. If the employer has requested notifications, a notification is also sent to the employer after the attending physician’s report has been sent to the CSSZ. Otherwise, the notification is sent immediately after the report has been processed in the CSSZ systems (after verification of the data) and any further investigation by the SSZ employee.
Employees are required to immediately inform their employer of their temporary incapacity to work, using the method prescribed (customary) by the employer, i.e., by email, telephone, etc. Employers can easily verify the employee’s claim electronically (see below).
Employers have two options to learn about their employees’ sick leave, both available in the CSSZ ePortal client zone.
Registered users can use two types of services:
Information is downloaded via data mailboxes. Moreover, employers who want to process e-sick notes in their own software can use a service called “Information on sick leaves for employers”, which works via the VREP (APEP) channel, which is currently used to file electronic submissions. This service allows for regular automated downloading of information on employees’ sick leaves directly into the employer’s payroll or HR software. How exactly this information is processed into the employer’s software depends on the provider of the software.
This channel allows employers not only to obtain information about the beginning, duration and end of a sick leave, but also about the employee’s current address of residence and permitted outings.
It is possible to save the output as a PDF or XML file.
Employers who file a request via the CSSZ ePortal are sent a notification of the beginning, change or termination of their employees’ sick leaves either by email, as a short report that a change in the status has been recorded, which may be verified as described above, or by a data message sent to the employer’s data mailbox as a PDF or XML file which contains complete information about the sick leave.
An uncertified informative message is sent immediately after CSSZ receives an electronic message from the doctor that an employee has been found unfit for work.
After processing of individual notifications included in the e-sick note and their examination by a CSSZ employee, extracts from the first and the third part of the e-sick note, certificate of a continuing sick leave and selected data from the treating physician’s notification will be sent to the employer. The processing is a matter of hours or days, depending on the circumstances of the given case, in particular, the accuracy of the data filled in and the potential need for their re-examination.
Due to the protection of privacy, notifications only contain the employee’s name, surname, date of birth and date of beginning of the sick leave.
The employer is notified on an employee’s sick leave only if such an employee participates in the system of sickness insurance and is registered in the insurance sickness register. Recruitment of new employees should therefore be notified to the responsible CSSZ as soon as possible, by a form called “Notification of new employment”. If the data uploaded into the system by the doctor fails to identify an insured employee, the employer receives the notification only after the e-sick note has been manually processed by the CSSZ.
Employers may register for services provided by the CSSZ ePortal either via their data mailboxes or by using one of the methods offered by the National Identity Authority („NIA“ – may be created free of charge at eidentita.cz).
Employers may authorize an employee or another individual or legal entity (e.g. a payroll provider) to use the CSSZ ePortal on behalf of them. Such authorization must be granted via a special service available at the CSSZ ePortal (available to registered clients) or via an interactive form. The authorized person may then access the services using their data mailbox login or one of the NIA tools. If the authorized person is a legal entity, it must further authorize an individual to act on behalf of it.
The service should contain data on individual employees (based on their birth number) or generate a list of all employees of a given employer who the CSSZ at the given moment registers as being on a sick leave.
The basis for excusing absence from work and paying wage compensation during the first 14 days of sick leave is information from the Czech Social Security Administration (ČSSZ) in electronic form. If the employee has a “Sickness Insurance Card,” they can prove the existence of sick leave by presenting it.
Data on the onset, duration, and end of an employee’s temporary incapacity for work can be imported into payroll calculation programs either online via the VREP channel or by importing an XML file from eNeschopenka.
Doctors electronically announce to the OSSZ any changes occurring in the course of the sick leave – e.g. change of address, referral to another doctor, change of permitted outings. Employers may learn about such changes via the CSSZ ePortal.
Should the doctor in the first 14 days of the sick leave establish that the employee is again fit for work, the employer takes steps described below in sec. “End of sick leave”.
If the employer asked to be notified of its employees’ sick leaves (please, see sec. “Information available to employers via the CSSZ ePortal” above), a notification is sent to the employer’s data mailbox or email address immediately after the threating physician sends the notification to the CSSZ.
Certified information on the end of the sick leave is also available at the CSSZ ePortal.
Employers pay compensation of income during the employee’s sick leave on the basis of this information.
After 14 days of sick leave, the doctor notifies the CSSZ that the employee’s temporary unfitness for work continues. This information is also recorded in the Card of an employee unfit for work. No other document is issued for the employer(“money vouchers” no longer exists).
Employers who requested sending of notifications also receive this information by a data message sent to their data mailbox. Certified information may be accessed at the CSSZ ePortal.
In this case, the employer is obliged to send, immediately after the first 14 days of temporary incapacity for work, an electronic Employer’s Notification of Employee’s Application for Benefits with the information necessary for calculating sick pay. In this notification, the employer shall also indicate the bank account to which the employee’s wages are paid, or indicate another method of wage payment, in electronic form to the electronic address designated by the district social security administration. Documents for the deduction of sickness insurance benefits may be sent either electronically or in paper form.
Until the 14th day of the sick leave, the sickness benefit is paid to the employee by the employer. From the 15th day on, the benefit is paid by the CSSZ.
After the employee returns to work, the employer is obliged to send an electronic notification of the employee’s conduct of work on the last day of the sick leave or during the sick leave.
Based on the notification received from the doctor and the employer, the OSSZ makes a calculation of the sickness benefit. Sickness benefits are paid to employees by the same method as salary or other remuneration, unless an employee asks for another payment method. If the employee’s salary is paid in cash, by postal service to an address abroad, or by a transfer to a financial institution other than a bank located abroad, the sickness benefit is paid by a payment method indicated by the employee.
When a doctor establishes that the employee is again fit for work, he/she issues a decision on the end of the sick leave. The doctor may either use his/her medical software or log in to the CSSZ ePortal where he/she selects the case of sick leave he/she intends to terminate and the data on the case uploads automatically.
The doctor will issue the third part of the sick note – Report on the end of temporary incapacity for work, final diagnosis – and send the report on the end of temporary incapacity for work electronically to the relevant Czech Social Security Administration (ČSSZ). At the same time, the employee will mark this termination in the incapacity for work card of the insured person (if the employee has it available, i.e., has not requested electronic delivery of the decision).
Employers who asked to be notified about sick leaves (see sec. “Information available to employers via the CSSZ ePortal above”), are notified by email or by a data message immediately after the doctor sends the notification to the CSSZ.
At the same time, the doctor records the end of the sick leave in the Card of an employee unfit for work. Employers who asked to be sent notifications are immediately notified that the sick leave has been terminated. Certified information about the end of the sick leave is available at the CSSZ ePortal.
The current amendment to the Czech Labour Code, which is commonly referred to as Flexinovela and will be referred to as such in this text, represents a significant legislative change in the labour law of the Czech Republic.
The Flexinovela brings several major changes in the field of employment relations, from changes in the regulation of probationary periods, through new rules on notice periods to new conditions for working parents and some other partial changes.
The following summary provides a detailed description of all the key changes that the Flexinovela brings and their practical implications for employers and employees.
After several months of waiting, the Flexinovela went through the complete legislative process and was signed by the President of the Republic on 25 April 2025 and published in the Collection of Laws on 29 April 2025.
Under the established procedures, it will take effect on the first day of the second month after promulgation, i.e. 1 June 2025. All changes described below will take effect on that date, unless otherwise specified for specific chapters.
In several cases, the Flexinovela encroaches on areas that have long been unchanged and are so entrenched that change is met with some degree of reluctance.
One such change is the extension of the maximum length of the trial period. Whereas traditionally for decades the maximum was 3 months for regular employees and more recently 6 months for managerial employees, these limits have now been increased to:
(within the meaning of Section 11 of the Labour Code)
An important novelty is also the possibility of an additional extension of the already agreed trial period, which was not possible before.
Under the new regulation, the employer and the employee can agree in writing to extend the trial period until the maximum limits (4 or 8 months) are reached. Thus, for example, if a trial period of two months was initially agreed, it can be extended by an amendment to the employment contract for a further two months before the trial period ends. Alternatively, if the employee has been promoted to a managerial position during the agreed four-month trial period, the trial period may be extended to eight months.
The Flexinovela also brings clearer rules for the extension of the trial period, which occurs by law.
The trial period is extended by law by the employee’s working days on which they have not worked a full shift during the trial period due to:
Obstacles at work (e.g. temporary incapacity for work, caring for a dependent person, attending a wedding)
Use of leave
And newly also for unexcused absence from work
However, if the employee works part of the shift, the trial period is not extended. In the case of a statutory extension, the trial period shall be extended by the employee’s working days, not by calendar days.
According to the transitional provisions, the decisive moment is when the trial period was agreed, i.e. when the employment contract was concluded. According to the transitional provisions of the Flexinovela, the trial period agreed before 1 June 2025 (i.e. before the Flexinovela comes into force) is governed by the existing (i.e. ‘old’) wording of the Labour Code. The transitional provisions thus link the new regulation not to the start of the employment relationship or the start of the trial period, but to the moment of its negotiation (which does not seem very practical).
The extended trial period and the possibility of its additional extension can therefore only be used for employment contracts concluded no earlier than 1 June 2025.
The Flexinovela brings a major change for parents on parental leave. It will now be possible for an employee to perform the same type of work for their employer during parental leave as agreed in their employment contract, through agreements on work outside the employment relationship (“DPP” or “DPČ”). Please note that this option is not available during maternity leave, which, according to the explanatory memorandum, has a clear aim and purpose, namely the recovery of the mother and the healthy development of the baby in the first days and weeks.
This provision responds to the practical needs of the labour market, as until now employees on parental leave could only work for their employer in a different position than the one specified in their employment contract. If they wanted to maintain their relationship with the employer and the work team and earn extra money, they had to look for a different job and this often led to circumvention of the law in practice.
The regulation remaining in place states that if there is no longer such a matching position with the employer, the employer must place the employee in the position according to their employment contract (i.e. the agreed type of work and the agreed place of work).
Significant changes also affect fixed-term employment relationships in the context of parental leave:
Substitutes for employees on parental leave: It will now be possible to renegotiate fixed-term employment relationships without limitation on the number of renegotiations if the employee is a substitute for a temporarily absent employee during maternity, paternity or parental leave. The current ‘three times and enough’ rule (once to agree, twice to repeat) will no longer apply in these cases
Maximum total duration: although there will be no limit on the number of repetitions, the individual duration of fixed-term employment relationships so negotiated may not exceed 3 years and the total duration may not exceed 9 years.
Another important change is the extension of the period for which the employer must place the employee in the same position (‘same chair’) when returning from parental leave. While previously the employer had to allow the employee to return to the original position only during the maternity leave, this obligation now applies until the child is 2 years old.
The new legislation introduces special compensation for employees in the public sector who work abroad when taking maternity or parental leave abroad. These employees will be entitled to reimbursement of accommodation expenses for 14 weeks at the same rate as before taking maternity or parental leave.
The condition is that the employee gives notice of the intention to take maternity or parental leave abroad at least 10 weeks before the expected date of the birth.
The transitional provisions are completely silent on the changes concerning parents, which means that all these changes must be applied automatically as from the entry into force of the Flexinovela, i.e. from 1 June 2025.
Among other things, this means and is confirmed by the interpretation of the Ministry of Labour and Social Affairs, that the extended entitlement to the ‘same chair’ also applies to parental leave commenced before the Flexinovela takes effect, if the return falls between the effective date of the Flexinovela and the child’s 2nd year of age. To qualify for this entitlement, the employee must return to work from parental leave no later than the day before the child’s second birthday.
A very important change brought by the Flexinovela is the adjustment of the start of the notice period. The notice period will now start on the date of delivery of the notice and not, as was previously the case, on the first day of the calendar month following the delivery of the notice.
The notice period will then terminate at the end of the day that coincides numerically with the date of delivery of the notice in the following month(s). For example, if notice is given on 15 June, the notice period will end on 15 August (with two months’ notice). If there is no such calendar day in the month (e.g. if the notice is delivered on 31 December), then the notice period will end on the last day of the relevant month (i.e. 28 February).
The Flexinovela introduces different minimum notice periods depending on the reason for termination:
However, it is also possible to agree on a different length of notice period or a different way of running it, both for ‘normal’ and for sanctions grounds. If you are not interested in having the notice period start on delivery, which may cause different termination dates for individual employees, e.g. in the case of major organisational changes, then it is possible to keep the current arrangement. For new contracts, you will need to include a special provision in the contracts to set out the start of the notice period. The correct procedure for existing contracts will then depend on how you have contracts of employment currently set up.
The decisive moment is the moment of delivery of the notice. This means that if the notice was delivered at the latest on 31 May 2025, the shortened notice period for penalty grounds cannot be applied, nor can the notice period be calculated from the moment of delivery of the notice. The new rules will then apply to notice served from 1 June 2025 (i.e. after the Flexinovela comes into force), provided that you do not explicitly state in your employment contract with the employee how long the notice period is and how it runs (see the following section on this).
The crucial factor is how you have set the notice period:
In the case of new employees, it is advisable to include the length of the notice period and how it will run in the written information pursuant to Section 37 of the Labour Code, and therefore not to negotiate it in the employment contract.
The Flexinovela merges the existing termination grounds relating to the employee’s loss of medical ability. While until now the Labour Code distinguished between:
There will now be a single ground: long-term loss of capacity to perform the existing work for health reasons. This change responds to previous case law according to which a notice of termination was invalid if the employer used an incorrect reason for termination, even if in fact the reason for termination existed, but at the time the notice was given it was not certain whether the loss of medical capacity was caused by an occupational disease or accident at work (§ 52 písm. d)) or was not directly related to the performance of the employment (§ 52 písm. e)).
The existing termination ground relating to the maximum permissible level of exposure (§ 52(e)) will be recast as a separate termination ground.
A major new feature is the replacement of severance pay with a one-off compensation upon termination of employment due to long-term loss of medical capability as a result of:
Work injury
Occupational diseases (including the risk of occupational diseases)
The one-off compensation will be equivalent to 12 times the employee’s average monthly earnings and represents satisfaction – a one-off compensation provided to an employee whose employment has ended for work-related health reasons.
Key characteristics of a one-off compensation:
In the event of termination of employment due to reaching the maximum permissible level of exposure, the employee will remain entitled to severance pay in accordance with Section 67(3) of the Labour Code (also equal to 12 times the average earnings).
The decisive date is the date of termination of employment. Only employees whose employment ends on or after 1 June 2025 will be entitled to a one-off compensation. Employees whose employment ends due to loss of medical capacity due to an occupational injury or disease at the latest on 31 May 2025 are entitled to a severance payment under the current legislation.
The Flexinovela extends the time limits within which an employer may give notice or immediately terminate an employee’s employment for breach of employment obligations:
This change reflects the requirements of practice, as in many cases it is difficult for employers to obtain all the necessary information and fully assess the case within the current short timeframe.
The decisive point is the moment when the employee’s breach of their duties occurred. Therefore, the extended time limits apply only to breaches of employment obligations occurring from the date of effect of the Flexinovela. If the employee has breached their employment obligations before 1 June 2025, the subjective and objective time limits are governed by the original regulation.
The Flexinovela explicitly provides that in the event of an invalid termination of employment, the employee is entitled to compensation for untaken leave in addition to wages or salary.
This change responds to the development of case law in the European and subsequently also in the Czech environment and reflects the fact that court proceedings to determine the invalidity of an employment relationship are often quite lengthy.
The current wording of the Labour Code already allows the court to reduce (i.e. moderate) the wage compensation that will be paid to the employee in the event of success in the litigation. The Flexinovela extends the demonstrative list of facts that the court takes into account when reducing the wage compensation. A reduction of up to 6 times average earnings is possible not only if the employee had other employment during the litigation (and thus generated the income meant to be replaced by the wage compensation), but now also explicitly if the employee was engaged in other gainful activity (e.g. as a self-employed person). This is a logical change that is consistent with the intent of the provision and removes the apparent inequality between the forms of gainful activity of the employee.
Newly, an employee who considers the termination of the employment relationship invalid does not have to notify the employer that they insist on continued employment without undue delay. It is sufficient for them to do so at any later time, e.g. even in the course of (timely initiated) litigation, which is in line with previous case law.
The Flexinovela introduces a very specific method of electronic delivery of wage statement. The wage statement is included among the documents that must be delivered to the employee by hand (similar to a notice of termination or other forms of unilateral termination of employment). Thus, its electronic delivery was also subject to strict conditions, which, however, are contrary to the needs of practice.
It will now be possible to deliver the wage statement to an electronic address other than the employee’s private address, which the employee has designated for the delivery of unilateral documents, provided that the following conditions are met:
If the above conditions are met, it will therefore be possible to deliver the wage statement to the employee’s company email, or by storing it in the employer’s internal system (which will allow confirmation of reading by the employee).
Another change is that the employer is obliged to provide the employee with a wage statement before the commencement of work. Therefore, it will not be sufficient, as it was before, to hand over the wage statement on the day of commencement of work). The wage statement is delivered at the moment (i.e. not on the date) of acknowledgement of receipt. This is a consequence of the principle that the employee should be made aware of the pay conditions before commencing work.
The other options for delivery of the wage statement (including electronic delivery to the employee’s designated address) and their terms and conditions remain unchanged.
It is almost unbelievable that until now the basic method of payment of wages has been cash at the workplace. The Flexinovela finally responds to practice and establishes non-cash payment of wages as the primary method. Only in the following cases will wages be paid in cash during working hours and at the workplace:
Employee does not have a bank account
Employee does not agree to non-cash payment of wages or salary
Employee did not provide cooperation (did not provide account number)
Wages or salary are normally paid in Czech crowns to a bank account in the Czech Republic. The employee must have the money in the account on the pay date.
An important novelty is the extension of the possibility to pay wages in foreign currency. It will now be possible to pay wages in foreign currency in the presence of a so-called foreign element in the employment relationship, particularly in the following cases:
The employee’s consent is required for payment of wages in a foreign currency (it must be an agreement). Only the currency for which the Czech National Bank announces the exchange rate can be used. For the conversion, the Czech National Bank’s rate for the first working day of the month following the month for which the wage entitlement arose is used.
The Flexinovela introduces the possibility to employ minors from the age of 14, even if they have not yet completed compulsory schooling. These minors will be able to do so-called light work during the main holidays, which will not compromise their health, education or moral development. The main holidays are the summer holidays, i.e. July and August, with the exact dates of the holidays being determined annually by the Ministry of Education, Youth and Sports (e.g. this year Saturday 28 June – Sunday 31 August 2025).
To conclude an employment contract or agreement with a person under 15 years of age, the consent of the legal guardian is required in accordance with the Civil Code.
Light work means work falling within the first category under the Public Health Protection Act which does not require special authorisation.
According to the explanatory report, the permitted activities include, for example:
Work of camp leaders and animators
Help in the kitchen
Hospitality service without selling alcohol
Manual car washing
Distribution of flyers
Help in administration
Social network management
Tutoring or translating
On the opposite, work in construction, operating machinery, in forestry or on night shifts is forbidden.
For minors under the age of 15 or those who have not completed compulsory schooling, working hours are limited to a maximum of 7 hours per day and 35 hours per week. These employees are not allowed to work between 20:00 and 6:00 and cannot work overtime.
For minors, the length of the weekly working time is assessed cumulatively for all employment relationships. Daily rest must be at least 14 hours.
Before starting work, minors must undergo an initial medical examination, which is paid for by the employer. This obligation applies to both employment and agreements for work performed outside the employment relationship (“DPP”, “DPČ”).
The Flexinovela introduces the possibility of reducing the daily rest period to 6 hours in the event of an emergency, which means:
This refers to situations that the employer is unable to control even with all due diligence, such as network outages, cyber and hacker attacks, leaks of hazardous substances, effects of storms, floods, etc.
In the event of a reduction in daily rest, the employer shall provide the employee with extended compensatory rest at the earliest possible time.
If the employee is providing long-term care, the employer will now have to excuse the employee’s absence despite the existence of serious operational reasons on the employer’s side with which the employee’s absence conflicts.
The possibility of transferring leave is now introduced also in the event of a change in the basic employment relationship, i.e. in the event of a change in the employment relationship to an agreement on the performance of work or an agreement to complete a job, and vice versa, in the event of the replacement of one form of agreement by another.
The Flexinovela regulates the conditions for proving the existence of a trade union in the employer. The trade union will now have to prove at the employer’s request that at least 3 employees of the employer are organised with it. This proof does not have to be part of the initial notification of the presence of a trade union with the employer.
Proof of membership is in the form of a notarial record, which is the result of the cooperation between the trade union and the employer. The costs of the notarial deed shall be borne by the employer.
The amendment explicitly prohibits so-called confidentiality clauses on wages/remuneration and their components. Violation of this prohibition may be punishable as an offence with a fine of up to CZK 400,000.
If you have clauses in your contracts of employment, you must remove them from the documents for incoming employees altogether. If it applies to existing employees, then the best solution is to sign amendments to remove (delete) the confidentiality clauses from the employment contracts.
However, the Ministry of Labour and Social Affairs admits that where it would not be feasible to conclude amendments or would be excessively administratively demanding, employers may cancel the concluded clauses by unilateral declaration addressed to the employees, by which the clauses will be declared null and void.
The Flexinovela clarifies the definition of a single person, who is:
The rules for calculating average earnings are also clarified for cases where average earnings are determined after termination of employment (for example, for severance pay purposes) and for cases where there is a change in hours of work:
Finally, rather surprisingly, the Flexinovela also brought the abolition of entry medical examinations, although these were originally part of another amendment.
As of 1 June 2025, it is therefore no longer necessary to carry out initial medical examinations for non-hazardous work classified as Category 1. This applies to all types of employment relationship, i.e. employment contract and agreements on work outside the employment relationship.
In case of agreements on work outside the employment relationship, employees classified in non-risk category 2 did not need to undergo an entry medical examination. However, the Flexinovela abolishes this rule, therefore from 1 June 2025, all employees on a agreements on work outside of employment relationship classified in category 2 will be required to undergo the entry medical examinations, regardless of risk.
However, the legislation allows employers to send applicants for an entry medical examination where the employer considers it appropriate.
After many weeks of discussions, adjustments and negotiations, the long-awaited amendment to the Czech Labour Code was finally approved.
On 13 September 2023, the House of Representatives overruled the Senate’s proposals to the amendment to Act No. 262/2006 Coll., the Labour Code (the “Labour Code”) and therefore approved the amendment as submitted to the Senate by the House of Representatives.
The Act was signed by the Czech President on 17 September 2023 and published in the Collection of Laws on 19 September 2023 as Act no. 281/2023 Coll.
The amendment is intended to enter into effect generally on the first day of the month following its publication in the Collection of Laws. The amendment will thus enter into force on 1 October 2023.
The provisions concerning the introduction of the right to annual leave for employees working under agreements on work performed outside the employment relationship are to take effect from the first day of the year following the publication of the amendment in the Collection of Laws, i.e. 1 January 2024.
This also applies to the amendment of Section 92 regulating continuous weekly rest and the modifications to Section 303 Subsection 3 limiting the activities defined therein for selected groups of public sector employees.
The amendment brings the following changes:
All changes concerning agreements outside the employment relationship (i.e. agreement on work performance or “DPP” and agreement on work activity or “DPČ”) are related to the underlying change of concept, according to which the working time provisions will now apply to these agreements.
As a result of the application of the working time provisions, the employer will be obliged to:
The schedule will need to be communicated to the employee at least 3 days in advance unless the parties agree on a longer or shorter reasonable period of time. The extent to which this period can be shortened is debatable; in special, justified cases, for example, a period of 1 day could be considered; however, until sufficient interpretative practice develops, we recommend that, in order to uphold the principle of predictability of the terms of the employment relationship, the three-day period is generally kept unless special circumstances of the work or operation are present.
All provisions concerning the scheduling of working time must be complied with:
This is also linked to the employer’s obligation to record working time.
Unless the employer is able to schedule working hours so that no work is performed during these times, DPP and DPČ workers will now be entitled to additional premiums for work on public holidays, weekends or night work.
From 1 January 2024, an employee working based on DPP or DPČ agreements will be entitled to annual leave.
In order to be entitled to annual leave, the employment relationship will have to last at least 4 weeks and the employee will have to work at least four times the notional (fictionally stipulated) working time (i.e. 80 hours; including any compensatory time).
The calculation of annual leave will be based on the notional working time of 20 hours per week, regardless of the actual agreed scope of work or work tasks. The principle for calculating the length of annual leave will be the same as to date, e.g. since the weekly working time for leave purposes is always 20 hours per week, an employee with a 4-week basic leave entitlement will be entitled to 1/52 of 80 hours, i.e. approximately 1.5 hours of annual leave, for every 20 hours worked (including compensatory time).
If the annual leave is not fully used up by the end of the employment, it will have to be compensated, similarly to employees working under employment contracts.
As a result of the application of the working time provisions, employees will be entitled to obstacles to work on their side, i.e. their absence will have to be excused by the employer.
Employees working on the basis of these agreements will not be legally entitled to salary compensation (remuneration), but it will be possible to agree on its provision or to establish such entitlement in the employer’s internal regulations. The period of obstacles to work will not count towards the legal limit for agreements (i.e. a maximum of 300 hours for DPP or half of the agreed working time in the case of DPČ), as this relates to the actual performance of work. Thus, if the employee takes annual leave or there are obstacles to work on his/her side, for example, this will not count towards these annual limits. However, according to the explanatory memorandum to the amendment, it should be noted that these compensatory periods will be counted in for the purposes of annual leave calculation according to the same rules as with standard employment contracts.
The employee will be able to request, within 1 month of receiving a termination notice, written specification of the reasons for employment termination, specifically if the employee believes to have received the notice as a result of asserting his/her rights, e.g.:
The employer will be obliged to provide such written justification of the notice without undue delay.
Employees will now be able to make a written request for employment under an employment contract instead of DPP/DPČ, if their relationship with the employer under such agreements outside of the employment relationship has lasted for a cumulative period of at least 180 days in a period of 12 consecutive months. However, the amendment does not establish an obligation to comply with such a request and only provides for the obligation of the employer to respond in writing to such a request within 30 days.
The Labour Code newly stipulates that the agreed work must be specified in DPP, as is already the case for DPČ.
Salary compensation from the agreement (as well as the advance on such compensation) is explicitly included among other income that may be subject to salary deductions under Section 147 of the Labour Code.
More significant changes are to be made to the employer’s information obligation under Section 37 of the Labour Code, both at the commencement of the employment relationship (or DPP/DPČ) and at the time of posting. These changes consist both in shortening the time limit for compliance with this obligation and in expanding the scope of information that must be provided to employees, which is also extended to cases where the employee is posted abroad by the employer.
The time limit for fulfilling this obligation is to be reduced from the current 30 days to 7 days from the beginning of the employment relationship. A significant part of the information obligation may be fulfilled by reference to information contained in internal regulations, so attention should be paid to their wording. The employer is obliged to inform the employee of any changes to the information without undue delay, at the latest on the day on which the change takes effect.
The employer will thus have to inform the employee in writing of the following (i.e. beyond the current scope of the information obligation):
The information obligation will have to be fulfilled regardless of the duration of the employment relationship, i.e. also for employment relationships shorter than 1 month. At the same time, the Ministry promised to develop a template information form pursuant to Section 37 of the Labour Code meeting the new statutory conditions. However, according to the information available to us, the Ministry has not yet prepared such a template.
As far as existing employees are concerned, if the information obligation was fulfilled before the amendment to the Labour Code came into effect, the employer is obliged to provide information according to the extended list of information only upon the employee’s written request within 7 days from the date of receipt of such a request.
Additional information beyond Section 37 must be provided in advance to employees posted abroad for a period exceeding 4 weeks, with a special category of data requested for employees posted in the context of the transnational provision of services in the EU. This includes data on:
The information obligation also applies to agreements on work performed outside the employment relationship in the newly inserted § 77a and § 77b of the Labour Code, which essentially reiterate the above provisions on information on the employment relationship and posting.
If the information is provided in electronic form, the information must be accessible to the employee in such a way that the employee can save and print it; the employer must keep proof of the provision of the information to the employee.
Changes also await us in the regulation of remote work, although compared to the originally published and widely media-hyped text of the amendment, the changes are ultimately of a rather minor nature, with the exception of the lump sum amount of reimbursement of expenses, which will hopefully bring clarity to the issue of reimbursement of expenses and its taxation.
The amendment distinguishes between remote work unilaterally ordered by the employer and remote work agreed between the parties.
It will now be possible, on the basis of the experience of the Covid era, to order remote work unilaterally. However, the possibilities for such order are very limited. It will only be possible to order remote work on the basis of a decree issued by a public authority and for a strictly necessary period of time if the nature of the work allows it. At the same time, the employee will have to indicate the location of the remote work site suitable for such work, or to state that no such site is available.
In other cases, remote work will only be possible by written agreement with the employee. The agreement may be separate but may also be a part of an employment contract or DPP and DPČ. The amendment no longer provides for any mandatory requisites of such an agreement and therefore leaves its content to the will of the parties. However, this also means that remote work can no longer be regulated exclusively as a benefit in the employer’s internal regulations but must always be subject of an agreement between the parties. In this context, the transitional provisions stipulate that if a written agreement on the conditions of remote work has not been concluded before the amendment entered into effect, the employer shall conclude such a written agreement no later than 1 month after the amendment enters into effect, i.e. by the end of October 2023.
The concluded agreement may be terminated by both parties in writing with 15-day notice period, which may be shortened or extended at will by agreement of the parties but must be of equal length for both parties. The period of notice shall commence on the date of delivery. The notice does not have to be justified in any way.
The termination of the agreement shall not affect the duration of the employee’s employment.
The possibility to terminate the agreement may be contractually excluded.
A pressing topic is the reimbursement of costs related to the performance of remote work.
The amendment presumes that costs will primarily be reimbursed in the amount actually incurred by the employee. However, it is possible to agree with the employee, or stipulate in an internal regulation, that these costs will be fully reimbursed by a lump sum. The amount of the lump sum compensation is no longer stipulated by the Labour Code and the regulation is left to a decree of the Ministry of Labour and Social Affairs (proposed amount of CZK 4,60 per hour is expected based on the latest Ministry decree proposal, subject to regular indexation). The lump sum reimbursement is payable by the end of the following calendar month. In the private sphere it will be possible to provide a higher lump sum compensation, but according to the explanatory memorandum it should constitute taxable and insurable income of the employee. The lump sum compensation is granted for each hour of working remotely (shorter periods are added together for the purposes of compensation) and is rounded up to the nearest cent decimal.
Rather surprisingly, the Labour Code will now provide for the option to agree that the employee is not entitled to any reimbursement of expenses in connection with remote work. However, this requires an explicit (written) agreement (e.g. it cannot be set out in an internal regulation), which is something employers must bear in mind when drafting remote work agreements.
Persons working on the basis of DPP and DPČ agreements should only be entitled to reimbursement if this has been expressly agreed with them.
The originally planned and widely criticized entitlement of some employees to remote work has been completely abolished and only the possibility to request remote work has been enacted.
The employer does not have to approve such request (or demonstrate serious operational reasons or other circumstances of non-approval) but must give reasons in writing for refusing such a request.
The same group of employees can request remote work as can request a reduction in working time under the current legislation. The only difference is that the child age limit in case of remote work is set at 9 years, whereas for shorter working hours it is 15 years. The employer should word the refusal carefully to avoid discrimination, unequal treatment or other unlawful practices.
See the section on Carers’ rights: set out under 8 below for more information.
For the first time, the Labour Code contains an explicit legal regulation according to which it is possible to conclude (selected) employment documents in electronic form. This applies to the employment contract, the agreements on work performed outside the employment relationship as well as the agreements on their amendments or termination thereof. This is a change that practice has long called for.
For these purposes, it will be necessary to obtain from the employee his or her private electronic address (i.e. usually a private email address, possibly the employee’s private cloud storage address or the employee’s electronic address within a communications application) in writing.
Generally, the employee will be given the opportunity to withdraw from documents so executed within 7 days. However, this will not apply to termination agreements (i.e. termination of employment or DPP and DPČ). Furthermore, withdrawal will not be possible in those cases where the employee has already started acting according to the concluded document (e.g. the employee has started performing work according to an electronically concluded employment contract). Withdrawal will cancel the contract thus concluded from the outset, i.e. it will be treated as if it had never occurred.
Following the introduction of the possibility of electronic conclusion of certain employment documents, the range of documents that must be delivered to employee´s own hands has been logically narrowed down and other conditions of delivery have been adjusted.
Only unilateral documents, i.e. in particular termination of employment during the probationary period, notice of termination, immediate termination of employment, warning letter and salary assessment, are to be delivered into one´s own hands.
The employer will primarily deliver:
Delivery by post shall be secondary, if delivery cannot be made at the workplace.
In the delivery methods area, electronic delivery will be significantly simplified.
Electronic delivery will require the following:
However, the employee will no longer have to confirm receipt of the electronic message using his/her recognised electronic signature, which made this method of delivery effectively unusable in reality. The written acknowledgement can therefore take any form, provided that if the employee does not acknowledge receipt within 15 days, the document is deemed to have been delivered on the last day of that period.
Delivery to the employee’s and employer’s data box is also simplified:
The amendment refines the existing legislation by replacing the existing term “rest between shifts” with the term “daily rest“.
The Explanatory Memorandum adds that the decisive criterion for granting this continuous rest is a cycle of 24 consecutive hours and not the total time between the end of one shift and the start of the next shift. This intends, among other things, to help prevent possible circumvention of this regulation through overtime work.
The 24-hour daily rest cycle must include both the scheduled shift and any overtime work, on-call work and a continuous daily rest of at least 11 hours, or a reduced rest of at least 8 hours.
The wording is also clarified so that the employer is obliged to actually provide this daily rest and not just schedule it. A corresponding change in wording is also applied to the regulation of continuous weekly rest. The obligation to provide both longer daily rest (24 hours) and weekly rest (48 hours) to juvenile workers remains.
Parental leave is one of the important personal obstacles to work on the part of the employee.
In addition to the existing general regulation that the employee must notify the employer of an obstacle to work known to him in advance, the amendment provides that:
For reasons of legal certainty, a written form of the request is necessary. The employee’s right to apply for parental leave repeatedly, or to extend or terminate it and return to it again, remains.
The provisions of Section 241 et seq. of the Labour Code regulating the rights of those caring for others have been amended to a relatively significant extent:
The request should now be in writing and the employer’s reasons for not granting the request should also be in writing.
The Explanatory Memorandum further clarifies the intended application practice by stating that the request should be seen as the initiation of a dialogue on the change of the employment contract. Where the employer is willing to approve the request (agreeing in principle to shorter working hours or remote work), the employer will enter into negotiations with the employee and subsequently conclude an amendment to the employment contract, agreeing on all relevant matters. This should resolve previous disputes as to whether this constitutes an agreement on changed conditions or a unilateral approval (decision) by the employer, which the employer is then also entitled to change unilaterally. For the sake of completeness, it should be added that the parties are not restricted in their ability to agree on such changes only for a fixed time period (e.g. 6 months, 1 year, etc.).
From our point of view, the new regulation of the possible modification of working time and other conditions is rather unclear. However, in brief, the following applies:
Request for reinstatement or partial reinstatement of the original scope of working hours:
Request for further reduction of working time:
Request for other appropriate adjustment of working time:
In the context of shorter working hours, the Labour Code now provides for an express obligation to agree on shorter working hours in writing. In addition, for persons caring for a child under the age of one, the law also prohibits overtime order by the employer.
Despite considerable criticism from health professionals, the amendment reintroduces the possibility of additional agreed work in the health sector beyond the scope of generally permissible overtime. Its maximum scope is set at an average of 8 hours, or (in the case of ambulance service employees) 12 hours per week. This overtime work must be agreed in writing and comply with the statutory requirements. Employees shall not be pressured to conclude the agreement. The employer must keep a list of the employees with whom the agreement has been concluded and must also inform the competent labour inspection body of the application of the additional agreed overtime work.
The institute is introduced for a fixed period, from 1 October 2023 to 31 December 2028.
In connection with the amendment to the Labour Code, the employer should take the following factual/practical steps:
Recent years have been very turbulent for e-commerce in the Czech Republic. After a dramatic growth in the period of the boom, the years 2022 and 2023 followed a downward trend. However, 2024 marked a turning point, as after two years of decline, e-commerce returned to normal and started to grow again. In recent years, foreign marketplaces have also entered the market and have had a significant impact on Czech online sales. Available data shows that in 2024, sales on Czech e-shops will reach CZK 194 billion (approx. EUR 7.7 billion). If we also take into account foreign marketplaces, spending by Czech online shoppers will reach CZK 228 billion (approx. EUR 9 billion).
Considering the opportunities offered by online sales, it can be expected that the turnover of e-commerce players will continue to grow in the coming years. On the other hand, we also expect competition to grow not only between individual e-shops but also due to the presence of foreign online marketplaces. Therefore, the key to success will continue to be the monitoring of many factors and continuous improvement. From the business perspective, the key drivers are high quality goods, customer service, technology and marketing. But there are also legal and tax aspects that must be observed and set up correctly.
To provide an indication of the main areas to be observed in the legal and tax fields, we would like to present you this eBook. It was prepared not only for the newcomers, to introduce them the main pitfalls to avoid, but also for the experienced players who might want to double check whether their current approach is correct.
This eBook does not mean to offer a comprehensive guide on how to run an e-commerce business in the Czech Republic, but it rather provides a brief overview of issues that the company will come across while carrying out its daily activities.
And what can we do for you in this area? Our team of experienced legal and tax consultants is prepared to offer assistance with the legal and tax aspects of setting up your e-shop in the Czech market. We may help you not only with the establishment and required registrations, but also, we may assist you with designing purchase and sales flows; solving the issues connected with contractual documentation, consumer protection, information duty, and personal data protection; creating relevant legal and tax documentation; tax compliance if relevant and many others.
Before opening an e-shop in the Czech Republic, i.e. before the commencement of offering goods or services to customers via an e-shop, legal requirements of the Czech and EU law must be taken into account. The legal regulation of e-shops includes primarily the obligation of formal establishment of the operator of the e-shop, general contract requirements, requirements relating to consumer protection and also personal data processing.
An e-shop can be operated by either natural or legal people, Czech or foreign. Czech entities and foreign branches need to obtain a trade license from the Czech Trade License Office covering the intended scope of activity carried out through the e-shop, and companies have to be properly established and registered in the Commercial Registry.
Foreign entities residing in the EU, which are entitled to operate an e-shop in their country of residence/establishment, may run an e-shop in the Czech Republic without a duty to obtain a trade license or register its branch into the Commercial Registry. Nevertheless, having a delivery address in the Czech Republic may prove to be advantageous in certain situations.
An obligation of foreign entities to obtain a trade license and to register in the Commercial Registry requires an individual assessment depending on the particular circumstances of each case.
To secure proper fulfilment of all statutory obligations, the operator of the e-shop should be aware of which legal system governs relationships with its customers (e.g. rights and obligations of the parties to the contract, claims of the customer in case of defects or limitation periods).
In case the e-shop is operated by a Czech-based entity which offers goods or services to Czech customers, Czech law would probably be the first choice. If the headquarters of the operator of the e-shop offering goods and services in the Czech Republic resides abroad, the answer to this question may not be as clear.
Law governing the contract can be established on the basis of an EU regulation No. 593/2008 (the so-called Rome I Regulation) which determines the law decisive for contracts, including consumer contracts. The Rome I Regulation distinguishes between contracts concluded between two entrepreneurs within their business activity and consumer contracts, i.e. contracts between an entrepreneur and a consumer. A consumer is a natural person concluding a contract outside his trade, business or profession.
As a general rule, consumer contracts are governed by the law of the country of residence of the consumer. However, the EU law allows parties to choose the governing law. Nevertheless, such a choice cannot deprive the consumer of protection provided by the law applicable under the general rule. The EU law further contains some exceptions from the general rule, applicable for example to contracts on provision of services, if the place of performance lies outside the country of the consumer’s residence, as well as insurance and transport contracts.
If a contract concluded through an e-shop is not a consumer contract, the choice of the governing law is possible without any limitations. In case of lack of such a choice, the Rome I Regulation contains rules for determination of the governing law.
So, for e-shops, which intend to sell goods or services to Czech customers, the following conclusion can be made: The contract concluded with consumers through an e-shop will be governed by the Czech law. Non-consumer contracts will be governed by the law of the seller’s/provider’s residence if no other choice is made.
Consumer protection in the Czech Republic stems partially from the EU harmonization, therefore provisions similar to the Czech regulations can be expected also in other EU countries. On the other hand, EU countries are allowed to apply some additional consumer protection arrangements, so rules applicable in each EU country (including the Czech Republic) should be crosschecked. For an e-shop, especially provisions relating to consumer contracts (and particularly to distance contracts) are relevant. A distance contract is a contract:
without simultaneous physical presence of the parties,
by using one or more means of distance communication (e.g. the internet)
Among these rules, it is possible to highlight provisions imposing information obligation on the trader towards the consumer, provisions regulating the process of concluding the contract and provisions regulating the content of the contract (prohibited provisions, termination of the contract, quality guarantee and the consumer’s claims from defective performance, etc.). The operator of the e-shop should ensure that the web page where the e-shop is located contains all the information required by law and that the contract concluded through the e-shop respects all the consumer’s rights.
Before the conclusion of a contract, i.e. generally before an order through the e-shop is finished, the consumer should be informed about the identity of the trader, his address, contact details, specification of the goods or services offered, final price of the goods and services (including all taxes and fees), use of price personification, means of payment and delivery, delivery costs, claims arising from defective performance or warranty and conditions for their application, length of duration of the contract and ways to terminate it (steps, period for withdrawal and procedure of withdrawal included), costs of distance communication, amount of eventual advance payments, body competent for settlement of consumer disputes, etc.
All the information provided before the conclusion of the contract should form part of the concluded contract. The most suitable way to fulfil this duty is to include the information into the general commercial terms, which should be easily accessible on the web page where the e-shop is placed. Before placing the order, the customer should acknowledge the general commercial terms.
Consumers should be informed about particular steps of concluding the contract and before final placing of the order should have a chance to verify and eventually correct the data inserted into the order. The trader should also inform the consumer where the concluded contract is available for the consumer, about languages in which the contract can be concluded or any rules of behaviour bounding on the trader.
In the context of ordering (specifically the Order button) goods and services, the consumer must be informed of the obligation to pay, i.e. the consumer must be clear from the order that by sending (confirming) it, he undertakes to pay for the order.
The trader should also inform the consumer where the concluded contract is available for the consumer, about languages in which the contract can be concluded or any rules of behaviour bounding on the trader.
After the order is placed by the consumer, the trader is obligated to immediately confirm receipt of the order also by one of the means of distance communication (for example by an e-mail).
The contract concluded through the e-shop is regulated by the applicable law. For a private contract, the principle of contractual freedom usually applies, nevertheless in the case of consumer contracts, the freedom is to a significant extent limited in favour of the consumer.
First, certain provisions are explicitly prohibited by law and cannot be applied by the trader. Arrangements establishing disproportional unbalance between rights and obligations of the trader and of the consumer are prohibited in general.
In addition, the contract cannot contain arrangements restricting or excluding consumers’ rights from defective performance, allowing the trader to withdraw from the contract without any reason, allowing the trader to change unilaterally rights and obligations of the parties to the contract, disallowing the consumer to file an action at court and forcing him to sue the trader at an arbitration court not being bound by the consumer protection provisions, etc.
Czech law also contains some provisions protecting consumers that are applicable for all sales contracts, not only distance contracts.
It is worth mentioning that under these provisions the consumer is entitled to raise claims from defective performance within 24 months from takeover of the goods (or within the warranty period stated on the cover of the goods). These provisions also determine the respective claims consumers have in case of defective performance.
In case of distance contracts consumers also have the right to withdraw from the contract without any reason within 14 days from takeover of the goods (it is sufficient that the consumer dispatched the withdrawal announcement within this term). If the consumers have not been informed about this right by the trader, the period for withdrawal prolongs to 1 year and 14 days.
To avoid any potential disputes, we recommend to offer to the customers a template withdrawal form. When this form is used by the customer, the trader is obligated to confirm its receipt within undue delay. The consumer must return the goods obtained on the basis of the contract within 14 days from the withdrawal. Within the same period, the trader is obligated to return the price paid by the consumer together with delivery costs in the manner the price was paid or in a manner agreed on with the consumer.
The consumer is, however, prohibited to withdraw from the contract in certain cases, such as in the case of service contract, if the services were already provided with the consent of the consumer, in the case of goods especially adapted according to the consumers requests, in the case of goods from which the hygienic cover has been removed, and which cannot be put back, and in certain other cases.
When placing the order, the traders often require customers to provide (and customers provide) certain personal data, such as name, address, phone number, e-mail address, date of birth or gender. Such personal data serve mainly for invoicing and delivery of the goods and services, however, some traders use the personal data also for other purposes, such as marketing, advertising, references, statistics, etc. Processing of personal data is regulated, and when a trader processes personal data, statutory obligations must be fulfilled.
Processing of personal data constitutes any operation or set of operations systematically conducted with the personal data. It includes collecting of the data, saving, accessing personal data, editing, searching, using, handing over, publishing, exchanging, liquidating, etc. The operator of the e-shop becomes the so called “controller” of the personal data.
In order for the lawful processing of personal data to take place, it is necessary that the trader has at least one of the legal titles for processing personal data set out in the GDPR. In the case of e-shops, this will generally be the processing of personal data in connection with the performance of a contract or the legitimate interest of the trader (it will always depend on the specific purposes of the processing). Personal data may only be processed for the purpose for which it was obtained, only for as long as there is a legitimate reason for processing it, and only in relation to such data as is necessary to fulfil the required purpose (although there are exceptions).
Before processing may commence, the customer has to be informed about the purpose of processing the data (the purpose must be laid down by the controller before processing of the data is commenced), who will be processing the data, what kind of data will be processed, for how long the data will be processed and about rights of the data subject regarding access to, correction of, or destruction of the data and other information required by law.
The controller is also obliged to adopt technical and organizational measures preventing leakage and abuse of the personal data of the customers and such measures must be documented. Employees of the controller are bound by the statutory confidentiality duty with regard to the data and the measures adopted for their protection.
Sending commercial messages is a common practice for e-shops, whether it is sending information about new products or birthday cards. Commercial messages are generally considered to be all forms of communication, including advertising and solicitations to visit websites, intended to directly or indirectly to promote the goods or services or the image of the business that the trader sends to its customers.
It is common practice for commercial messages to be sent primarily to its customers. Since in such a case a legal relationship already exists between the e-shop and the customer, sending commercial messages without consent is possible.
If the e-shop operator receives electronic contact (e.g. e-mail) from its customer in connection with the sale of products or services. The e-shop operator may send commercial messages to the e-mail received in this way, provided that the customer has the possibility to refuse such commercial messages easily and free of charge and that the commercial messages concern similar products or services purchased by the customer on the e-shop.
Almost every e-shop operator uses cookies on its website. Cookies are small text files that are stored on the hard drive of the computer or other device from which the visitor browses the website. Cookies have various uses, such as ensuring the technical operation of a website, enabling website operators to understand visitor preferences, create targeted advertisements or obtain other information about customer behaviour.
The amendment to the Electronic Communications Act brought substantial changes to the use of cookies from 1 January 2022. Thus, there is a new transition from opt-out to opt-in mode. The opt-in basically means that storing cookies on a device or obtaining other information is only possible if the user gives demonstrable consent to do so.
This rule applies to all types of cookies except those necessary for the operation of the website. Unlike the previous opt-out regulation, this requires activity on the part of the website user. As a consequence of this amendment, the wording of the cookie bar needs to be adjusted so that users can give consent separately for each type of cookie.
Often, website operators use a so-called cookie wall (i.e. a window that blocks the user from further access to the website until they agree to the use of cookies). Please note that such consent, which is essentially forced, cannot be considered free and as such does not comply with the requirements of the GDPR.
Conducting a business on the territory of the Czech Republic is usually connected with various tax registrations. The corporate income tax registration and value added tax registration are the most common for an e-shop.
Provided that the e-shop carries out its activities through a company established for this purpose in the Czech Republic, it is liable to register for corporate income tax purposes within 15 days from the establishment of the company, i.e. from its registration in the Commercial Register.
If on the other hand the e-shop would have no physical presence on the territory of the Czech Republic, the liability to corporate income tax registration and related duties would not arise.
Nevertheless, even if no Czech-based company is set up to operate the e-shop, it is highly recommendable to pay close attention to any activities the e-shop carries out on the territory of the Czech Republic. Certain activities carried out by the foreign e-shop on the territory of the Czech Republic could lead to creation of its Czech permanent establishment. Once created, the permanent establishment would be liable to corporate income tax duties in the Czech Republic.
It is impossible to provide a full list of activities that would or would not lead to permanent establishment creation. To come up with a relevant conclusion on this issue both the Czech tax legislation and the Double Tax Treaty concluded between the Czech Republic and the country of which the entity operating the e-shop is a tax resident should be analysed.
To provide an indication of situations both leading and not leading to Czech permanent establishment creation, a few examples are described below.
Situations that do not lead to permanent establishment creation in the Czech Republic:
Situations that might lead to permanent establishment creation in the Czech Republic:
Once registered for corporate income tax purposes, the e-shop is liable to file its Czech corporate income tax return on annual basis. The time-limit for filing the return is generally three months following the end of the taxable (accounting) period. If the corporate income tax return is filed by a tax advisor or if the entity operating the e-shop becomes liable to a statutory audit, the time-limit for the submission of the corporate income tax return is prolonged to six months following the end of the taxable (accounting) period.
The corporate income tax liability (self-assessed by the e-shop) is payable within the filing deadline.
As a consequence of the corporate income tax liability, the obligation to corporate income tax advance payments arises. Advance payments must be paid semi-annually if the last known tax liability ranges between CZK 30,000 – CZK 150,000 (approx. EUR 1,200 – EUR 6,000). In this case the advance payment is set at 40% of the last known tax liability.
If the last known tax liability is higher than CZK 150,000 (approx. EUR 6,000), the advance payment is ¼ of the previous tax liability and is paid quarterly.
Provided that the e-shop has registered seat, place of business or fixed establishment in the Czech Republic, the threshold for mandatory VAT registration is the turnover of CZK 2,000,000 (approx. EUR 80,000) for a calendar year.
A foreign taxable person that realizes long-distance sales (i.e. sale of goods via e-shop) in the Czech Republic to Czech final customers has to register for VAT in the Czech Republic if the total value of the transactions carried out to the European Union customers reaches EUR 10,000 in the relevant calendar year and the year immediately preceding and is not registered to One Stop Shop scheme in his home country.
The entity operating the e-shop (both Czech and foreign) may however apply for voluntary VAT registration. The process of voluntary VAT registration is more demanding from the administrative perspective lately.
The process of registration usually takes from 2 weeks (mandatory VAT registration) up to 6 weeks (voluntary VAT registration) depending on completeness and correctness of provided information and documents.
If the online store is already registered in the country of its establishment under the One-Stop Shop regime (OSS), it is not obliged to register for Czech VAT purposes.
Once VAT registered, a liability to file VAT returns in which the VAT liability or entitlement to VAT recovery are calculated and reported arises. The compulsory VAT reporting period for newly registered VAT payers is a calendar month.
VAT returns, both monthly and quarterly, are due by the 25th day of the following month/quarter. The amount of VAT liability consists of the VAT due on supply of goods and services carried out decreased by input VAT of the same period.
Starting from 2016, VAT registered persons are also obliged to file special tax return called VAT Control Statement through which further details on transactions are reported (e.g., invoice number, identification of supplier or customer, tax base, VAT amount). The VAT Control Statement is filed within the same deadlines as are relevant for VAT returns filing. The VAT Control Statement is only a reporting tool that allows financial authorities to have more control over correct and complete reporting of VAT liabilities.
Even if not VAT registered in the Czech Republic, the e-shop should be aware of the risk of becoming VAT identified person. The e-shop would become liable to register as VAT identified person in the following situations:
The e-shop seated on the territory of the Czech Republic acquires goods from another EU-member state with the value cumulatively exceeding CZK 326,000 (approx. EUR 13,000) per calendar year.
The e-shop seated on the territory of the Czech Republic acquires services from persons established outside the Czech Republic (in EU and 3rd countries) with the place of taxable supply in the Czech Republic (e.g., purchase of marketing services).
The e-shop seated on the territory of the Czech Republic provides services with the place of taxable supply in another EU member state (e.g., provision of marketing services).
In the situations described under the first two bullet points, the VAT identified person becomes liable to file VAT return through which the Czech VAT liability is reported. At the same time no entitlement to input VAT deduction arises to the VAT identified person. In the third case a liability to file VAT return and EC sales list arises. No liability to pay output VAT and apply input VAT deduction is connected with filing the VAT return. The VAT return serves for reporting purposes only.
The liability to other tax registrations should be assessed with regard to the nature of the e-shop and its operations. As relevant examples could serve registration to personal income tax from employment activities provided that the entity operating the e-shop has employees, registration to road tax if the entity operating the e-shop operates vehicles for business purposes in the Czech Republic, real estate tax registration if the entity operating the e-shop owns real estate in the Czech Republic, etc.
To be able to realize the customer supplies, the e-shop will first acquire the relevant goods. The decision on the supplier of the goods to be sold by the e-shop will most likely be business-driven. Nevertheless, the VAT liabilities relevant to the purchase transaction must be assessed in line with the VAT legislation to avoid any negative consequences.
The diversity of purchase (of goods) transactions is almost unlimited. Below are comments on the most common ones.
CZECH REPUBLIC
supplier
Czech VAT payer
Delivery of goods
Payment
CZECH REPUBLIC
e-shop
Czech VAT payer
Provided that the e-shop seated in the Czech Republic will acquire goods locally (i.e. from a taxable person registered for VAT in the Czech Republic), the e-shop as the purchasing party will be entitled to claim input VAT through its VAT return.
The relevant VAT may be claimed based on a tax document containing all the prerequisites defined by the VAT legislation.
However, for certain commodities the Czech VAT legislation defines a VAT treatment that varies from the one described above. If for one transaction the purchase price of such commodities without VAT exceeds CZK 100,000 (approx. EUR 4,000) and if the goods are acquired by a Czech VAT registered payer (i.e. Czech VAT registered e-shop), then so-called local reverse charge mechanism applies. Under the local reverse charge mechanism, the supplier transfers the VAT liability to the customer (i.e. Czech VAT registered e-shop). This means that the supplier applies no VAT on the delivery of the goods to the customer. The customer (i.e. Czech VAT registered e-shop) is consequently obliged to declare the output VAT relevant to the acquisition of goods in its VAT return. Simultaneously, the input VAT relevant to the purchase of the goods may under standard conditions be claimed through the VAT return.
Some of the concerned commodities are as follows:
EUROPEAN UNION
supplier
VAT payer
Delivery of goods
Payment
CZECH REPUBLIC
e-shop
Czech VAT payer
When acquiring goods from other EU member states, reverse charge mechanism applies to the purchasing party – VAT registered e-shop in the Czech Republic.
Under the reverse charge mechanism, the supplier of the goods treats the delivery of the goods to a customer seated in another EU country as exempt from VAT. The purchasing party (i.e. the Czech VAT registered e-shop) is subsequently obliged to declare the output VAT relevant to the acquisition of goods from other EU member state through its Czech VAT return. Simultaneously the input VAT relevant to the purchase of the goods may under standard conditions be claimed through the Czech VAT return.
3rd COUNTRY
supplier
VAT payer
Delivery of goods
Payment
CZECH REPUBLIC
e-shop
Czech VAT payer
In the case of the import of goods to the Czech Republic, the tax administration is divided between the tax and customs authorities. If the importer of the goods is Czech registered VAT payer, the tax authority is the relevant tax administrator. The assessment and collection of VAT will be in the hands of the customs authority if the import to the Czech Republic will be realized by a person not VAT registered in the Czech Republic.
The import of goods to the Czech Republic by Czech registered VAT payer is reported in its VAT return through the reverse charge mechanism. The purchasing party declares the output VAT arising from the imported goods through its Czech VAT return. Simultaneously the input VAT relevant to the purchase of the goods may under standard conditions be claimed through the Czech VAT return.
The sale of goods may create various VAT situations to consider. When concluding on the VAT treatment to be applied, many indicators will need to be evaluated, e.g. where are the goods located at the moment of sale, whether the e-shop is registered for VAT in the Czech Republic, are the goods sold to a Czech customer or to a foreign one and many others.
The text below comments on the VAT treatment of some of the situations that may arise on the sale of goods.
Czech seated and VAT registered e-shop sells goods to Czech customer (non-taxable person); the goods are located on the territory of the Czech Republic at the time of sale:
CZECH REPUBLIC
Czech VAT payer seated in the Czech Republic
Delivery of goods
Payment
CZECH REPUBLIC
Final customer – non-taxable person
Under this scenario the e-shop will be liable to apply output VAT on the sale of the goods.
The Czech seated and VAT registered e-shop sells goods to an EU customer (non-taxable person); the goods are located on the territory of the Czech Republic at the time of sale:
CZECH REPUBLIC
Czech VAT payer seated in the Czech Republic
Delivery of goods
Payment
CZECH REPUBLIC
Final customer – non-taxable person
Delivery of goods to the final customer (non-taxable person) to other EU member state where the goods are transported from the Czech Republic by the supplier or by third person engaged for this purpose (e.g. courier service, post office) by the seller falls under distant sale regime (provided that the sold goods are not used goods, goods that are delivered with installation and assembly or new means of transport).
For the determination of the correct VAT treatment in this situation, the overall value of the relevant transactions to the EU final customers carried oud by the e-shop is decisive. As a relevant transaction are considered in particular distanced sale of goods and provision of telecommunication services, radio and television broadcasting services and electronically provided services to a non-taxable person.
The Czech VAT will be applied and reported in the Czech VAT return of the Czech e-shop on the sale of goods if the place of taxable supply will be in the Czech Republic. The place of the taxable supply will be in the Czech Republic provided that the following conditions will be met:
If the above conditions will not be fulfilled, the e-shop will become liable to register for VAT in the EU member state of consumption and apply the relevant VAT rate as defined by the VAT legislation of the given EU member state on the sale of goods to the customer. Subsequently, the e-shop will be liable to comply with VAT reporting and payment obligations as defined by the VAT legislation of the other EU member state.
Starting from 1st July 2021, the e-shop may register for One-Stop Shop (OSS) scheme which enables online sellers, including online marketplaces/platforms to register in one EU Member State. This is valid for the declaration and payment of VAT on all distance sales of goods and cross-border supplies of services to customers within the EU. Therefore, the e-shop does not have to VAT register in each EU member state of delivery of goods or provision of services and might tax the goods by relevant VAT rate in a single OSS declaration.
Even if the e-shop will not fulfil the above conditions obligating it to VAT registration in the other EU member state, the e-shop will be entitled to VAT register voluntarily in the other EU member state. However, in this case the e-shop will be obliged to comply with VAT reporting and payment obligations defined by the other EU member state.
EU seated and VAT registered e-shop sells goods to a Czech final customer (non-taxable person):
EUROPEAN UNION
EU VAT payer seated in EU
Delivery of goods
Payment
CZECH REPUBLIC
Final customer – non-taxable person
This scenario mirrors the one described in the above example. Therefore, the place of taxable supply will be in the other EU member state provided that the conditions given by the Czech VAT legislation (and giving rise to obligatory Czech VAT registration) are not fulfilled. Under this scenario the sale of goods to Czech final customer (non-taxable person) will be subject to VAT of the other EU member state.
If, however, the value of the goods and electronically provided services sold to EU final customers (non-taxable persons) in the given and the preceding calendar year exceeds EUR 10,000, the EU e shop would become liable to VAT register in the Czech Republic. As a consequence, the EU e-shop will be liable to apply Czech VAT on the sales to Czech Republic final customers (non-taxable persons) and comply with its Czech VAT reporting and payment obligations.
In case of registration for OSS in its EU member state, the Czech VAT is applicable, however, the VAT registration in the Czech Republic is not required. The Czech VAT will be reported in the home member stated in OSS scheme.
The Czech seated and VAT registered e-shop sells goods to a third country customer (non-taxable person); the goods are located on the territory of the Czech Republic at the time of sale:
CZECH REPUBLIC
Czech VAT payer seated in the Czech Republic
Delivery of goods
Payment
3rd COUNTRY
Final customer – non-taxable person
Under this scenario the sold goods exit from the territory of the EU and are released to export customs regime. Should this be the case, the sale of goods to the final customer (non-taxable person) would be exempt from VAT in the Czech Republic. Any duty and VAT could be assessed to the customer based on the legislation of the country of destination.
Sale of goods by the Czech seated and VAT registered e-shop to a Czech final customer (non-taxable person); the goods are dispatched from the warehouse located in other EU member state:
EU COUNTRY (DE)
Czech VAT payer seater in the Czech Republic is dispatching goods from another EU country
Delivery of goods
Payment
CZECH REPUBLIC
Final customer – non-taxable person
This situation would be very likely connected with the VAT registration of the Czech seated e-shop in other EU member state. The main reason behind this VAT registration is the entitlement to apply for input VAT of the other EU member state in case of local purchases or import of goods from third countries.
At In this case, the place of supply is always in the country where the goods are located after dispatch or transport, regardless of the total value of the goods (and selected services) sold to end customers in the EU. For this reason, the supply will be subject to taxation in the country of the end customer and the seller (online shop) will be obliged to register for VAT in that country. If the online store is registered in the one-stop-shop regime, it does not have to register for VAT in the end customer’s country of establishment.
Below we comment on the liability of the e-shop to declare the sale of goods through a tax document as defined by the Czech VAT legislation.
The liability to issue a tax document declaring the sale depends on whether the e-shop is VAT registered in the Czech Republic or not. Our comments to individual scenarios follow below.
If the goods that are sold to a Czech end customer (non-taxable person) are at the time of their sale located on the territory of the Czech Republic, no liability to issue a tax document arises. The e-shop is also not liable to issue any tax document when receiving advances from the end customers. Similarly, the e-shop is not required to issue a tax document in case of exchange or return of the goods.
In the case of a warranty claim from the customer, the e-shop is liable to issue a confirmation of the warranty claim and a report on the settlement of the warranty claim (declaring how the customer’s claim was dealt with). None of these documents are tax documents.
In this case it will be sufficient for an e-shop to issue any convenient document that will indicate the following information: identification of the e-shop (business name, seat, registration number, VAT number), identification of the customer (name, address), date of order, delivery date, description of the goods sold, total amount including VAT, advance payment, amount to be paid.
If the e-shop sells goods to a person liable to VAT, the liability to issue a tax document depends on whether the e-shop is VAT registered in the Czech Republic or not.
Under the condition that the e-shop is not VAT registered in the Czech Republic, no need to issue a tax document will arise to the e-shop. Rules as described under point a. above will apply.
If VAT registered in the Czech Republic, the e-shop is liable to declare the sale of the goods by a tax document issued in line with the Czech VAT legislation. Liability to issue a tax document will also apply when receiving advances from the customers. Furthermore, obligation to issue a corrective tax document will arise to the e-shop in case of exchange or return of the goods.
As required by the Czech VAT legislation, the tax document must provide the following information: identification of the e-shop (business name, seat, registration number, VAT number), identification of the customer (name, address), description of the goods sold, date of taxable supply (delivery date or date of advance payment receipt), date of issuance of the tax document, unit price of the goods sold excluding VAT and discount (if the discount is not included in the unit price), VAT base, VAT rate, amount of VAT in CZK, total amount to be paid.
In case of exchange or return of the goods, a liability to issue corrective VAT document will arise. Based on the Czech VAT legislation the corrective VAT document must state the following information: Identification of the e-shop (business name, seat, registration number, VAT number), identification of the customer (name, address), evidence number of the original tax document, evidence number of the corrective VAT document, reason for issuance of the corrective tax document, difference between the original and corrected tax base, difference between the original and corrected amount of VAT, difference between the original and corrected amount to be paid by the customer.
If the goods sold to Czech end customer (non-taxable person) are at the time of their sale located on the territory of the EU, the liability to declare the sale of the goods by a tax document will depend on whether the EU e-shop is VAT registered in the Czech Republic or not.
If the e-shop is not VAT registered in the Czech Republic, the VAT legislation of the country where the EU e-shop is VAT registered will be followed when it comes to issuance of VAT documents.
If on the other hand the e-shop is VAT registered in the Czech Republic, it is liable to declare the sale of the goods to the Czech end customer (non-taxable person) by a tax document issued in line with the Czech VAT legislation. Liability to issue a tax document will also apply when receiving advances from the end customers. Furthermore, obligation to issue a corrective tax document will arise to the e-shop in the case of exchange or return of the goods.
As required by the Czech VAT legislation, the tax document must provide the following information: identification of the e-shop (business name, seat, registration number, VAT number), identification of the customer (name, address), description of the goods sold, date of taxable supply (delivery date or date of advance payment receipt), date of issuance of the tax document, unit price of the goods sold excluding VAT and discount (if the discount is not included in the unit price), VAT base, VAT rate, amount of VAT in CZK, total amount to be paid.
In the case of exchange or return of the goods, a liability to issue corrective VAT document will arise. Based on the Czech VAT legislation the corrective VAT document must state the following information: Identification of the e-shop (business name, seat, registration number, VAT number), identification of the customer (name, address), evidence number of the original tax document, evidence number of the corrective VAT document, reason for issuance of the corrective tax document, difference between the original and corrected tax base, difference between the original and corrected amount of VAT, difference between the original and corrected amount to be paid by the customer.
In the case of sale of goods to a person liable to VAT, the rules for issuance of a VAT document as valid in the given EU country will apply. The rules of the given EU country will also apply to a situation when receiving VAT advances from the customers, or in case of exchange or return of the goods.
If the goods are transported to Czech end customer from a 3rd country, then regulations of the 3rd country are decisive when it comes to rules governing the issuance of VAT/sales documents.
All goods imported from the third countries to the EU are subject to VAT, regardless of their value.
If the sale of goods is facilitated by online sellers or through an electronic interface (e-shop) to buyers in the EU, the seller/electronic interface is considered to have made the sale and is in principle liable for the payment of VAT.
To simplify the declaration and payment of VAT for goods sold from a distance by sellers from either the EU or from a non-EU country or territory the seller may apply for Import One-Stop Shop (IOSS). If a business is not based in the EU, it will normally need to appoint an EU-established intermediary to fulfil its VAT obligations under IOSS. The IOSS simplification is applicable only to purchases made by a buyer within the EU and for goods valued at less than EUR 150. For goods valued more than EUR 150 shall apply the rules for standard import of goods from a non-EU country.
If the goods are transported to Czech end customer from a 3rd country, then regulations of the 3rd country are decisive when it comes to rules governing the issuance of VAT/sales documents.
It is essential for the e-shop (with no regard to the destination from where the goods are shipped) to be able to prove both the date of receiving the advance payment (in case of receiving advances from the customers) as well as the date of taxable supply (i.e. the date on which the customer overtakes the goods). Receipt of the payment can be proved by a bank account statement in case of card/bank transfer or by a confirmation from courier company in case of cash on delivery. The handover of the goods to the customer can be proved by a confirmation issued by the courier company proving that the goods were handed over to the customer or by a delivery note. Even though there is no legal obligation to issue delivery notes, it is a common practice in case of e-shop sale.
Cross-border employment brings a new set of responsibilities when it comes to fiscal obligations. Our overview on global mobility and expat tax 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.
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.
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
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).
A specific group of income from dependent activities are employee benefits, such as:
Pension and life insurance contributions: exempt from tax up to CZK 50,000 / year.
Contributions to retirement savings products – exempt from tax up to CZK 50,000 / year. The retirement savings products are defined by the Czech tax legislation as:
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 2025, the threshold is CZK 23,278. 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 is always 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 (for 2025 the amount is CZK 123.90). 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.
Calendar year
If an employer employs an EU citizen, they have the following information obligation:
Must electronically inform the Labour Office of the Czech Republic about the start of employment of an EU citizen or their family member.
This obligation must be fulfilled by the employer no later than the first day of employment. The notification can be submitted via an electronic information card or by sending an XML file via a data box, or by direct integration into the Ministry of Labour and Social Affairs (API) interface.
In the event of termination of employment or changes in data, the employer is obliged to inform the Labour Office of the Czech Republic within 10 calendar days at the latest.
If the employment contract is for an indefinite period, termination must be reported. If it is for a fixed term and the employee terminates in accordance with the reported period of employment, notification of termination is not required.
The employer is also obliged to keep records of all foreigners employed.
The employer faces a fine of up to CZK 100,000 for non-compliance with the information or registration obligation.
As with the employment of EU citizens, employers have almost the same obligations:
Must electronically inform the Labour Office of the Czech Republic in writing about the start of employment.
This obligation must be fulfilled by the employer no later than the first day of employment. The notification can be submitted via an electronic communication or by sending an XML file via a data box, or by direct integration into the Ministry of Labour and Social Affairs (API) interface.
In the event of termination of employment or changes in data, the employer is obliged to inform the Labour Office of the Czech Republic within 10 calendar days at the latest.
If the employment contract is for an indefinite period, termination must be reported. If it is for a fixed term and the employee terminates in accordance with the reported period of employment, notification of termination is not required.
The employer is also obliged to keep records of all foreigners employed.
The employer faces a fine of up to CZK 100,000 for non-compliance with the information and registration 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.
The tax return is due 3 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
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
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
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).
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).
| 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 |
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
Opening a bank account for contribution payments
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.
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.
Does a managing director of a limited liability company in the Czech Republic have to be of Czech nationality?
No, the managing director can be of any nationality.
Can we incorporate the limited liability company in the Czech Republic remotely or is our personal presence required?
All but one of the steps can be arranged remotely by a power of attorney. The only step that requires personal presence is the opening of a current bank account once the company is duly incorporated.
Is personal presence required for opening a current bank account?
Yes, the personal presence of the person who will be authorised to use the bank account (usually the managing director) is necessary. This is due to European legislation which sets strict conditions on AML and compliance policy.
Who is an Ultimate Beneficial Owner (UBO)?
The beneficial owner is every natural person who directly or indirectly owns more than 25% of participation in the capital or voting rights in the company; or who is entitled to a share of profit exceeding 25%; or who exercises actual control over the company on other grounds. Other grounds may refer to a partnership agreement, for example.
What is the time limit for registering the UBO after the incorporation, and what are the sanctions in case the UBO is not registered or is registered improperly?
The Czech law does not provide a precise time limit for the registration of UBO. However, it states that the registration should be made without undue delay. In practice, this usually means within two weeks after the incorporation.
Companies that fail to register the UBO without undue delay may face the following consequences:
What is a Data Box?
The Data Box represents a secure and state-guaranteed electronic communication portal, which can be used to communicate with authorities, courts or other entities, including private entities. It is a kind of e-mail box established upon the registration of each company. As part of our service, we can manage your Data Box and keep you informed of messages received and other necessary actions. The Data Box interface is only available in Czech.
What is the corporate income tax for a limited liability company in the Czech Republic?
Corporate income tax is levied at a standard rate of 21%. Find out more about taxation in the Czech Republic in our dedicated tax guideline.
What is a contract on performance of the office of a member of the statutory body, and is a company obliged to conclude it with its managing directors?
The essence of this contract is to regulate the rights and obligations of the company and the members of the statutory body in their mutual relationship. In practice, this contract is usually concluded (and recommended by us), but it is not obligatory. If the contract on performance of the office of the member of the statutory body is not concluded, it is established that the members of the statutory body perform their function without remuneration and the relationship between the statutory body and the company is governed by the provisions of the Czech Civil Code.
*This list is not exhaustive
A joint-stock company is another form of business in which share capital consists of shares which are represented by securities. The company may be established by a sole shareholder. It can be formed either through a private agreement to subscribe to all shares or via a public offering.
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.
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.
Our services for company incorporation in the Czech Republic are designed to simplify the process of starting a business. We offer tailored service packages to meet your specific needs, ensuring a smooth and hassle-free incorporation experience. Get in touch with us to find out more.
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.
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.
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.
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.
The company may be established even by a sole founder. A Joint-Stock Company can be formed by a private agreement to subscribe for all shares, or via a public call for the subscription of shares.
The minimum registered capital required is CZK 2,000,000 or EUR 80,000.
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.
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.
There are other 3 legal forms of business – entities primarily regulated by EU regulations – which are legally binding for all EU Member States:
The most important document required when establishing a company in the Czech Republic is the Articles of Association / Foundation Deed adopted in the form of a notarial deed.
Other documents required depend on the specific legal form of the company. 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 and registration of a capital company could be completed within 7 working days.
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 | Monistic system: Management board Dualistic system: Board of directors, Supervisory board General meeting | 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. |
Persons who will form the statutory body have to prove their clean criminal history by obtaining and submitting their criminal background check from their country of citizenship.
If the shareholder is a legal person, the proof of its existence (extract from a commercial register) shall be required.
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.
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:
It is very important for the statutory body to act with due care and diligence when performing their role in a company. If the statutory body fails to comply with due care and diligence, it becomes liable for damages.
Unfortunately, this liability cannot be limited in any way (for example by an agreement with the company etc.).
In order to protect the statutory bodies, insurance companies in the Czech Republic provide a commercial insurance option, meant to insure against damages caused by the decisions of statutory bodies.
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.
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.
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.
The Czech Republic is one of the parties to the EU Arbitration Convention. This Convention establishes a procedure to resolve disputes where double taxation occurs between enterprises of different Member States as a result of an upward adjustment of profits of an enterprise of one Member State. The Convention provides for the elimination of double taxation by agreement between the contracting states including, if necessary, by reference to the opinion of an independent advisory body.
The term „related persons” (“related parties”) concerning transfer pricing in the Czech Republic refers to:
Parties that are related through capital, where:
Otherwise, related parties:
The OECD Guidelines set out three traditional transactional Transfer Pricing methods and two profit-based Transfer Pricing methods.
comparable uncontrolled price (“CUP”) method
resale price minus (“R-”) method
cost plus (“C+”) method
profit split (“PS”) method
transactional net margin method (“TNMM”)
Generally, there is no legal obligation to prepare Transfer Pricing documentation. However, under Section 92 (3) of Act No. 280/2009 Coll. (Tax Code) as subsequently amended, the taxpayer is required to provide documentary evidence of all facts, which he is obliged to state in his tax return or other communication with the tax administration. In this context, the taxpayer may be requested to prove, how the Transfer Prices in its related-party transactions are determined, and whether they comply with the arm’s length principle.
The arm’s length principle requires that Transfer Prices charged between related parties are equivalent to those that would have been charged between independent parties under the same circumstances.
The Ministry of Finance therefore issued the Guidance D – 334 that outlines the recommendations for taxpayers regarding the scope of documentation that may be used for the purposes of Transfer Pricing. Guidance D – 334 was prepared in accordance with the principles defined in the OECD Guidelines and the Code of Conduct issued by the EU Joint Transfer Pricing Forum.
Guidance D – 334 provides legally non-binding recommendations that are, however, advised to follow to ensure a smooth tax audit.
It is essential for the taxpayer to have supporting documentation in case the tax authority inspects the transactions, as the burden of proof lies on the taxpayer. During the tax audit, the tax authority may request any documentation that reasonably justifies the substance of the transaction, its benefits for taxpayers, the appropriateness of the fees and the selected method of transfer pricing in the Czech Republic .
The Advance Pricing Agreements (APA) are binding agreements valid for up to 3 years (if conditions and the law remain unchanged) between the tax authority and the taxpayer, which set out the method for determining Transfer Prices in related party transactions.
This concept of “binding ruling” is set out by Section 38nc of the Income Tax Act, which became effective as of 1 January 2006. First, the taxpayer files a request and, consequently, the tax administrator decides, whether the taxpayer has chosen a relevant Transfer Pricing method, which would result in a transfer price determination on an arm’s-length basis. The binding ruling can be issued only for transactions effective in a particular tax period or in the future.
It is impossible to apply for the binding ruling concerning the business relations that have already influenced the tax liability (tax base or tax loss) for the taxable period.
Guidance D – 32 describes the process for issuing binding ruling and the details for the application. Generally, the decision on the method of Transfer Pricing between related parties is effective for three tax periods following the day when the decision was issued.
The fee for APA in the Czech Republic is CZK 10,000 (approx. EUR 400) for one transaction.
Mutual Agreement Procedure 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.
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.
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.
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.
No employment permission needed.
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
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
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)
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.
Employment relationship may be terminated with the Czech employee:
In some specific cases, an employee is entitled to severance pay upon termination of employment.
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.
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.
The employer is obliged to pay monthly contributions to social and health insurance and advances on the income tax.
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
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
The personal income tax in the Czech Republic is paid by the employee at a flat rate of 15% applicable on a gross salary up to the annual income of 36x the average salary (i.e. CZK 1,676,052 for 2025).
Income exceeding this limit is taxed at a higher flat rate of 23%.
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. In addition, from 1 January 2025, the employer may also agree with the employee on the employee´s self-scheduling of working hours, both when working at the employer´s workplace and when performing remote work. Specific requirements are indicated in the Czech Labour Code.
Regarding the vacation and other circumstances under which the Czech employee can take time off, the main cases are:
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.
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.
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).
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.
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).
The most common benefits for employees in the Czech Republic are:
Certain companies offer also temporary accommodation or housing allowances, recreation in the company’s facilities or holiday allowances, or free ticket by companies operating regular public transportation.
* Non-monetary benefits in the field of culture, education, , recreation and trips, etc., which are provided by the employer to the employee or his/her family members, will now be exempt from tax on the employee’s side only up to half of the average monthly salary for the whole calendar year (for 2025 this amount is CZK 23,278).
From 2025 a new limit has been introduced for health related employee benefits. These benefits are exempt from taxation on the employee’s part up to the average wage for the calendar year, i.e. up to CZK 46,557 for the calendar year 2025. The new limit should not replace the current limit for non-monetary benefits provided to employees by the employer up to half the average wage, i.e. CZK 23,278 for the year 2025, it will be monitored separately. The new limit for health benefits will apply to the purchase of goods or services of a health, medical, hygienic and similar nature from health services or the purchase of medical devices based on a medical prescription, e.g. contributions to medicines and prescription glasses, vaccinations, psychological consultations in registered health facilities, etc.
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.
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:
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.
The main sources of the labour law in the Czech Republic are three acts:
However, the area of labour law in the Czech Republic is governed by other important regulations, such as:
Understanding and applying labour law in the Czech Republic is essential to maintaining a compliant and productive workplace. At Accace, we provide expert labour law consultancy and payroll services in the Czech Republic to help you manage employment relationships, contracts, internal policies, and day-to-day HR administration. With our support, you can confidently handle your employer obligations while staying aligned with local regulations.
Affecting both domestic and foreign businesses, a number of actions triggers the obligation to register for value-added tax in the Czech Republic. To provide a basic overview, our Czech experts prepared a comprehensive eBook on VAT. 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.
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.
The supply of goods to another EU member state is exempt from VAT, provided that:
The export of goods outside the EU is exempt from VAT, provided that:
The taxable amount equals the total amount that was received or shall be received for a taxable supply, including any excise duties, however, it does not include the value-added tax.
Voluntary VAT registration is possible, but only for a taxable person. However, if the turnover threshold reaches CZK 2,000,000 within a calendar year, registration for VAT becomes obligatory.
The application for VAT registration must be submitted within 10 working days after the turnover threshold has been reached. In the application, taxable person may decide since when it would be registered as VAT payer:
Once the turnover threshold reaches CZK 2,536,500 a taxable person becomes taxpayer always from the day following the day on which the threshold has been reached.
The due day to file the obligatory VAT registration falls on the 15th day of the calendar month following the calendar month in which the turnover threshold has been reached.
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.
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.
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.
Foreign taxable persons are obliged to register for VAT in the Czech Republic in case they deliver goods or provide services subject to Czech VAT obligations (except when the recipient is obliged to pay the tax) as well as in case of acquisition of goods from other EU member states.
For distance sales the threshold for the relevant transactions (distanced sale of goods and provision of telecommunication services, radio and television broadcasting services and electronically provided services to a non-taxable person), did not exceed EUR 10,000 (approx. CZK 253,000) in the relevant and the immediately preceding calendar year. Alternatively, a single EU VAT return submitted in the OSS (One-Stop Shop) scheme will be an option.
The electronic portal businesses (often participants of distanced sales of goods) selling imported goods to buyers in the EU, might, since 1 July 2021, instead of making the buyer pay the VAT as of import of the goods into the EU, declare and pay the VAT to the tax authorities in IOSS (Import One‑Stop Shop) scheme.
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.
As of 1 January 2025, foreign entities which do not have a data box are obliged to have an authorized representative for the delivery of documents. Authorized representative should be appointed by the foreign entity no later than
In communication with the Czech tax authorities, only Czech language may be used.
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.
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.
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.
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.
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.
VAT refund for a foreign taxable person is possible, upon the fulfilment of specific conditions.
Upon the fulfilment of specific conditions, including reciprocity (currently applicable to Switzerland, Norway, Macedonia, United Kingdom), VAT refund to third countries is possible.
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.
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.
Depending on the specific situation, following penalties can be imposed in case of VAT non-compliance:
Dealing with value-added tax in the Czech Republic can be complex, especially with frequent legislative updates and detailed reporting obligations. Accace offers comprehensive VAT services in the Czech Republic to help you manage VAT registrations, filings, audits, and day-to-day compliance with ease. Our local experts ensure your obligations are met accurately and on time, so you can focus on growing your business with confidence.
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