How to Legally and Efficiently Withdraw Profits from a Czech S.R.O.

Are you a shareholder or executive of a Czech limited liability company (s.r.o.) wondering how to withdraw earned profits legally and with maximum tax efficiency? Are you concerned about hidden risks, high taxation, or personal liability under Czech law? This article provides clear answers and practical steps on how to manage the entire process safely and effectively. Our Prague-based legal team will guide you through the complete procedure—from the financial statements to the actual payout—and highlight key areas of caution.

Do you need professional advice on this matter? Contact our law firm in Prague, ARROWS, via email at office@arws.cz or by phone at +420 245 007 740. Your inquiry will be handled by "JUDr. Jakub Dohnal, Ph.D.,LL.M.", a leading expert on Czech commercial and tax law.

Profit is here. What now? Basic strategies and why the correct procedure is crucial

Imagine the situation of Mr. Novák, a fictional entrepreneur who is the sole executive and shareholder of his successful IT firm. After a demanding year full of projects, he looks with satisfaction at the company account showing a healthy profit. However, his initial joy is soon replaced by uncertainty. "How do I get this money legally to myself and my family? Can I just send it to my personal account? What about taxes? And what if I make a formal mistake—will I be liable with my house?". These are questions almost every entrepreneur in his position asks. The answer is vital for protecting personal assets and the future of the company under Czech law.

Why you cannot simply dip into the company till: The fundamental principle of a Czech s.r.o.

The primary advantage of a Czech limited liability company (s.r.o.) is precisely that "limited liability." As a shareholder, you are not liable for the company's debts with your personal property, but only up to the amount of your unpaid capital contribution. However, this protection is not unconditional. It is balanced by a strict separation of company assets from your personal assets. Money in the company account, even if you are the sole owner, does not belong to you, but to the company as a separate legal entity. In this area, ARROWS provides comprehensive tax advisory services to help you structure your relationship with the company correctly. Any informal withdrawal of funds, such as a simple transfer to a personal account, is not only a tax violation but, above all, an unauthorized interference with company property that can have fatal legal and financial consequences in the Czech Republic.

Three main ways to access funds from your company

The Czech legal system offers several legal paths to access profit. You might be interested to know that ARROWS offers services in corporate law, holdings, and structures to optimize asset management. Each path has its specific rules, advantages, and disadvantages. Here are the three most common:

1. Profit share (dividend): This is the traditional and most common way for shareholders to distribute profit. However, the process is administratively and legally demanding and requires meeting several conditions and tests under the Czech Business Corporations Act. Details on management liability can be found in the article Practical Duties of Managing Directors: Insights from Corporate Lawyers.
2. Remuneration for the performance of the office of executive: An executive (who may also be a shareholder) can receive a regular monthly remuneration. This path is associated with a higher tax and social security burden, but it represents a tax-deductible expense for the company and establishes the executive's entitlement to social security benefits in the Czech Republic.
3. Loan to a shareholder: A seemingly simple way to quickly obtain company funds. In reality, this is a very risky and strictly regulated option that can easily lead to issues with the Czech Financial Authority.

At ARROWS, we understand that your goal is not just to comply with the law, but to find the best and most efficient solution for you and your business. Our Prague-based attorneys have guided hundreds of clients through this process and know that every situation is unique. Our daily work involves translating complex legal and tax realities into clear and safe steps for our clients.

Step by step: Safe distribution of profit shares (dividends)

The payment of a profit share is not a single act, but a carefully regulated process that can be compared to a precise recipe—skipping a single step can ruin the whole result and bring serious complications. Let’s walk through the entire procedure step by step.

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Financial Statements – The Foundation of Everything

Everything starts with the numbers. Our experts in accounting services can assist you with this, ensuring flawless preparation of all documentation. Without properly prepared, approved, and filed financial statements, the distribution of profit cannot be considered at all under Czech legislation.

• Preparation and Liability: The statutory body, i.e., the company director(s), bears full responsibility for the preparation of the financial statements under Czech law.
• Approval by the General Meeting: The completed financial statements must subsequently be discussed and approved by the company's supreme body – the General Meeting. Czech legislation stipulates that this should occur no later than 6 months from the last day of the accounting period. It is crucial to realize that only approved financial statements can serve as a basis for a decision on profit distribution.
• Publication in the Collection of Deeds: After approval, you are obliged to file the financial statements in the Collection of Deeds maintained by the relevant Czech Registration Court. This obligation can also be fulfilled by filing through the tax administrator as an attachment to the tax return. Neglecting this duty is not merely a formal oversight; it carries significant risks of sanctions:

• Fine from the Tax Office: Up to 3% of the total value of the company's assets.
• Fine from the Registration Court: Up to CZK 100,000.
• Dissolution of the company: If the company fails to publish financial statements for two consecutive periods and does not respond to court summons, the Czech court may initiate proceedings for the dissolution and liquidation of the company.

The General Meeting – Key Decision on Profit Allocation

With the approved financial statements in hand, the key decision-making process begins.

• Authority: Decisions on the distribution of profit and other equity resources are made exclusively by the General Meeting, or by a sole shareholder acting in the capacity of the General Meeting. A director cannot decide on profit distribution independently.
• Flexible Timing: Thanks to an amendment to the Czech Business Corporations Act (BCA) effective since 2021, the old rule that financial statements must not be older than 6 months no longer applies. Profit distribution can now be decided at any time until the end of the accounting period following the one for which the statements were prepared. This provides businesses in the Czech Republic with much greater flexibility – you do not have to distribute profit immediately but can wait for a more suitable moment during the year.
• What Can Be Distributed: The General Meeting may decide to distribute not only the profit for the last accounting period but also retained earnings from previous years or other equity resources, such as share premium or funds created from profit.
• Form is Key: It is absolutely essential to comply with all formal requirements for convening and holding a General Meeting (deadlines, invitations, quorum). If a resolution on profit distribution were adopted at an improperly convened or non-quorate General Meeting, it could be challenged for invalidity. Even worse, if the decision contradicts statutory tests (see below), it is treated as if it were never adopted (it is "null and void"). Any payout based on a void decision would constitute unjust enrichment, which shareholders would be required to return.

The Three Director Tests – Your Personal Protective Shield

This section is the most important for every director. Imagine the profit payout process as unlocking a safe with two keys. The General Meeting turns the first key with its decision. But you, as the director, hold the second key. Under Czech commercial law, you are commanded to turn it (i.e., pay out the funds) only if all safety tests are met. If they are not, you have not only the right but the direct obligation to withhold payment, even if pressured by all the shareholders in the world. By failing this "braking function," you expose yourself to the risk of personal liability with all your assets for any resulting damages.

Before every payout, our Prague-based attorneys recommend performing these checks:

Balance Sheet Tests: These rules are checked by the General Meeting during its decision-making, but the director must ensure they have been followed.

• Equity Test: The amount to be distributed must not be so high that the company's equity falls below the level of subscribed registered capital, increased by any funds that cannot be distributed by law.
• Development Costs Test: If your company shows development costs on its balance sheet, the amount available for distribution is reduced by their unamortized portion.
  
  A General Meeting decision that contradicts these tests has no legal effect.

Insolvency Test – The Most Important Reality Check: This is your key task. You must assess whether the company would cause its own bankruptcy by paying out the profit. Bankruptcy under the Czech Insolvency Act has two basic forms:

1. Inability to pay (Insolvency): Does the company have enough cash (liquidity) to pay its due debts (supplier invoices, wages, levies, loan installments)? Note that high accounting profit does not automatically mean enough cash in the bank account.

2. Over-indebtedness: Does the sum of all the company's liabilities exceed the value of its assets?
This test must be performed immediately before the planned payout, as the company's financial situation can change rapidly.

Register of Beneficial Owners – A New but Essential Condition: Since 2021, another important rule has applied in the Czech Republic. A company must not pay a share of profit (or any other benefit) to a person who is its beneficial owner if that person is not properly registered in the Register of Beneficial Owners. This also applies if the shareholder is another company – profit cannot be paid to it unless its own beneficial owner is registered. Therefore, it is absolutely necessary to check the registration status before payment.

Payment and Deadlines

If all tests are successful, you may proceed with the payout.

• Maturity: The profit share is payable within 3 months from the date the general meeting decided on it, unless the articles of association or the general meeting itself determine otherwise under Czech law.
• What happens if the general meeting distributes the profit, but you, as the managing director, correctly evaluate that you cannot pay out the money due to a poor financial situation (failed insolvency test)? The shareholder's right to this profit share does not expire immediately. There is a waiting period. However, if the situation does not improve and the profit cannot be paid out even by the end of the following accounting period, the shareholder's right to this specific profit share expires under the Czech Business Corporations Act. 
• The profit is thus returned to the company's retained earnings account. This mechanism protects the financial stability of the firm in the Czech Republic and also protects you as a managing director from constant pressure for payout at an inappropriate time.

Practical tip from ARROWS: For our clients, our Czech legal team prepares complete documentation for the general meeting and assists managing directors with the evaluation of all necessary tests. We create a written record of the insolvency test, which serves as key evidence that the managing director acted with due managerial care. This provides them with essential legal certainty and protection of their personal assets under Czech legislation.

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Taxes, taxes, and more taxes: How much of your profit will you actually keep?

Mastering the legal process is only half the battle. The second, equally important part is the tax aspect. This is often where it is decided how much money actually lands in your account in the Czech Republic.

The principle of double taxation: Why 100 CZK in profit is not 85 CZK in your pocket

When paying out a profit share, one must account for so-called double taxation. This means that the same money is taxed twice – once at the corporate level and a second time at the shareholder level under Czech tax law.

1. First taxation (at the corporate level): The company must first pay corporate income tax (DPPO) on its profit. The tax rate for tax periods starting from January 1, 2024, was increased from 19% to 21% in the Czech Republic.

2. Second taxation (at the shareholder level): From the amount remaining after corporate tax, a 15% withholding tax is deducted when paid to a shareholder (natural person). Your company will withhold and remit this tax directly to the Czech tax authorities. For you as a shareholder, this taxation is final, and you no longer need to include this income in your personal tax return.

Comparison: Profit share payout vs. Managing Director's remuneration (2025)

To demonstrate the differences in practice, let's compare both variants using an example where we want to extract 100,000 CZK from the company.

Criterion	Option A: Profit Share (Dividend)	Option B: Director's Remuneration
Example (100,000 CZK)	(Company profit before tax)	(Gross director's remuneration)
1. Corporate Income Tax (21%)	21,000 CZK (21% of 100,000 CZK)	0 CZK (remuneration is a tax-deductible expense)
Basis for payout	79,000 CZK	100,000 CZK
2. Withholding tax (15%)	11,850 CZK (15% of 79,000 CZK)	N/A
3. Personal Income Tax (15%)	N/A	approx. 9,000 CZK (after contributions and credit)
4. Social & Health Insurance (Director)	0 CZK	approx. 11,000 CZK (11%)
5. Social & Health Insurance (Company)	0 CZK	approx. 34,000 CZK (33.8%)
Net income for shareholder (approx.)	67,150 CZK	approx. 56,000 CZK
Total company costs	100,000 CZK	134,000 CZK
Advantages	Higher net income, no insurance contributions.	Tax-deductible expense for the firm, establishes entitlement to pension and benefits, regular income.
Disadvantages	Double taxation, payout only from profit, no entitlement to pension/benefits.	High insurance contributions, overall more expensive for the firm, higher administration (monthly processing).

 

At first glance, it seems that paying out a profit share is clearly more advantageous. The net income is significantly higher. But that is not the whole story. Managing director's remuneration is a tax-deductible expense for the company. This means that the company reduces its corporate income tax base by the entire amount of the remuneration (in our example 100,000 CZK) and related contributions (34,000 CZK), thus saving 21% of this amount. Furthermore, for a shareholder who has no other income and wants to ensure participation in the Czech pension and health system, regular remuneration may be a strategically better choice despite the higher taxation.

Advances on profit shares: How to do it safely

The Czech legal system allows for the payment of profit shares in the form of advances during the year, which can help with the shareholders' cash flow. However, this procedure has its own strict rules:

• They can only be paid out based on interim financial statements, which must clearly demonstrate that the company has sufficient resources under Czech accounting standards.
• The insolvency test also applies to the payment of advances. An executive director must not pay out an advance if doing so would cause the company to fall into insolvency or bankruptcy in the Czech Republic.
• The greatest risk lies in the possibility that the final profit at the end of the year will be lower than the sum of the advances paid. In such a case, the shareholder is obliged to return the overpayment within 3 months of the approval of the regular annual financial statements.

Our Prague-based attorneys at ARROWS work closely with tax advisors. We assist clients not only with the legal aspects of payouts but also with setting up optimal and legal remuneration structures that reflect their long-term personal and corporate goals under Czech law.

Minefield: Most Common Mistakes, Risks, and Sanctions

We now come to the part that many entrepreneurs underestimate, yet this is where the greatest risks are hidden. Imagine an executive director, Petra. At the request of the shareholders, she paid out the entire profit from the previous year. Although she performed a brief check, she did not conduct a detailed analysis of future cash flows. Three months later, a key client delayed a large payment; the company lacked funds for loan repayments and wages, falling into insolvency. Creditors are now seeking damages directly from Petra because, by paying out profit at an inappropriate time, she breached her duty to act with due managerial care and contributed to the company's bankruptcy under the Czech Insolvency Act.

Personal Liability of the Executive Director: More Than Just a Scarecrow

The fundamental duty of every executive director in the Czech Republic is to act with "due managerial care" (péče řádného hospodáře). This is not just an empty phrase. It means you must act in an informed manner, in the best interest of the company (loyally), and with the necessary diligence.

If you breach this duty—for example, by approving a profit distribution in violation of Czech legislation or without a thorough assessment of the financial situation—and the company suffers damage as a result, you are liable for this damage with your entire personal assets. Importantly, in any potential dispute, the burden of proof lies with you. You must prove that you acted with due managerial care.

The Biggest Traps and How to Avoid Them

• Loan instead of dividend: Many entrepreneurs try to avoid the administration and taxes associated with profit distribution by "borrowing" money from the company. However, since 2021, Czech law explicitly prohibits providing shareholders and their close associates with gratuitous performance. Therefore, if you borrow, it must be at
  a standard (market) interest rate. Otherwise, there is a risk of tax reassessment for both the company (on fictitious interest income) and you (taxation of the material benefit).
• "Švarcsystém" (Illegal Employment): Another popular but illegal method is when an executive-shareholder invoices the company for services that actually fall within the scope of their executive duties. This is considered an evasion of the law under Czech labor and tax regulations and carries heavy sanctions.
• Ignoring formal steps: As described in Part 2, every step has its significance. Skipping approval by the general meeting or failing to perform the required tests can invalidate the entire process and lead to an obligation to return the funds.

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Overview of Risks and Sanctions: A Minefield Map for Executive Directors

This table systematizes the most common errors and their consequences. Consider it a warning map to help you avoid dangerous pitfalls under Czech commercial law.

Error	Potential Sanction	Responsible Authority
Failure to publish financial statements (repeatedly)	Fine up to CZK 100,000, followed by dissolution and liquidation of the company.	Registry Court
Failure to publish financial statements (one-time)	Fine up to 3% of the total asset value.	Financial Office (Tax Authority)
Profit payout in violation of statutory tests	Obligation for shareholders to return profit; personal liability of the executive for damages with all personal assets.	Czech Civil Courts
Failure to register the Ultimate Beneficial Owner (UBO)	Ban on profit distribution, fine up to CZK 500,000, invalidity of General Meeting votes.	Registry Court, Financial Analytical Office
Failure to remit withholding tax on dividends	Late payment interest (CNB repo rate + 8%), penalty for late tax filing.	Financial Office (Tax Authority)
Providing interest-free loans to a shareholder	Tax reassessment on fictitious interest for the company; taxation of material benefit for the shareholder.	Financial Office (Tax Authority)
Failure to file for insolvency in time	Personal liability of the executive for company debts incurred after insolvency; potential criminal liability.	Insolvency Court

 

It is important to realize that individual mistakes often chain together, creating a "domino effect." For example, failing to register the ultimate beneficial owner leads to a ban on profit distribution. If the executive director pays out the profit anyway, they breach the duty of due managerial care and become personally liable for any resulting damage. Even a seemingly small administrative error can, at the end of this chain, jeopardize your personal assets.

At ARROWS, we know that prevention is always more cost-effective than crisis management. Our Czech legal team specializes in preventative legal and tax reviews and in setting up internal processes so that these risks do not arise in the first place. We protect not only your company but, above all, you personally.

Not sure? Seek professional advice.

The process of profit distribution is complex and full of pitfalls. Even if you are now familiar with the basic rules, in practice you may encounter situations that require individual assessment under Czech law.

Summary of key points for secure profit distribution in the Czech Republic

To be certain, let's recap the most important rules in the form of a simple checklist:

• Always based on proper financial statements approved by the general meeting.
• Always following a formal decision by the general meeting on profit distribution.
• Always after careful execution and, ideally, written documentation of all statutory tests (balance sheet and insolvency tests) by the managing director.
• Always after verifying that all recipients (and their ultimate beneficial owners) are properly registered in the Czech Register of Beneficial Owners.
• Always with the correct and timely withholding and payment of the 15% Czech withholding tax.
• Always with the financial statements published in the Czech Collection of Deeds.

When is it time to call a lawyer?

If you answer "yes" to any of the following questions, it is appropriate to consider a professional consultation with our Czech legal team:

• Are you planning to distribute profit for the first time and are unsure of the procedure?
• Is your company's financial situation tight, or do you have doubts about its liquidity?
• Do you have a complex ownership structure (multiple shareholders, foreign owners)?
• Are you not 100% sure about any step in the process or the interpretation of Czech legislation?
• Are you considering a combination of different remuneration methods (dividends, director's fees, loans)?

How can ARROWS specifically help you?

Our experts are ready to provide you with comprehensive support throughout the entire process:

• Preparation of complete documentation for convening and holding the general meeting.
• Assistance to the managing director in performing and documenting statutory tests to protect their personal assets.
• Review and setup of executive service contracts to ensure they are tax and legally optimal under Czech law.
• Tax optimization in cooperation with our tax advisors to find the most advantageous solution.
• Resolution of disputes between shareholders regarding profit distribution.
• Representation before authorities in the event of an audit by the Czech Tax Authority or the Registration Court.

Your business is the result of your hard work. Do not risk your assets and peace of mind due to a formal error or ignorance of complex rules. Take the first step towards safe and efficient management of your company. Arrange a non-binding consultation with our experts at ARROWS today.

Disclaimer: The information contained in this article is for general informational purposes only and serves as a basic guide to the issue. Although we ensure maximum accuracy of the content, legal regulations and their interpretation evolve over time. To verify the current wording of regulations and their application to your specific situation, it is essential to contact our law firm in Prague directly (office@arws.cz). We bear no responsibility for any damages or complications arising from the independent use of information from this article without our prior individual legal consultation and professional assessment. Every case requires a tailor-made solution; therefore, do not hesitate to contact us.

Read also:

• How to Transfer Shares in a Czech Company: Step-by-Step Legal Overview
• Setting Up a Czech Subsidiary: Key Legal and Tax Considerations
• Tax Implications of Closing a Company in the Czech Republic:
• Company Closure vs. Liquidation: What’s the Difference?
• How to Close a Company in the Czech Republic (or EU company):