How Danish Companies Can Do Business in the Czech Republic:

For a Danish company, expanding into the Czech Republic offers a strategic base in Central Europe, but the legal system contains critical differences from Danish law. This guide provides practical answers for Danish investors on corporate setup, director liability, and hiring. Our expert English-speaking lawyers at ARROWS, a leading Czech law firm in Prague, EU, specialize in guiding foreign clients to a safe and successful market entry.

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 Move: Choosing the Right Czech Legal Structure

Your first decision is whether to establish a branch office or a new subsidiary company. This is a critical risk management choice, not just an administrative one.

A foreign company can operate in the Czech Republic by establishing a branch office (organizační složka). However, this option carries significant, often overlooked, risks. A branch office is not a separate legal entity; it is merely a registered extension of the Danish parent company.

The most dangerous consequence of this is unlimited liability. Because a branch has no legal personality, your Danish parent company is fully and directly liable for all debts, obligations, lawsuits, and penalties incurred by the Czech branch. This exposes your parent company's entire balance sheet to Czech legal actions.

The far safer and more common structure is a new, independent subsidiary. This is typically a limited liability company, known in Czech as an s.r.o. A subsidiary is a separate Czech legal entity, and the Danish parent's liability is limited to its capital contribution (its shares) in the s.r.o..

While a branch may seem simpler, it still requires registration in the Commercial Register and separate Czech accounting, offering minimal administrative savings to justify the massive liability risk.

Market Entry Structure (Branch vs. Subsidiary)

Risks and Penalties	How ARROWS Helps
Unlimited Parent Company Liability: A branch office is not a separate legal entity. All debts and lawsuits from the Czech branch are directly enforceable against the Danish parent company's assets in Denmark.	Legal analysis: We provide legal opinions on the optimal, liability-shielding structure for your Czech entry. Want to protect your parent company? Email us at office@arws.cz.
Operational & Name Limitations: A branch can only perform the same activities as the parent company and must use the parent's name with a Czech suffix, limiting flexibility.	Full-service s.r.o. incorporation: We handle the entire setup of a new, independent Czech company (s.r.o.), giving you full operational freedom. Get started by writing to office@arws.cz.
No Real Admin Savings: A branch still requires registration in the Commercial Register and must maintain complex Czech accounts, offering few benefits for the unlimited risk.	Drafting legally required documentation: We handle all registrations and filings, ensuring full compliance from day one. Need legal help? Contact us at office@arws.cz.

From Danish ApS to Czech s.r.o.: A Practical Comparison

For a Danish investor, the Czech společnost s ručením omezeným (s.r.o.) is the direct equivalent of your familiar Anpartsselskab (ApS). Both are private limited liability companies and are the most common corporate forms for businesses.

Like an ApS, the key benefit of an s.r.o. is the liability shield. Shareholders are not personally liable for the company's debts beyond their unpaid capital contributions.

However, there is one major difference that presents a commercial trap: share capital.

A Danish ApS requires a minimum share capital of DKK 40,000 (approximately €5,300). This is understood in Denmark as a sign of a serious, well-funded business.

The Czech s.r.o., by contrast, has a legal minimum share capital of just CZK 1 (less than one Euro cent). While this is legally permissible, establishing a one-koruna company is a significant commercial mistake. Czech banks, landlords, and potential business partners will view the company as unstable and having no financial backing, which can prevent you from securing loans, leases, or supplier credit.

FAQ – Legal tips about your s.r.o.

1. Is the CZK 1 (approx. €0.04) minimum capital for an s.r.o. a good idea?

Legally, yes. Commercially, it is a significant risk. A one-koruna company signals instability to Czech banks, landlords, and partners. We provide legal consultations to help clients determine a credible share capital. Get tailored legal solutions by writing to office@arws.cz.

2. Can my Danish ApS be the 100% shareholder of the Czech s.r.o.?

Yes. Czech law permits 100% foreign ownership, and a foreign legal entity (like your ApS) can be the sole founder. We can draft the documentation to structure this. Our lawyers are ready to assist you – email us at office@arws.cz.

3. Does the s.r.o. manager need to be a Czech citizen?

No. A Danish citizen or any EU national can be the director (jednatel) without requiring a visa or residency permit. We handle their registration. For immediate assistance, write to us at office@arws.cz.

A 5-Step Guide to Establishing Your Czech s.r.o.

The incorporation process is sequential, and an error at any step can cause delays. Our team at ARROWS, a leading Czech law firm in Prague, EU, handles this entire process for you.

Here are the key steps:

Step 1: Drafting the Foundation Deed (notářský zápis)

This is the company's Articles of Association. It must be prepared and executed in the form of a notarial deed before a Czech notary. This document defines the company name, registered office, business activities, and executive structure.

Step 2: Obtaining a Trade License (Živnostenský list)

Before the company is legally formed, you must obtain its right to do business from the Trade Licensing Office. For most business activities, a "free trade" license is sufficient, which covers general activities.

Step 3: Opening a Bank Account & Depositing Capital

You must open a special, temporary bank account to deposit the agreed-upon share capital. The bank provides a confirmation of this deposit, which is mandatory for the next step.

Step 4: Registration in the Commercial Register (Obchodní rejstřík)

All documents—the notarial deed, bank confirmation, and trade license—are filed with the Registry Court. The court then officially registers the company, bringing it into legal existence and assigning its ID number (IČO).

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Step 5: Mandatory Post-Registration

Once registered, the company must register for corporate income tax (within 30 days) and, most critically, immediately activate its mandatory Data Box.

ARROWS handles this entire process. We provide drafting documentation for your Foundation Deed, manage your help with obtaining licenses at the Trade Office, and represent you before public authorities like the Registry Court to guarantee a fast and error-free incorporation.

The Czech 'Datová schránka': A Critical Tool You Cannot Ignore

Once your s.r.o. is registered, it will be automatically assigned a Datová schránka, or Data Box. This is a mandatory, secure electronic mailbox, and it is one of the biggest operational risks for a foreign-managed company.

The Data Box is the only official communication channel for state authorities. All tax documents, official notices, and, most importantly, court summons will be sent only to this Data Box.

Here is the critical risk: the "fiction of delivery." A document sent to your Data Box is considered legally delivered and read 10 days after it arrives, even if you never log in and never see it.

Warning: Ignoring your Data Box is not like ignoring an email. It is legally equivalent to ignoring a registered court summons. The financial and legal consequences can be catastrophic. A Danish manager who does not check this box could miss a tax audit deadline, resulting in massive fines, or lose a court case by default.

ARROWS provides legal consultations and can be authorized to manage your company's Data Box, acting as your legal watchdog. We scan, translate, and alert you to all critical deadlines, ensuring you are never penalized for missing a digital notice. Do not hesitate to contact our firm – office@arws.cz.

Who is in Charge? The High Personal Liability of the Czech 'Jednatel'

This is perhaps the most significant legal difference for Danish executives. In your s.r.o., the managing director is called a jednatel. This role carries substantial personal liability that is often far greater than that of a Direktør in a Danish ApS.

Under Czech law, the jednatel must perform their duties with "due managerial care" (péče řádného hospodáře). This is an active legal standard. It means the director must act in an informed, loyal, and careful manner in the company's best interests.

If a jednatel breaches this duty and the company suffers damage, the jednatel can be held personally liable to compensate the company for the entire loss from their own personal assets.

This risk is highest in cases of insolvency. A jednatel who learns (or should have learned) that the company is insolvent has a duty to file an insolvency petition "without undue delay". If they fail to do so ("wrongful trading"), they can be held personally liable to the company's creditors for any losses.

A Danish CFO who agrees to be the jednatel (which is legally permitted) may be unknowingly putting their personal home and savings on the line.

As an international law firm operating from Prague, European Union, we see this mistake often. Foreign executives accept the jednatel role without understanding these personal risks. Through our ARROWS International network, built over 10 years, we are specialists in advising multinational clients on cross-border director duties.

We provide professional training for management on their legal duties and draft executive service contracts to help mitigate this personal liability. Protect your leadership team. Email us at office@arws.cz.

Key Liabilities for a Foreign 'Jednatel' (Managing Director)

Risks and Penalties	How ARROWS Helps
Breach of "Due Managerial Care": Failing to act in an informed or careful manner. If the company suffers a loss, you can be held personally liable to compensate for the entire loss.	Professional Training for Management: We provide certified training on jednatel duties to protect your leadership. Need to train your team? Write to office@arws.cz.
Wrongful Trading & Insolvency Liability: Failing to file for insolvency "without undue delay" when the company is bankrupt. A court can order you to personally pay the company's creditors.	Legal Opinions & Insolvency Counsel: We provide urgent legal opinions on solvency to prevent liability. Facing financial distress? Contact us immediately at office@arws.cz.
Personal Liability for Company Debts: A jednatel can be held personally liable for the company's unpaid taxes, social/health insurance, or even certain economic crimes.	Drafting Executive Service Contracts: We draft contracts that clearly define responsibilities and help secure D&O insurance. Protect your executives by emailing office@arws.cz.

Hiring Your Czech Team: A New World of Employment Law

The Danish labor market is famous for its "flexicurity" model: high flexibility for employers to hire and fire, combined with a strong social safety net for the unemployed.

The Czech Labour Code is the opposite. It is "quite strict" and highly "protective towards employees". For a Danish manager, this will be a major operational shift.

Key Difference 1: Termination is Difficult

At-will employment does not exist in the Czech Republic. An employer cannot fire an employee without a specific, legally-defined reason (e.g., redundancy, gross misconduct, or repeated breach of duties). A standard notice period of two months is mandatory.

FAQ – Legal tips about Czech Employment

1. What is the main difference from Danish "flexicurity"?

Termination. In the Czech Republic, you cannot fire an employee "at-will". An employer must prove a specific, legal reason (e.g., gross misconduct, redundancy). We provide drafting documentation for valid termination. Need legal help? Contact us at office@arws.cz.

2. Can I pay my Czech employees in EUR?

Yes, this is a new development. Recent "flexi-amendments" to the Labour Code allow employers and employees to agree on payment in a foreign currency. We can drafting legally required documentation to ensure your contracts comply. Get tailored legal solutions by writing to office@arws.cz.

Key Difference 2: Fixed-Term Contracts are Restricted

You cannot use fixed-term contracts as a simple workaround. They are strictly limited to a maximum duration of three years and can only be repeated twice. If you overuse them, the contract can automatically convert to a permanent, indefinite one.

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The Misclassification "Trap"

This rigidity often tempts foreign managers to hire staff as "freelancers" or "contractors" to maintain Danish-style flexibility. This is known as "disguised employment" (švarc systém) and is a major target for Czech Labour Inspections.

The penalties are severe: fines can reach CZK 10 million (approx. €400,000). The company will also be forced to pay all back-taxes and social/health insurance contributions for the misclassified worker, plus heavy penalties.

Worker Misclassification ("Disguised Employment")

Risks and Penalties	How ARROWS Helps
Fines up to CZK 10 million (approx. €400,000): The Labour Inspectorate can impose this devastating fine for "disguised employment" (classifying an employee as a contractor).	Contract Drafting or Review: We review your freelance and employment agreements to ensure they are compliant. Avoid fines by writing to office@arws.cz.
Back-Payment of Taxes & Insurance: If a contractor is re-classified as an employee, the company must pay all back social/health insurance (for both employer and employee) plus penalties and interest.	Representation before Public Authorities: We represent you during a Labour Inspection to defend your position. For immediate assistance, write to office@arws.cz.
Business Disruption & Ban: A finding of illegal employment can lead to a ban on your business activities, reputational damage, and difficulty sponsoring visas for other key foreign staff.	Preparation of Internal Company Policies: We draft clear internal policies on contractor engagement to prevent misclassification. Our lawyers are ready to assist you – email us at office@arws.cz.

Protecting Your Assets: Tax, IP, and Cross-Border Disputes

Beyond corporate and labor law, you must secure your company's core assets.

Tax: A comprehensive Double Taxation Treaty exists between the Czech Republic and Denmark. This, combined with the EU Parent-Subsidiary Directive, provides a clear and favorable framework for repatriating profits and preventing double taxation.

Intellectual Property: This is a high-risk area. The Czech Republic is a member of WIPO and the European Patent Organization. However, unlike in some other jurisdictions, the Czech legal system does not recognize the "work for hire" concept.

This means you do not automatically own the IP created by your employees or contractors. A Danish tech company could invest millions in R&D and end up owning nothing. You must have explicit, legally perfect contract drafting that assigns all IP rights from the creator to your company.

Disputes & Jurisdiction: As both countries are in the EU, disputes are governed by the Brussels I bis Regulation. Our lawyers at ARROWS, a leading Czech law firm in Prague, EU, are experts in this area. We know the nuances of Denmark's "special status" under the Regulation and can use this expertise to defeat flawed jurisdictional challenges from a Czech counterparty, saving you time and money. Our ARROWS International network gives us the reach to handle complex cross-border litigation.

Your Partner in Prague: Why Danish Companies Choose ARROWS

From Copenhagen to Prague, your business needs a legal partner that speaks your language and understands both legal worlds. ARROWS is that partner.

As a leading law firm based in Prague, European Union, we provide more than just legal advice; we provide the commercial security and local expertise you need to thrive in a safe European harbour.

Our services cover your entire business lifecycle, from the preparation of internal company policies and contract drafting to representation in court and professional training for employees.

We support over 250 limited liability companies and 150 joint-stock companies, and our ARROWS International network provides seamless service in over 90 countries. We are known for speed, high quality, and our innovative, business-focused approach. We even help connect our clients to foster mutual business interests.

Do not navigate the Czech legal system alone. Protect your investment and ensure your success. Contact our team of expert English-speaking lawyers today for a consultation at office@arws.cz.

FAQ – Most common legal questions about Doing Business in the Czech Republic

1. Can a Danish citizen be a jednatel (director) of a Czech s.r.o. without living in the Czech Republic?

Yes. As an EU citizen, you do not need a residency permit to be registered as a director in the Commercial Register. We can handle this registration process for you remotely. Need legal help? Contact us at office@arws.cz.

2. What are the mandatory annual compliance tasks for an s.r.o.?

You must file an annual corporate income tax return, maintain proper accounting, hold an annual general meeting to approve the financial statements, and file these statements in the Commercial Register's Collection of Deeds. ARROWS provides full corporate secretarial services. Do not hesitate to contact our firm – office@arws.cz.

3. Do I need to register for VAT in the Czech Republic immediately?

Not always. Mandatory VAT registration kicks in when your company's turnover exceeds CZK 2 million (approx. €80,000) within any 12-month period. However, different rules may apply if you are providing cross-border services to other EU entities. We provide legal consultations on tax. Our lawyers are ready to assist you – email us at office@arws.cz.

4. How do I protect my company's trademark in the Czech Republic?

You can file for a national trademark with the Industrial Property Office, but it is far more common and efficient to secure an EU Trademark (EUTM). This is valid across all EU member states, including the Czech Republic. We can manage your IP portfolio. Get tailored legal solutions by writing to office@arws.cz.

5. Does the Double Taxation Treaty (DTT) with Denmark mean I pay 0% tax on dividends?

The DTT prevents double taxation, but the 0% withholding tax rate on dividends typically comes from the EU Parent-Subsidiary Directive. If your Danish ApS holds at least 10% of the Czech s.r.o. for 12+ months, you can generally achieve this 0% rate. We can provide a legal opinion on your specific tax structure. For immediate assistance, write to us at office@arws.cz.

6. What is the most common mistake Danish companies make in the Czech Republic?

Two mistakes are most common: 1) Underestimating the mandatory Datová schránka (Data Box) and missing a legal deadline, and 2) Not having explicit IP-assignment clauses in employee contracts, thus losing ownership of their own intellectual property. ARROWS helps clients avoid these costly errors. Need a legal review? Contact us at office@arws.cz.

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