Doing Business in the Czech Republic:

Expanding your business into the Czech Republic is a strategic move, but success depends on navigating a legal environment that is subtly yet significantly different from Austria's. This guide provides clear, practical answers for Austrian companies considering this step. As a leading Czech law firm in Prague, EU, with deep experience advising foreign clients, ARROWS offers the expertise of an English-speaking lawyer to ensure your market entry is secure and compliant from day one.

Need advice on this topic? Contact the ARROWS law firm by email office@arws.cz or phone +420 245 007 740. Your question will be answered by "Mgr. Vojtěch Sucharda", an expert on the subject.

Your First Step: Establishing Your Company in the Czech Republic

For Austrian business leaders, the Czech corporate framework will feel familiar, as it is intentionally aligned with Austrian and German standards. The Czech limited liability company, the společnost s ručením omezeným (s.r.o.), is the direct legal equivalent of the Austrian Gesellschaft mit beschränkter Haftung (GmbH). However, mastering the key differences is crucial for a successful setup.

The s.r.o. vs. the GmbH: A Game-Changing Capital Advantage

The most significant practical advantage of the Czech s.r.o. lies in its minimum share capital requirement. While an Austrian GmbH requires a minimum share capital of €10,000, with at least €5,000 paid in upon incorporation, a Czech s.r.o. can be legally established with a share capital of just CZK 1 (approximately €0.04).

This dramatically lowers the financial barrier to entry. This is not merely a cost-saving measure; it is a strategic advantage designed to attract foreign investment. The capital that would otherwise be tied up in legal formalities in Austria is immediately available for operational investment in the Czech Republic—funding marketing, hiring key personnel, or building inventory, thereby accelerating your growth from the very beginning.

While a CZK 1 capital is legally sufficient, it may affect the company's credibility with banks and business partners. For this reason, a more substantial registered capital, such as CZK 100,000 to CZK 200,000, is often recommended for practical business operations. ARROWS can provide legal consultations to help you determine the optimal capital structure for your specific business needs. For immediate assistance, write to us at office@arws.cz.

The Formation Process & Corporate Governance

The process of establishing a company is similar in both countries, involving the preparation of founding documents in the form of a notarial deed and registration in the Commercial Register. A Czech s.r.o. is managed by one or more executive directors, known as a jednatel, who are appointed by the General Meeting of shareholders.

However, the low capital requirement in the Czech Republic places a greater emphasis on the director's personal responsibility. With minimal company capital to absorb liabilities, any operational misstep falls more directly on the director. 

This elevates the importance of the director's legal duty to act with "due managerial care," or péče řádného hospodáře. A breach of this duty can lead to severe personal consequences, including the obligation to compensate the company for damages and potential liability to creditors, especially in cases of insolvency.

FAQ – Legal tips about company formation

1. Can I establish a Czech s.r.o. remotely from Austria?

Yes, the process can be managed remotely with the proper legal support. ARROWS can prepare all necessary documentation and represent you before the notary and the Commercial Register, making the process seamless without you needing to travel. Need legal help? Contact us at office@arws.cz.

2. What are the key documents needed to appoint a director (jednatel)?

The appointment is typically formalized in the company's founding agreement or by a resolution of the General Meeting. The appointed director must provide a declaration of their eligibility (e.g., no criminal record for certain offenses) and consent to their appointment and registration. We can draft all required documentation for you. Get tailored legal solutions by writing to office@arws.cz.

3. How long does the registration process typically take?

With all documents correctly prepared, the registration in the Czech Commercial Register is generally a swift process, often completed within a few working days. Our lawyers ensure all formalities are met to avoid unnecessary delays. Our lawyers are ready to assist you – email us at office@arws.cz.

Corporate Formation & Governance Risks

Risks and penalties	How ARROWS helps
Incorrectly drafted founding documents leading to future shareholder disputes or operational paralysis.	Drafting legally required documentation – Our experts draft bespoke articles of association to protect your interests. Get tailored legal solutions by writing to office@arws.cz.
Director's personal liability for breach of "due managerial care," potentially leading to personal financial ruin.	Professional training for management – We provide certified training on director duties to mitigate personal risk. For immediate assistance, write to us at office@arws.cz.
Failure to register the Ultimate Beneficial Owner (UBO) resulting in fines up to CZK 500,000 and inability to pay out dividends or exercise voting rights.	Representation before public authorities – We handle all mandatory registrations to ensure full compliance. Need legal help? Contact us at office@arws.cz.
Delayed or rejected registration in the Commercial Register due to formal errors, delaying business launch.	Legal consultations to prevent penalties – We manage the entire registration process for a swift and seamless company launch. Our lawyers are ready to assist you – email us at office@arws.cz.

Hiring Your Team: Navigating Critical Czech Employment Law Differences

One of the most significant operational risks for an Austrian company entering the Czech market is assuming that employment practices can be directly transferred. The legal philosophies are fundamentally different, and this divergence creates immediate and costly compliance gaps.

Why Your Austrian Employment Contract is a Liability in Prague

The core difference is one of legal principle. Austrian labour law allows for considerable contractual freedom. In contrast, the Czech Labour Code is built on the foundational principle of protecting the employee as the "weaker party" in the relationship. This is not merely a theoretical concept; it is a doctrine that guides Czech courts in labour disputes.

This principle manifests in a critical formal requirement: in Austria, an employment contract can be concluded orally, with written terms provided later. In the Czech Republic, the law strictly mandates that every employment contract must be in writing before the employee commences work. An oral agreement is not a minor oversight; it is a critical legal failure that can render the contract invalid if challenged.

This "weaker party" protection also shifts the burden of proof in many disputes. For instance, recent changes to the Labour Code require an employer to prove that a termination is unrelated to an employee exercising their statutory rights. For an Austrian company accustomed to a system based on freedom of contract, this is a profound shift. Any ambiguity in a contract or process will likely be interpreted in the employee's favor, making professionally drafted, compliant documentation a critical defensive tool.

Probation, Termination, and Overtime: A Comparative Overview

The differences extend to the daily management of your workforce:

• Probationary Periods: Austria limits the probationary period to a strict maximum of one month. The Czech Republic offers a more practical timeframe for evaluation: three consecutive months for most employees, and up to six months for managerial positions.
• Fixed-Term Contracts: Austrian law imposes very few restrictions on the use of fixed-term contracts. The Czech approach is far more structured to prevent misuse. A fixed-term contract can last for a maximum of three years and can only be renewed or extended twice, for a total maximum duration of nine years with the same employer.
• Termination: This is a major area of risk. In Austria, an ordinary dismissal (Kündigung) generally does not require a stated reason, provided notice periods are respected. This concept of "termination without cause" does not exist in the Czech Republic. An employer must have a legally valid reason for termination, chosen from a specific list provided in the Labour Code.
• Overtime and Holidays: While both countries regulate working hours, the specifics differ. Austria allows for greater weekly flexibility with up to 20 hours of overtime, compensated with a minimum 50% bonus. The Czech system has a stricter annual cap of 150 hours (unless otherwise agreed with the employee) and a lower minimum bonus of 25%. For holidays, Austrian employees have a statutory minimum of five weeks, while the Czech minimum is four weeks, though five weeks is the common market standard offered by employers to attract talent.

FAQ – Legal tips about Czech employment contracts

1. What is the minimum statutory notice period for termination in the Czech Republic?

The statutory minimum notice period is two months for both the employer and the employee, beginning on the first day of the calendar month following the delivery of the notice. For certain specific grounds of termination, the notice period is one month. Do not hesitate to contact our firm – office@arws.cz.

2. Can I include a non-compete clause in a Czech employment contract?

Yes, but it is strictly regulated. A non-compete clause is valid for a maximum of one year after employment ends, and you must pay the former employee monthly compensation equal to at least half of their average monthly earnings for the duration of the restriction. Want to understand your legal options? Email us at office@arws.cz.
3. Are there specific rules for hiring foreign (non-EU) employees?

Yes. While EU citizens have free access to the labour market, hiring non-EU nationals typically requires the employee to obtain a work permit or an employee card. The process involves demonstrating that the position cannot be filled by a Czech or EU citizen. We can help with obtaining the necessary licenses and regulatory approvals. For immediate assistance, write to us at office@arws.cz.

Employment Law Compliance Risks

Risks and penalties	How ARROWS helps
Invalid employment contract due to failure to meet the mandatory written form before work starts, leading to legal uncertainty and disputes.	Contract drafting or review – We ensure all your employment contracts are fully compliant with the Czech Labour Code from day one. Do you need a contract prepared? Contact us at office@arws.cz.
Unlawful termination of an employee, resulting in costly litigation, reinstatement orders, and significant compensation payments.	Legal opinions – We provide clear legal opinions on termination procedures to ensure they are legally sound and defensible. Want to understand your legal options? Email us at office@arws.cz.
Fines for disguised employment ("Švarc system") up to CZK 10,000,000 for misclassifying employees as independent contractors.	Preparation of internal company policies – We help you structure your workforce correctly to avoid misclassification penalties. Get tailored legal solutions by writing to office@arws.cz.
Penalties for non-compliance with overtime and holiday rules, leading to inspections by the Labour Inspectorate and financial sanctions.	Legal consultations to prevent inspections – Our lawyers review your HR practices to ensure full compliance and readiness for any authority checks. For immediate assistance, write to us at office@arws.cz.

Securing Your Premises: Commercial Real Estate and Leases

Finding and securing a physical location for your business is a critical step. The Czech Republic offers an open and accessible real estate market for Austrian investors, but the legal framework for commercial leases requires careful attention to the contract itself.

Acquiring Property and Understanding Commercial Leases (Nájemní smlouva)

For an Austrian company, acquiring property in the Czech Republic is refreshingly straightforward. As an EU-based legal entity, you can purchase real estate, including offices, warehouses, and factories, without any restrictions, on the same terms as a domestic company. This contrasts with Austria, where non-EU/EEA entities may need to obtain special permits from municipal authorities to acquire property.

When it comes to leasing commercial premises, the legal approaches of the two countries diverge significantly. Czech commercial leases (nájemní smlouva) are primarily governed by the Czech Civil Code, which is largely "dispositive." This means the law provides a general framework, but the parties have significant freedom to negotiate and define their own rights and obligations in the lease agreement.

This contractual freedom is a double-edged sword. It offers great flexibility but removes the statutory "safety net" that many Austrian businesses are accustomed to. In Austria, many commercial leases fall under the scope of the more rigid and tenant-friendly Tenancy Act (Mietrechtsgesetz, MRG), which mandatorily regulates key aspects like termination rights.

An Austrian tenant protected by the MRG cannot be terminated without "good cause." In the Czech Republic, such protections must be explicitly negotiated and written into the lease contract. This makes the nájemní smlouva the single most important document defining your rights as a tenant.

The Czech Tax & Compliance Landscape

The Czech tax system is competitive within the EU and offers particular advantages for Austrian companies due to a robust double taxation treaty. Understanding this framework is key to structuring your investment for maximum financial efficiency. As an international law firm operating from Prague, European Union, ARROWS leverages its global experience through the ARROWS International network, built over 10 years, to provide sophisticated cross-border tax and corporate structuring advice.

Corporate Tax and Leveraging the Double Taxation Treaty

A direct comparison of headline tax rates shows a competitive environment. As of 2025, the Czech corporate income tax (CIT) rate is 21%, while Austria’s is slightly higher at 23%. Standard Value Added Tax (VAT) rates are similar, at 21% in the Czech Republic and 20% in Austria.

The most significant advantage for Austrian investors comes from the comprehensive Double Taxation Treaty (DTT) between the two countries. This agreement ensures that profits are not taxed twice and provides highly favorable conditions for repatriating profits from your Czech subsidiary to its Austrian parent company.

Under the treaty, the withholding tax rates on payments from the Czech Republic to Austria are extremely beneficial:

• Dividends: The tax is 0% if the Austrian parent company holds at least 10% of the Czech subsidiary's capital. Otherwise, it is capped at 10%. This is a substantial saving compared to the standard 15% rate for non-treaty countries.
• Interest: Taxable only in Austria, meaning a 0% withholding tax in the Czech Republic.
• Royalties: A reduced rate of just 5% applies to most royalties, such as those for patents and trademarks.

Tax and Financial Compliance Risks

Risks and penalties	How ARROWS helps
Failure to apply correct DTT withholding tax rates, resulting in overpayment of tax and loss of profits.	Legal opinions on tax matters – We analyze your cross-border transactions to ensure you benefit fully from the DTT. Need legal help? Contact us at office@arws.cz.
Late filing of corporate tax returns, leading to automatic penalties (0.05% of tax per day) and interest charges.	Representation before public authorities – We coordinate with your tax advisors to ensure all filing deadlines are met, preventing costly fines. Our lawyers are ready to assist you – email us at office@arws.cz.
Incorrect VAT registration or reporting, triggering fines up to CZK 500,000 and audits by the tax authority.	Legal consultations to prevent penalties – We guide you through the Czech VAT system to ensure your invoicing and reporting are compliant. Do not hesitate to contact our firm – office@arws.cz.
Failure to maintain proper accounting records, which can lead to fines of up to 3% of total company assets.	Drafting documentation to prevent fines – We work with you to establish compliant internal processes for financial record-keeping. Get tailored legal solutions by writing to office@arws.cz.

Your Strategic Partner for Success in the Czech Republic

Expanding into the Czech Republic offers Austrian companies significant advantages, from the capital efficiency of the s.r.o. and the flexibility of commercial law to a favorable tax treaty. However, realizing this potential requires navigating hidden risks in director liability, strict employment laws, and contractual pitfalls where local expertise is not just beneficial, but essential.

ARROWS has a proven track record, supporting over 150 joint-stock companies and 250 limited liability companies in their operations. Our global reach, spanning 90 countries through the ARROWS International network, ensures we provide seamless cross-border service. We are known for our speed and high quality, and we welcome innovative business ideas, often connecting clients with mutual business or investment interests. 

Our services, from the preparation of internal policies and contract drafting to representation in court and obtaining licenses, are designed to provide comprehensive support for your venture.

Expanding into the Czech Republic offers significant advantages, but navigating its legal landscape requires a trusted local partner. Let our team at ARROWS, a leading Czech law firm in Prague, EU, provide the expert guidance you need for a successful and secure market entry. For a confidential consultation on your specific plans, please write to us at office@arws.cz.

FAQ – Most common legal questions about doing business in the Czech Republic

1. What is the single biggest advantage of setting up an s.r.o. in the Czech Republic compared to a GmbH in Austria?

The primary advantage is financial flexibility. A Czech s.r.o. can be legally founded with a share capital of just CZK 1, compared to €10,000 for an Austrian GmbH. This frees up significant capital for your business operations from day one. To discuss how to best structure your company for both flexibility and credibility, contact our experts at office@arws.cz.

2. Can I use my standard Austrian employment contract for my Czech employees?

Absolutely not. This is a critical risk. Czech law requires a written contract before work begins and operates on a principle of protecting the employee as the "weaker party". Using an Austrian contract will almost certainly lead to non-compliance and potential legal disputes. For compliant Czech employment contracts, get in touch with us at office@arws.cz.

3. How are dividends paid from my Czech subsidiary to my Austrian parent company taxed?

Thanks to the double taxation treaty, the process is highly favorable. If your Austrian company holds at least 10% of the subsidiary's capital, the dividend payment is exempt from withholding tax in the Czech Republic. Our team can ensure your corporate structure meets these requirements. For immediate assistance, write to us at office@arws.cz.

4. Do I need a Czech citizen as a director for my s.r.o.?

No, there is no requirement for a director (jednatel) to be a Czech citizen. However, the director must meet certain legal requirements, such as having a clean criminal record for specific offenses and being fully competent. We can manage the entire appointment process for you. Need legal help? Contact us at office@arws.cz.

5. Is it difficult for an Austrian company to buy office or factory space in the Czech Republic?

No, the process is very straightforward for EU-based entities. Unlike in Austria, where permits may be required for non-residents in certain areas, the Czech market is open to foreign investors without restriction, treating them the same as domestic buyers. Let us guide you through your real estate acquisition by emailing us at office@arws.cz.

6. What happens if I fire an employee without a legally valid reason?

Terminating an employee without one of the specific reasons listed in the Czech Labour Code can be declared invalid by a court. This could force you to reinstate the employee and pay them back wages for the entire duration of the legal dispute, which can be a very costly mistake. To ensure your termination procedures are legally sound, get tailored legal solutions by writing to office@arws.cz.

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