How to Launch a Company or Branch in the Czech Republic as a non-eu Firm: Legal Considerations and Key Tips

Setting up a business in the Czech Republic as a non-EU company involves navigating multiple regulatory requirements, visa obligations, and structural decisions that differ significantly from EU expansion. This article provides practical insights into establishing either a subsidiary company or branch office, understanding taxation frameworks, securing necessary licenses, and meeting compliance obligations that will protect your investment.

Understanding your entry options: Subsidiary versus branch office

When a non-EU firm decides to operate in the Czech Republic, the first critical decision involves choosing between establishing a subsidiary company or registering a branch office (officially termed odštěpný závod). These two structures represent fundamentally different legal arrangements with distinct implications for taxation, liability, and administrative complexity.

Many entrepreneurs assume these options are interchangeable, but the reality is far more nuanced, influencing everything from your tax position to how quickly you can begin operations and how much control you maintain over your Czech business activities.

The subsidiary structure

A subsidiary established in the Czech Republic becomes a separate legal entity with its own rights, obligations, and liabilities. This means your parent company's assets remain protected because the subsidiary bears sole responsibility for its debts and obligations. The most common form is the limited liability company, known locally as an s.r.o. (společnost s ručením omezeným).

When you establish a subsidiary, you create an independent business that can conduct different activities than your parent company and develop its own market relationships.

The registration process for a subsidiary involves several mandatory steps, including preparing founding documents in the form of a notarial deed, obtaining trade licenses, and depositing registered capital. While the legal deadline for the court to register the company is relatively short, the entire process typically takes two to four weeks when accounting for the preparation of bilingual documents, apostilles, and banking procedures.

From a taxation perspective, subsidiaries can sometimes provide advantages by avoiding double taxation through various treaty mechanisms that the Czech Republic has negotiated with numerous countries.

The branch office

A branch office (odštěpný závod zahraniční právnické osoby), by contrast, is not a separate legal entity. It functions as an organizational unit of your parent company, meaning the parent company remains fully liable for all obligations and debts arising from the branch's activities. Contracts are formally concluded by the parent company acting through its branch.

For many non-EU firms considering a tentative market entry or operating in a specific geographic region, the branch structure presents certain administrative advantages, such as no requirement to deposit registered capital.

The practical reality of choosing between these structures is considerably more complex than most entrepreneurs anticipate. Tax implications differ based on your parent company's jurisdiction and existing Double Taxation Treaties. Some jurisdictions benefit from treating branch profits as foreign-source income, while others face immediate taxation of branch earnings.

ARROWS Law Firm regularly advises non-EU companies on these foundational decisions, helping clients understand how their choice affects not only immediate setup but long-term tax efficiency and operational flexibility.

Visa and residency requirements for non-EU business founders

Before establishing any business in the Czech Republic, non-EU nationals who intend to stay and manage the business locally must secure appropriate visa or residence documentation. This requirement represents one of the most commonly misunderstood aspects of business formation for foreign entrepreneurs. Simply owning a company does not automatically grant you legal residence or work authorization.

The business visa and long-term residence framework

Non-EU nationals intending to act as statutory directors and reside in the Czech Republic typically apply for a Long-Term Visa for the Purpose of Business (dlouhodobé vízum za účelem podnikání). The application requires submission of documentation including proof of your position in the company, evidence of sufficient funds, proof of accommodation, and a clean criminal record.

For foreign nationals intending to be employed by their own company rather than just acting as a statutory director, the Employee Card (Zaměstnanecká karta) is the standard dual-purpose permit for residency and work.

The practical reality of obtaining these visas involves significant preparation time, as you must typically apply at a Czech embassy in your home country. Authorities require official translations of all foreign documents into Czech, and public documents must be superlegalized or apostilled depending on international treaties.

Duration and renewal obligations for non-residents

Your visa or residence permit validity directly affects your ability to stay in the Schengen area and manage your business locally. If your permit expires, you must leave the territory. Renewal applications must be submitted to the Ministry of the Interior (OAMP) strictly before the expiration of the current permit.

For non-EU founders, the visa requirement creates an ongoing administrative obligation, meaning the company must be active, generating income, and you must be paying relevant social security contributions.

microFAQ – Legal tips on visa and residency requirements

1. Can I begin my company's operations before my visa is approved?
The company itself can be formed and can operate (sign contracts, issue invoices) once registered, even if you are abroad. However, you personally cannot reside in the Czech Republic or perform regular work on Czech territory without a valid visa or visa-free entry.

2. What happens if my visa expires while my company is operating?
If your visa expires and you have not applied for renewal, you lose your legal right to reside in the Czech Republic. You may face deportation proceedings and a ban on re-entry. Your company can technically continue to exist, but you cannot physically manage it from within the Czech Republic.

3. Do I need a visa if I establish a branch office but manage it from abroad?
If you manage the branch entirely remotely and do not enter the Czech Republic beyond standard tourist limits, you may not need a long-term business visa. However, the branch must have a registered "Head of Branch" in the Commercial Register; if this person is a non-EU national residing in CZ, they need a residence permit.

Company structure selection: Understanding your legal options

The Czech Republic recognizes several distinct legal forms of companies, but non-EU firms typically choose between the limited liability company (s.r.o.) and the joint-stock company (a.s.). Each form carries specific capital requirements, governance obligations, and regulatory implications.

Limited liability companies

The limited liability company (s.r.o.) represents the most commonly chosen structure for non-EU entrepreneurs. The Czech Business Corporations Act permits establishing an s.r.o. with a minimum registered capital of just CZK 1, making it exceptionally accessible. However, establishing a company with such low capital creates a negative impression on banks and business partners.

An s.r.o. offers liability protection limiting each shareholder's exposure to their unpaid capital contribution, and once the capital is fully paid, shareholders are generally not liable for the company's debts.

Every s.r.o. must maintain double-entry bookkeeping in Czech and file annual financial statements with the Collection of Deeds ( Sbírka listin ). Additionally, the company must register its beneficial owners (UBOs) in the Register of Beneficial Owners.

Joint-stock companies

A joint-stock company (a.s.) requires a minimum registered capital of CZK 2,000,000 (approx. EUR 80,000) or EUR 80,000 if the company keeps accounts in Euros. This structure suits larger foreign investors planning substantial operations or seeking future capital investment. Joint-stock companies have a more complex governance structure, requiring either a Board of Directors and Supervisory Board or an Administrative Board.

Branch offices

As discussed, branch offices operate without separate legal personality and do not require their own registered capital. However, the parent company must decide to establish the branch and issue a formal decision. The branch must keep separate accounts for its Czech operations to determine its tax base in the Czech Republic.

ARROWS Law Firm assists non-EU companies in evaluating these structural options against their specific circumstances, helping you determine whether a subsidiary or branch aligns better with your long-term strategy.

Capital requirements and financial setup

Establishing a company requires careful attention to capital deposit requirements and bank account procedures.

Minimum capital and deposit procedures

For an s.r.o., while the minimum capital is CZK 1, the law requires that capital contributions exceeding CZK 20,000 be deposited into a special bank account designated for the administration of contributions. The bank issues a confirmation of deposit, which is a mandatory attachment for the Commercial Register application.

If the total registered capital is CZK 20,000 or less, the contribution can be paid in cash to the hands of the contribution administrator without opening a special blocked account.

Opening bank accounts for foreign-owned companies

Banking presents one of the most significant practical hurdles for non-EU companies. Czech banks apply strict Anti-Money Laundering (AML) and Know Your Customer (KYC) procedures. For companies with non-EU ownership, banks require extensive documentation, including detailed organizational charts showing the Ultimate Beneficial Owner (UBO) and proof of source of funds.

The process can take several weeks, and rejection rates for non-resident companies with unclear business models are high. Since 2024, it is also legally possible for Czech companies to use a "functional currency" (EUR, USD, GBP) for their accounting if the majority of their transactions are in that currency. This may influence your choice of banking services.

microFAQ – Legal tips on capital and banking requirements

1. Can I use a foreign bank account for the capital deposit?
Generally, the capital contribution account should be opened with a bank operating in the Czech Republic to ensure the confirmation meets the specific requirements of the Czech registry courts. Some courts may accept confirmations from foreign banks if officially translated and verified, but this often causes delays.

2. If I deposit capital to the bank account, does that amount become the company's operating capital?
Yes. Once the company is registered in the Commercial Register, the funds are released to the company's disposal and can be used for business expenses.

3. What if the bank rejects my account application due to foreign ownership?
This is common. You may need to approach multiple banks. Some smaller banks or specialized payment institutions (EMIs) might be more flexible, but a traditional bank account is often preferred for tax payments and credibility.

Securing trade licenses and required permits

Before commencing business activities, you must obtain a trade license (živnostenské oprávnění) from the Trade Licensing Office (Živnostenský úřad). Operating without a license is a serious offense.

Types of trade licenses

• Unqualified Trades (Volné živnosti): These require no professional qualification and include activities like wholesale/retail, consulting, IT services, and marketing.
• Qualified Trades (Vázané/Řemeslné): These require proof of education or experience (e.g., construction, accounting, massage services).
• Concessions (Koncesované): These require special state permission (e.g., road transport, alcohol sales, security services).

Documentation requirements

For the company's representative (if a foreign national) or for the responsible representative, you must submit a criminal record extract from the country of citizenship and any country where the individual resided for more than 6 months in the last 3 years. This document must be apostilled/superlegalized and translated into Czech.

The Trade Licensing Office typically issues the extract from the Trade Register within 3-5 days once documentation is complete, allowing the company to be assigned an Identification Number (IČO).

Tax framework and VAT obligations

The Czech tax system is aligned with EU directives but has specific local nuances.

Corporate income tax

As of 2024, the Corporate Income Tax rate in the Czech Republic is 21%. This applies to the company's tax base (revenues minus tax-deductible expenses). Czech tax residents are taxed on their worldwide income. A branch of a foreign company is taxed only on income attributable to its Czech activities.

VAT registration thresholds

Value Added Tax (VAT) registration is a critical compliance area.

• Mandatory Registration: A company must register for VAT if its turnover based in the Czech Republic exceeds CZK 2,000,000 in any 12 consecutive calendar months.
• Voluntary Registration: Possible, but tax authorities scrutinize applications to prevent carousel fraud. You must prove you have actual business assets or intent to conduct taxable business.
• Identified Person: Even if not a full VAT payer, a company must register as an "Identified Person" if it receives services from abroad or provides cross-border services within the EU.

The standard VAT rate is 21%, with a reduced rate of 12% for foodstuffs, medical products, and certain services.

microFAQ – Legal tips on Czech taxation

1. If my Czech subsidiary generates income from abroad, is it taxed?
Yes, a Czech subsidiary is taxed on worldwide income. Double taxation is relieved via applicable tax treaties (usually via the credit or exemption method).

2. When exactly does VAT registration become mandatory?
Once your turnover exceeds CZK 2,000,000 in 12 consecutive months. You become a VAT payer from the first day of the second month following the month you exceeded the limit.

3. Can I deduct all business expenses?
No. Only expenses incurred to "generate, assure, and maintain" taxable income are deductible. Representation costs (business lunches, entertainment) are generally not tax-deductible.

Registration of beneficial owners

All legal entities must register their Ultimate Beneficial Owners (UBO) in the Register of Beneficial Owners (Evidence skutečných majitelů). A beneficial owner is any natural person who ultimately owns or controls the legal entity, typically through a greater than 25% share in voting rights, registered capital, or profit share.

Consequences of non-compliance

Under the Act on the Registration of Beneficial Owners, a company cannot pay dividends if its UBO is not registered. Furthermore, an unregistered UBO (or a shareholder controlled by them) cannot exercise voting rights at the General Meeting, and penalties can reach up to CZK 500,000.

ARROWS Law Firm assists in mapping complex international ownership structures to ensure correct registration, which is essential for maintaining full operational rights and avoiding financial sanctions.

Employment registration and foreign worker requirements

If your company intends to employ staff, you become an employer with significant bureaucratic duties.

Mandatory electronic communication

Since 2023, all legal entities and self-employed individuals are automatically assigned a Data Box (Datová schránka). Communication with the Social Security Administration (CSSZ), Health Insurance companies, and Tax Office is conducted electronically via the Data Box or specialized portals.

Employment authorization for foreign workers

Non-EU citizens generally need an Employee Card to work. The process involves reporting the vacancy to the Labor Office, passing a labor market test (10–30 days), and the foreigner applying for the Employee Card at a Czech embassy.

Fines for enabling illegal work (employing foreigners without valid permits) can reach up to CZK 10,000,000 (approx. EUR 400,000), and the definition of illegal work also includes the "Schwarz system" of misclassifying employees as freelancers.

Reporting obligations

Employers must register new employees with the Social Security Administration (CSSZ) and the relevant Health Insurance Company, typically within 8 days of the employee starting work. Stricter rules now apply to "Agreements on Work Performed Outside Employment" (DPP).

Employers must report all DPP employees to the CSSZ monthly, regardless of income, to monitor the cumulative income for insurance thresholds.

microFAQ – Legal tips on employment

1. Can my foreign employee begin work before the Employee Card is issued?
No. Working before the permit is granted is illegal work.

2. How long does the hiring process take?
For non-EU nationals, plan for 3–5 months minimum due to the Labor Market Test and visa processing times. Government programs (like the Key and Scientific Personnel Program) can speed this up for qualified roles.

Accounting and financial reporting obligations

Czech companies must maintain accounts according to Czech Accounting Standards.

• Financial Statements: Must be prepared annually. Deadlines depend on whether the company requires a mandatory audit.
• Publication: Financial statements must be published in the Collection of Deeds (Sbírka listin) within 12 months of the balance sheet date.
• Audit Requirements: As of 2024/2025, the thresholds for mandatory audit have increased (Assets: CZK 120M, Turnover: CZK 240M, Employees: 50).

From 2024, Czech companies can keep their accounting and pay taxes in EUR, USD, or GBP if it is their functional currency, which significantly simplifies operations for foreign-owned firms.

Risk assessment: Understanding the consequences of non-compliance

Risks and Sanctions	How ARROWS helps (office@arws.cz)
Beneficial Owner (UBO) unregistered: Ban on paying dividends, suspension of voting rights, fines up to CZK 500,000.	UBO Registration: We map ownership structures and ensure correct entry in the Ministry of Justice register.
Visa expiration: Loss of right to manage the company on-site, potential deportation.	Immigration Compliance: We monitor expiration dates and manage renewal applications to ensure continuous legality.
Illegal Employment: Fines up to CZK 10,000,000. Includes hiring without permits or disguised employment (Schwarz system).	Employment Contracts: We draft compliant contracts and manage the vacancy reporting/Employee Card process.
VAT Non-compliance: Penalties for late registration, interest on late tax payments, tax audits.	Tax Registration: We ensure timely registration when turnover thresholds are approaching.
Failure to Publish Accounts: Fines from Registry Courts (up to CZK 100,000) and Tax Office (up to 3% of assets), risk of liquidation.	Corporate Housekeeping: We handle the submission of documents to the Collection of Deeds.

Executive summary for management

• Visas are critical: Company formation does not guarantee residency. Start the visa process months in advance.
• Choose structure wisely: A subsidiary (s.r.o.) is generally preferred for liability protection and clear tax status compared to a branch.
• Banking is difficult: Expect strict KYC/AML checks. Have all corporate documents apostilled and translated.
• Compliance is ongoing: It’s not just about setup. You must handle monthly payroll, VAT reports, annual financial statements, and UBO updates.
• Enforcement is real: Authorities actively fine for illegal work and failure to publish financial statements.

Conclusion

Launching a company in the Czech Republic offers access to the lucrative EU market, but the regulatory environment requires precise adherence to rules regarding immigration, trade licensing, and corporate governance. The "do-it-yourself" approach often leads to critical delays in banking or visa rejections.

ARROWS Law Firm advises hundreds of foreign entrepreneurs, combining legal expertise with practical experience in navigating Czech bureaucracy to ensure a smooth market entry.

To discuss your Czech business expansion or simple s.r.o. setup, contact the specialists at office@arws.cz.

FAQ – Frequently asked legal questions

1. How long does it typically take to establish a company in the Czech Republic?
A shelf company can be ready in days. A new formation takes 2–3 weeks (including bank account opening). However, full operational readiness (including visas and VAT) can take 3–5 months.

2. Can I hire employees before my company is fully registered?
No. The entity must exist to be an employer. However, you can sign future employment contracts contingent on company registration and work permit issuance.

3. What happens if my visa expires?
You must leave the Schengen area. You cannot legally work or act as a director on Czech soil. Apply for renewal at least 14-30 days before expiration (deadlines vary by permit type, safer to apply early).

4. Can my Czech company pay dividends to my parent company?
Yes. A 15% withholding tax generally applies unless reduced by a Double Tax Treaty or the EU Parent-Subsidiary Directive (0% if conditions are met).

5. Is it necessary to maintain Czech employees?
No legal requirement, but having local substance (employees, office) helps with VAT registration and tax residency defense.

6. What banking challenges should I anticipate?
High scrutiny of ownership and source of funds. Rejections are common for non-resident structures without clear local substance.

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.