Foreign Ownership Restrictions and Sector Licences in the Czech Republic

The Czech Republic offers significant investment opportunities, yet the legal landscape regarding ownership and licensing is increasingly complex. International investors must now navigate foreign direct investment screening, sanctions, and cybersecurity requirements before establishing operations. This guide explains authorization requirements, restrictions, and compliance strategies for foreign entities operating in sensitive sectors.

The foreign direct investment screening regime: a new standard

The Czech Republic's approach to foreign investment shifted significantly with the Foreign Investments Screening Act. This legislation established a mandatory review mechanism for certain categories of foreign direct investment, particularly those originating from outside the European Union.

The screening mechanism applies specifically to foreign investors whose ultimate beneficial owner resides outside the EU, regardless of where the investment structure is technically domiciled. This means that even if your company is registered in an EU member state, non-EU control may trigger screening obligations. The Ministry of Industry and Trade evaluates cases and can reject them if they pose a threat to national security.

The regulatory framework reflects Europe's broader security concerns about foreign capital flows from countries perceived as posing risks. The Czech government has reserved the right to examine and block investments in strategic sectors. This requires careful planning and early consultation with legal advisors.

Which foreign investments trigger mandatory screening obligations

The Czech screening system establishes a tiered approach where some investments require mandatory advance authorization. Others may be voluntarily reported for consultation, while some proceed without notification but remain subject to retrospective review.

Mandatory pre-authorization requirements apply when a foreign investor seeks to acquire an effective influence in target entities operating in critical sectors. This typically involves acquiring ten percent or more of voting rights or significant influence over management.

Critical sectors include:

• Manufacturing, research, development, or service of military material;
• Operators of critical infrastructure elements;
• Operators of critical information infrastructure and essential service providers;
• Operators holding nationwide radio or television broadcast licenses;
• Publishers of periodicals with average circulation exceeding 100,000 copies daily;
• Development or manufacturing of dual-use goods.

The definition of critical infrastructure and essential services is broad, encompassing energy production, transport, telecommunications, and digital infrastructure. A foreign investor seeking to acquire stakes in power plants or data centers must often file mandatory notifications.

Recent enforcement trends indicate that Czech authorities scrutinize these transactions rigorously, particularly regarding semiconductors or AI. Authorities look not only at the immediate target but at the potential for data leakage, technology transfer, or sabotage.

microFAQ – Legal tips on triggering mandatory FDI screening requirements

1. Does acquiring a small minority stake in a Czech company trigger screening obligations?
Yes, if you acquire or gain ten percent or more voting rights or effective control in certain critical sectors—even a relatively small stake can trigger mandatory filing requirements.

2. If my company is EU-registered but ultimately owned by non-EU interests, must I file an FDI notification in the Czech Republic?
Yes. The screening rules look through corporate structures to identify ultimate beneficial ownership. Your EU registration does not shield you from Czech FDI screening if non-EU interests ultimately control your company.

3. What happens if I complete an investment without filing mandatory notification?
The Ministry can impose fines up to 1% of your total net turnover from the last accounting period, or up to CZK 100 million if turnover cannot be determined. Furthermore, the transaction can be declared void or the investor may be forced to divest.

The consultation mechanism

While certain investments require mandatory advance authorization, the Czech screening law also provides a voluntary consultation mechanism. This provision is strategically valuable for foreign investors seeking regulatory certainty regarding security concerns.

When you voluntarily submit a consultation request to the Ministry of Industry and Trade, the government must respond within 45 days. If the Ministry issues a "no objection" response, the government generally commits not to screen that investment ex officio in the future.

However, this consultation mechanism becomes mandatory for certain investment targets. This specifically applies to those involving media ownership that does not strictly meet the critical threshold but falls under specific definitions in the Act.

The consultation process requires submission of comprehensive information about the foreign investor's ownership structure and financing. ARROWS Law Firm's lawyers regularly assist foreign investors in preparing these submissions to ensure transparency while protecting business secrets.

The formal screening procedure

If the Ministry initiates formal screening due to mandatory filing or ex officio review, the process follows a structured timeline.

Phase one screening applies to investments initially, giving the Ministry up to 90 days to evaluate the investment. During this time, they consult with the Police, Intelligence Services, and other ministries to identify security concerns.

Phase two applies if the initial review identifies potential risks, assessing the investment's impact on national security. This phase allows the government up to 135 days to reach a decision, which can be extended in complex cases.

Outcomes typically include unrestricted permission, conditional permission subject to specific commitments, or prohibition of the investment. Conditional approvals often involve maintaining supply chains or excluding certain persons from management.

While prohibitions are reserved for high-risk cases involving hostile state actors, conditional approvals are common. They serve as a tool to mitigate risks without completely blocking foreign capital.

Real estate investment

Foreign investors frequently assume that acquiring property in the Czech Republic is straightforward. This assumption is substantially correct, but important exceptions exist regarding international sanctions and specific land types.

Generally, foreigners may purchase residential and commercial real estate in the Czech Republic without special restrictions. You can acquire property directly or through a Czech corporate vehicle, though registration at the Cadastral Office requires precise legal documentation.

A critical exception currently applies to nationals and entities subject to EU sanctions, particularly in response to the situation in Ukraine. If a foreign investor or their beneficial owner appears on EU sanctions lists, they cannot acquire real estate.

Unlike some historical restrictions that have expired, there is currently no blanket ban on non-EU foreigners purchasing agricultural land. However, agricultural land is subject to strict protection under the Agricultural Land Fund Act, requiring investors to maintain its character.

Furthermore, if you are acquiring a large agricultural business rather than just the land, this may trigger FDI screening. This applies specifically if the target entity is critical to national food security.

Investors should also be aware that while state pre-emption rights have fluctuated, the transfer of agricultural land is generally free. This remains valid provided the transfer does not violate specific zoning or environmental regulations.

microFAQ – Legal tips on foreign real estate acquisitions

1. I am a U.S. citizen. Can I buy farmland in the Czech Republic?
Generally, yes. There is no specific prohibition based on U.S. citizenship. However, you must comply with usage regulations protecting the Agricultural Land Fund.

2. My company plans to purchase an office building. Do we need FDI screening?
Not for the asset deal itself (buying the building). However, if you acquire a company that owns the building, and that company also operates critical infrastructure, FDI screening may apply.

3. What if the buyer is a Russian national?
EU sanctions regulations must be checked immediately. If the individual is on a sanctions list, the Cadastral Office will refuse registration, and funds may be frozen.

JUDr. Jakub Dohnal, Ph.D., LL.M.

associate, managing partner

• dohnal@arws.cz

Mgr. Vojtěch Sucharda

associate, partner

• sucharda@arws.cz

Trade licences

The legal obligation to obtain a trade licence ( živnostenské oprávnění ) represents the procedural foundation for most business operations in the Czech Republic.

Classification of activities:

• Notifiable trades: Unqualified trades require no professional competence (fee CZK 1,000), while vocational trades require proof of education or experience.
• Concession trades: Require state permission (e.g., road haulage, alcohol production) and often involve clean criminal records from relevant jurisdictions.

Operating without a valid trade license is a serious offense with fines reaching CZK 500,000 for notifiable trades. Additionally, income derived from unauthorized business can be subject to confiscation, and statutory representatives may face liability.

Sector-specific licensing

Beyond general trade licensing, highly regulated sectors require specific authorizations.

Foreign banks and insurers from EU member states can operate under the single passport regime, while non-EU entities must obtain a full license. This involves a rigorous process with the Czech National Bank, including capital adequacy checks and management vetting.

Architects, doctors, lawyers, and tax advisors must register with their respective professional chambers. This often involves recognizing foreign degrees and passing aptitude tests to ensure compliance with local standards.

Critical infrastructure and cybersecurity

Foreign investors in infrastructure and digital sectors must navigate the newly expanding regulatory regime implementing EU cybersecurity directives. The Act on the Resilience of Critical Entities and the new Cybersecurity Act significantly broaden the definition of regulated entities.

This regime applies not just to energy and transport, but also to digital infrastructure, banking, health, and food production. It effectively covers cloud providers, data centers, and essential service providers across the economy.

Designated entities must conduct regular risk assessments and adopt resilience plans involving technical and organizational measures. They are also required to appoint a security manager and report incidents to the National Cyber and Information Security Agency.

For investors, acquiring a target in these sectors involves inheriting substantial compliance costs and potential liability for non-compliance. Penalties can lead to massive fines up to 2% of global turnover and potential suspension of management.

Export controls

Investors in manufacturing and tech must adhere to strict export controls.

Items usable for both civil and military purposes, such as advanced software or encryption, require export authorization from the Ministry of Industry and Trade. This applies specifically when these dual-use goods are sold outside the European Union.

Trading in military material requires a specific license issued by the Ministry, followed by individual export licenses for specific shipments. Obtaining the initial license involves a security vetting of the company and its management.

The practical reality: common pitfalls

ARROWS Law Firm frequently encounters investors who underestimate these requirements.

• The "Shelf Company" Trap: Investors buy a ready-made company but fail to update the beneficial ownership register or trade licenses immediately.
• The "Minority Stake" Error: Investors assume purchasing 15% of a tech startup is safe, but defense tech development may trigger mandatory FDI review.
• The "Cyber" Blind Spot: Investors acquire a software company without realizing it serves critical banks, thus falling under strict NIS2 regulation.

Executive summary for management

• FDI screening is broad: Applies to non-EU investors acquiring 10% or more in critical sectors, with penalties including transaction invalidity.
• Real estate is open but monitored: No general ban on foreigners exists, but strict sanctions checks apply.
• Licensing is mandatory: Operating without a trade license or sector permit is a criminal or administrative offense.
• New security era: The implementation of NIS2 and CER directives imposes heavy cybersecurity and resilience obligations on many sectors.
• Professional guidance is key: Navigating the intersection of EU law, Czech security regulations, and corporate law requires local expertise.

Conclusion

Foreign investment in the Czech Republic remains highly attractive, but the era of light-touch regulation in strategic sectors is over. The mandatory FDI screening regime, combined with rigorous sanctions enforcement, requires professional assessment.

ARROWS Law Firm's lawyers routinely manage these issues for multinational corporations, handling FDI notifications, trade licensing, and compliance audits. Our goal is to secure your legal standing so you can focus on commercial success.

Contact the experienced lawyers at ARROWS Law Firm today at office@arws.cz. We maintain professional liability insurance covering damages up to CZK 400,000,000.

FAQ – Frequently asked legal questions

1. I am from Taiwan/USA/UK. Do FDI rules apply to me?
Yes. You are considered a non-EU investor. If you invest in a critical sector, mandatory screening applies.

2. How long does FDI approval take?
Standard Phase One is up to 90 days. If Phase Two is opened, it can take an additional 135 days or more.

3. We operated without a trade license for 6 months. What should we do?
File for the license immediately. While penalties are possible, voluntary rectification is viewed more favorably than being caught during an inspection.

4. Can I buy a Czech farm?
Yes, unless you are subject to international sanctions. However, you must respect agricultural land usage rules.

5. Does the new Cybersecurity Act (NIS2) apply to my manufacturing plant?
It might, if you are part of a critical supply chain or designated as an essential entity. A legal assessment is necessary to determine your status.

Disclaimer: The information contained in this article is for general informational purposes only and serves as a basic guide to the issue. Although we strive for maximum accuracy in the content, legal regulations and their interpretation evolve over time. To verify the current wording of the regulations and their application to your specific situation, it is therefore necessary to contact ARROWS Law Firm directly (office@arws.cz). We accept no responsibility for any damage or complications arising from the independent use of the information in this article without our prior individual legal consultation and expert assessment. Each case requires a tailor-made solution, so please do not hesitate to contact us.