Starting and running a business in the Czech Republic

In the Czech Republic, businesses can be established by citizens of the Czech Republic and other EU countries, as well as by foreigners with or without resident status. In some cases, it will be necessary to obtain a license to operate and register the organization in the commercial register. Depending on the type of business activity, some stages may differ; for example, some businesses may require the development of authorized capital or the signing of founding documents.

Starting a business in the Czech Republic allows foreigners to qualify for a long-term residence permit and begin the process of naturalization for Czech citizenship. Developing a company or its branch in a stable European economy and international market comes with favorable financial prospects. The Czech Republic has an active business environment with favorable conditions for promoting firms of different profiles, including state support.

Business regulations in the Czech Republic for foreigners

Foreigners can start and grow a successful business in the Czech Republic under the same conditions as citizens. Migrants are not restricted in choosing the form of business or other aspects. To register a company in the Czech Republic, potential entrepreneurs from abroad need to meet standard requirements:

• To reach the age of majority;
• To have full legal capacity;
• To be responsible and comply with the law (have no criminal record) and pay taxes.

Depending on the field of activity, it may be necessary to confirm the qualifications and experience of the future entrepreneur.

Foreigners must conduct business in good faith, within the framework of the law, and in accordance with reasonable competition and reporting and tax payment rules. According to the organizational and legal form of the business, entrepreneurs are partially or fully liable for business debts with business or personal assets.

Applicants have full entrepreneurial freedom and can therefore carry out lawful activities without restrictions. Business owners have the right to independently choose future actions, suppliers, and partners; hire personnel; make commercial settlements; dispose of profits; and carry out foreign economic activities.

How to start a business in the Czech Republic

Foreigners who wish to start their own businesses can choose from the following options:

Buying a ready-made business

This solution is ideal for applicants who want to avoid spending excessive time and money launching their business, preparing premises, and purchasing materials and equipment, yet have the necessary experience and knowledge to operate an existing enterprise. There are many offers on the market for ready-made businesses from owners in the Czech Republic.

Compared to registering a company from scratch, organizational processes are easier and faster. In a standard sale and purchase transaction, ownership rights are transferred, and then the entrepreneur’s data must be changed in the commercial register. The buyer should evaluate the documents on the sale of the business to ensure there are no debts or negative reputational factors. Although financial investments will not be less than those required to create a company, in this case, there is an opportunity to immediately obtain a ready base for work and reach a profit more quickly.

Establishing a company from the ground up

This option is ideal for those who prefer to solve all organizational issues personally and create a successful business without the reputational risks associated with past owners. First, choose the type of business activity according to the niche and entrepreneurial plans. Then, prepare the necessary documents and register the company. The owner is responsible for resolving all issues related to tax obligations and various funds.

If necessary, the owner must prepare the premises, take care of repairs, and establish a material and technical base, as well as a client and partner network. When opening a business in the Czech Republic from scratch, you may also consider relocation or a startup. From a registration and document standpoint, this format is no different from establishing a regular company. The only difference is that a startup allows you to test different business models until the most profitable one is identified, rather than focusing on one area.

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How to start a business in the Czech Republic: a step-by-step guide

1. Decide on the organization’s legal form. The process of formalizing a business depends strongly on its legal form. Obviously, a sole proprietor has less administrative hassle than a limited liability company. For example, an LLC requires the preparation and signing of a charter and the opening of a bank account to create capital. Legal entities must own premises, so this step should be taken care of before registering a Czech company.
2. Get a license. If the chosen area of business activity in the Czech Republic requires a license, a special permit will be required. In some cases, it may also be necessary to confirm the entrepreneur’s qualifications by providing documents that detail their education and experience. These documents should be attached to the application for a license. The request is submitted to the commercial establishment. The authorized body will check whether the applicant meets the general requirements and if there are any obstacles to conducting a business. They will make a decision on the application within 30 days. Within five working days of its legal entry into force, data on the issuance of the license is entered into the trade register, and the applicant is presented with the relevant document.
3. File an application with the trade register. Anyone intending to open a business in the Czech Republic must submit a request to the commercial register. Based on whether employment will be as an individual or a legal entity, the requested information varies. The application to register a company in the Czech Republic must be completed using a special form from the Ministry of Industry and Trade, which can be downloaded and filled out in advance. If all established conditions are met and all required information is submitted, the authorized body must enter the data into the register and inform the entrepreneur of the decision within five working days of receiving the application.
4. Registration with other relevant institutions and funds. After a business is registered, the tax office receives data from the commercial register. Typically, the business is required to submit the designated information. Filling out the single registration form (JRF) notifies the health insurance company, pension fund, and tax office of the business’s start automatically. If the company is required to pay VAT, it must register with the tax office as a VAT payer.

Different aspects of company registration

In general, the procedure for registering a business in the Czech Republic is similar to the process in other EU countries. Following a simple algorithm, it can be completed in a short period of time. The main stages and scope of tasks depend on the chosen business structure. Registering a sole proprietorship is the easiest option, while creating a legal entity requires several preparatory tasks related to forming articles of association, establishing capital, appointing a board of directors, and selecting a suitable name.

Types of business activities

In the Czech Republic, entrepreneurs can choose from the following legal forms of business organization:

• Sole proprietorship (SP). Any applicant who decides to operate independently may start operating on the basis of a license without creating a legal entity. The applicant is solely responsible for the business and is not required to contribute specific amounts of authorized capital. They also have a great deal of entrepreneurial freedom. This format can be used in almost any niche and is suitable for representatives of freelancing professions, as well as consultants in various fields. The sole proprietor should be aware of the fact that they are personally and fully responsible for any and all obligations of the Czech company, including the entirety of its assets.
• Limited Liability Company (LLC). This form of activity is the most common in the Czech Republic. It is most suitable for medium and small businesses, such as those involved in the sales or production of goods or project activities. The minimum number of founders is one, and the maximum number of partners is 50. The authorized capital can start at 1 CZK (0.039 EUR). The company is established based on a notarized memorandum of association, which is then recorded in the commercial register. Members are jointly and severally liable according to the amounts they have deposited. The manager constitutes the company’s statutory body and represents it before all state authorities.
• Joint Stock Company. This type of company is an organization whose capital is divided into shares that determine the partners’ obligations. The partners’ liability is limited to the value of their shares. The minimum amount of capital stock is 200,000 CZK (80,000 EUR). Each founder must also repay 30% of the value of the shares they have subscribed to. The company is established based on a notarized memorandum of association. Regarding liability, each company member risks only the investment spent on purchasing shares.
• Publicly traded company. The company must have at least two people who are jointly and severally liable for the company’s obligations with their assets. New participants will also be liable with their assets, including those previously owned, after joining the organization. A partner cannot be someone who has gone bankrupt in the last few years. In the Czech Republic, this structure is commonly used by law firms and construction companies. The mutual legal relations of the participants are regulated by the partnership agreement, and the partners’ shares are considered equal unless the document stipulates otherwise. A statutory fund is not obligatory, nor is there a minimum capital amount.
• Limited Partnership (LP). The legal form is defined by the two types of founders: general partners and limited partners. General partners are liable for the company’s obligations with all their property, while limited partners are liable only up to the amount of their contribution. Only general partners can participate in management and represent the company’s interests. There are no requirements for the deposit of a specific amount of authorized capital when registering the organization. This form of activity is not widespread in the Czech Republic, but it is sometimes relevant due to its advantages. For instance, general partnerships are not required to establish a reserve fund.
• Cooperative. A cooperative must have at least three members and may have an unlimited number of members. The cooperative is liable for violations with all its property, but partners are not directly liable with their personal assets. Limitations may only be set in the founding documents according to the size of contributions. The cooperative’s main document is its bylaws, and its supreme governing body is the members’ and directors’ meeting. Each partner participates in the share capital with their contribution, which is the same for all. A cooperative may be formed to support members without pursuing commercial interests.

Required documents

The list of documents required to set up a business of any kind is quite short. The founder only needs to provide an identity card. According to the law, it is also necessary to confirm the absence of criminal records. The trade register independently checks this data from citizens. Foreigners usually need to provide a certificate. When applying to the authorized body, the applicant must provide the following information:

• First and last name, nationality, residential address, social security number (if assigned), and date and place of birth (city, municipality, and country);
• Address of the registered office;
• The subject matter of the business or other data relevant to the scope of the trade license;
• The person’s identification number, if assigned;
• The duration of the residence permit, if applicable;
• The person’s qualifications or academic title, if they will be used in conducting the business;
• The address where notices from all trade bodies will be delivered, if applicable.

Terms and costs

In the Czech Republic, the state authorities directly involved in the company registration process set the following time frames: 30 days to decide on issuing a license and five days to enter data into the commercial register. Additionally, entrepreneurs need time to prepare founding documents, open a bank account, deposit capital, and decide on a name.

The cost of registering a company largely depends on the type of activity and is detailed in the table below.

Business taxes in the Czech Republic

The Czech Republic has a progressive tax system in which the tax percentage increases with profit. Compared to other European countries, the Czech Republic has relatively low tax rates, allowing entrepreneurs to optimize their tax expenses. The tax rates for citizens and foreigners are the same. After registering a company, business owners must send the necessary data to the tax inspectorate, where they manage reports and fee payments on a regular basis. Individuals are required to have an individual taxpayer identification number, which is provided with residence documents.

Individuals pay a 15% income tax if their income does not exceed 48 times the average salary, and 23% if it does.

Corporate income tax, imposed on legal entities, is 21%. The standard VAT rate is also 21%, though a reduced rate of 12% may apply to certain categories of goods and services, such as health care, social assistance, and catering.

Profitable business ideas in the Czech Republic

Based on market conditions, competition, and demand levels in the Czech Republic, there are several promising self-employment niches.

Beauty industry

There are vacant niches in this industry that experienced professionals can fill to create successful businesses. The beauty industry is not highly developed in this country, so if you demonstrate decent quality of work and service, you have a chance to take on a leadership position. There are many options for businesses in this area in the Czech Republic: a full-service beauty salon offering a variety of services, a barbershop, or a room for manicures, makeup, eyebrow styling, or lash extensions.

Depending on your entrepreneurial plans and the amount of funding, you can focus on different scales and choose the appropriate business structure. If you are a specialist providing a service, you can limit yourself to registering a sole proprietorship. However, if you plan to recruit and rent large premises, you will need to create a legal entity in one of the available formats.

To optimize costs, start with one office and a limited set of services. Then, scale up by attracting new specialists. The business budget must necessarily include spending on advertising (both outdoor and online) to quickly attract clients.

E-commerce

Czechs are typically frugal and always look for the best deals when buying goods, which is why they appreciate online shopping. In this regard, you can choose any product that will have constant demand, preferably not seasonal. Ideally, the entrepreneur should understand the chosen niche, which will greatly simplify the work.

To be effective, even with a small turnover in the initial stages, it is important to calculate margins competently, select good suppliers, ensure the quality of goods, and design an interesting advertising campaign. Based on the format of online activities, entrepreneurs can save on the cost of premises by limiting themselves to renting a warehouse or a small office.

At the same time, a significant part of the budget will have to be allocated to creating a quality website and thinking of other electronic platforms for promoting goods. To work in e-commerce, consider registering as a sole proprietor, which greatly simplifies business registration and reduces costs. If you want to expand and eventually work offline as well, you can change your business structure.

Hotel and catering businesses

The Czech Republic is a popular tourist destination where restaurants, bars, and hotels are always in demand. While this business option is promising, it will require more investment and be more difficult to implement than previous niches. First, in order to work with food and alcohol, the appropriate licenses are mandatory. Second, large expenditures are required to prepare premises that will impress guests with their stylish and unusual design and stand out from others.

This kind of business is best started with partners to share capital. An appropriate business structure would be a limited liability company. An important factor affecting the payback period is the location of the establishment. The location should have high foot traffic, however, in the context of modern information technology, the effectiveness of online advertising should also be considered.

Business immigration

A foreigner can obtain a Czech residence permit by opening a business in the country. The applicant must submit a completed application with supporting documentation to the Ministry of Internal Affairs. Mandatory documents include:

• Passport;
• Photo;
• A certificate verifying a place of residence in the country;
• Proof of means of subsistence;
• A certificate proving the absence of infectious diseases;
• Medical insurance;
• Information on the absence of tax debts (for the foreigner and the company);
• An extract from the commercial register.

A decision on the issuance of a residence permit is made within 60 days. Afterwards, authorized officials of the Ministry of Internal Affairs notify the applicant of the results and issue a residence card. There is a fee of CZK 2,500 (100 EUR) for the application.

Both business and labor immigration are popular. Under labor immigration, foreigners can find a high-paying job in the Czech Republic and apply for a special residence permit, such as a Work Card or Blue Card. Either option, whether owning a business or being employed, allows one to apply for a Czech permanent residence permit and citizenship in the future.

Our international law specialists are ready to provide detailed information on the available immigration programs and assist you with processing the necessary documents.

Assistance with legal residency in the Czech Republic

For a foreigner, moving to the Czech Republic involves many organizational hassles. However, you can simplify many processes and eliminate unnecessary costs and risks associated with overlooking details by consulting international law specialists. Lawyers help choose the optimal immigration plan, and most stages are completed without the applicant’s involvement, providing them with ready-made results.

For example, migrants are offered specific job opportunities from proven companies. Before deciding to start a company, many foreigners consult international lawyers to assess conditions, learn about the market, and raise capital for the future implementation of their business plans.