How to Set Up a Company or Branch in the Czech Republic for Norwegian Businesses

For Norwegian businesses looking to expand, this guide provides specific answers on how to set up a company in the Czech Republic. Whether you are considering a limited liability company (s.r.o.) or a branch, a critical choice impacts your liability and taxes. Our expert English-speaking lawyers at ARROWS, a leading Czech law firm based in Prague, European Union, will clarify the process, risks, and requirements to ensure your market entry is secure and successful.

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.

Why Choose Prague for Your Business?

Norwegian companies expanding into the EU single market seek stability, a strategic location, and a favourable business environment. The Czech Republic, with Prague as its economic centre, provides all three. It is an "attractive business location" with low political risks and a strong "Index of Economic Freedom" ranking.

Prague offers a well-educated, multilingual workforce, many with experience in Western firms, making it easier to secure talented local staff. As a stable member of the European Union, it serves as a secure and prosperous hub for accessing the wider EU market, acting as a reliable "safe harbour" for your investment.

What Is Your Best Legal Structure? The s.r.o. vs. a Branch Office

When establishing your presence, your first decision is the legal structure. The two primary options are establishing a new Czech limited liability company (společnost s ručením omezeným, or s.r.o.) or registering a branch office (organizační složka) of your Norwegian parent company.

This choice has profound implications for your financial liability, administrative burden, and even your perception in the local market.

Option 1: The s.r.o. – The Limited Liability Company

The s.r.o. is a new, independent Czech legal entity. Its shareholders, such as your Norwegian parent company, have limited liability for the s.r.o.'s obligations.

A key advantage is the minimal capital requirement. The minimum share capital is just CZK 1 (less than one Norwegian krone). This makes the s.r.o. incredibly flexible and cost-effective to establish.

Option 2: The Branch Office – A Simple Extension?

A branch office (organizační složka) is not a separate legal entity. It is merely a registered representative of the Norwegian parent company  and is managed by a Head of Branch. While it requires no share capital for its formation, this "benefit" is a significant trap.

Why the Branch Office Is a Liability Trap

For a Norwegian company, choosing a branch office is extremely high-risk. Because it is not a separate legal entity, it exposes your Norwegian parent company to direct, unlimited liability. If the Czech branch incurs debts, breaches a contract, or faces a lawsuit, the creditors can pursue the assets of your entire company back in Norway.

As a Norwegian executive, you are familiar with this distinction.

• The Czech s.r.o. is like your Norwegian Aksjeselskap (AS): it is a separate legal person created specifically to limit your liability. The s.r.o. is even more flexible, requiring only CZK 1 in capital versus the NOK 30,000 for an AS.
• A Czech branch is like a NUF (Norwegian Registered Foreign Enterprise). It is just an extension of the parent, which remains 100% liable for all its debts and obligations.

The s.r.o. is "unequivocally the superior choice for limiting financial risk". It is also perceived by local partners and banks as a fully committed, permanent local company, which builds greater trust.

Legal Structure & Liability Risks for Norwegian Companies

Risks and penalties	How ARROWS helps
Unlimited Parent Company Liability: Using a branch office means your Norwegian parent company is fully liable for all Czech debts, fines, and legal judgments.	Legal analysis: We provide a legal opinion on the optimal, lowest-risk structure for your specific business. Want to understand your legal options? Email us at office@arws.cz.
Poor Market Perception: A branch (organizační složka) is often seen as a temporary "foreign outpost," which can harm trust with local partners, banks, and customers.	Strategic legal consultations: We advise on structures that build market credibility from day one. Need legal help? Contact us at office@arws.cz.
Administrative Confusion: A branch is not a separate entity, so all contracts must be concluded through the Norwegian parent company, creating legal and administrative burdens.	Drafting documentation: We handle the entire formation process for a clean s.r.o. structure, ensuring all contracts are validly held by the Czech entity. Get tailored legal solutions by writing to office@arws.cz.

How Do You Establish a Czech s.r.o.? A Step-by-Step Guide

The s.r.o. formation process is streamlined and can be completed quickly with expert guidance. At ARROWS, we manage these steps for you, leveraging our firm's reputation for speed and high quality.

Step 1: The Notarial Deed (Founding Document)

The first step is drafting the founding document (a founder's deed for a sole founder or memorandum of association for multiple). This document must be executed in the form of a notarial deed by a Czech notary.

Our lawyers draft this core document, ensuring it complies with the Czech Business Corporations Act and is tailored to your business goals.

Step 2: Securing Your Trade License

Before registration, the company must obtain a trade license (živnostenské oprávnění). For most Norwegian businesses in IT, consulting, e-commerce, or trade, this is a simple "Free Trade" license. This single license covers over 80 different activities and requires no special qualifications or diplomas.

Contact our experts:

Step 3: The Bank Account and Capital Contribution

You must pay your minimum capital contribution (as low as CZK 1) into a special bank account. The bank will then issue a confirmation, which is required for the registration. While this sounds simple, it is often a major hurdle for foreign directors, which we will address below.

Step 4: Entry into the Commercial Register (Obchodní rejstřík)

The company legally comes into existence on the day it is registered in the Commercial Register (Obchodní rejstřík). We file the application with the registration court, submitting all required documents: the notarial deed, trade license, bank confirmation, and consent from the owner of your registered office. This is a core part of our representation in court service.

Step 5: Final Registrations (Tax and Beneficial Owner)

Once registered, the company must register with the financial tax office. Crucially, it must also register its Ultimate Beneficial Owners (UBO) in the Register of Beneficial Owners. Failure to comply with UBO registration carries heavy penalties.

We complete these final registrations to ensure you are 100% compliant from day one. For immediate assistance with registration, write to us at office@arws.cz.

FAQ – Legal tips about company formation

• How long does s.r.o. registration take?
  With expert legal guidance, the entire process, including tax registration, can be completed in as little as 15 days. Our lawyers at ARROWS are known for their speed and can manage the process efficiently. For a detailed timeline, contact our lawyers at office@arws.cz.
• What is a "free trade license"?
  It is a single license for over 80 common business activities. This includes "Provision of software, consultancy in information technology," "Advertising, marketing, media representation," and "Administrative services". We can file this for you. Get tailored legal solutions by writing to office@arws.cz.

What Are the Hidden Traps for Norwegian Directors?

The legal registration is only the first step. Foreign directors often face practical, on-the-ground challenges that can delay operations or create personal risk.

The Challenge: Opening a Czech Corporate Bank Account

This is the most common frustration for foreign investors. Czech banks have stringent EU anti-money laundering (AML) and Know Your Customer (KYC) procedures. They are often wary of complex foreign ownership structures and may require the director to be physically present or even hold a Czech residence permit.

What you assume will be a simple admin task can delay your entire operation for weeks or months. As an international law firm operating from Prague, European Union, ARROWS has established relationships with major banks. We guide you through the extensive documentation (which often must be apostilled and translated) and coordinate with the bank to make your visit efficient.

The Responsibility: Securing a Registered Office

Your company must have a valid registered office (sídlo). For the Commercial Register, you must provide a written, notarized consent from the property owner. We provide contract review for your lease agreement (nájemní smlouva) to ensure it meets legal requirements and protects you from hidden clauses.

The Personal Risk: Understanding Your Role as Jednatel (Managing Director)

This is the most critical risk for a Norwegian executive. The managing director of an s.r.o. is called a jednatel. This role carries a strict, personal "Duty of Due Managerial Care" (péče řádného hospodáře).

As a Norwegian executive, you are familiar with the responsibilities and personal liability of a daglig leder (general manager) under the Norwegian Limited Liability Companies Act. The Czech jednatel role is similarly strict, but the rules are different, and you cannot assume Norwegian practices will protect you.

If you breach this duty, you are personally liable to the company for any damages. More importantly, the jednatel is personally obligated to file for insolvency "without undue delay" upon learning the company is in financial distress. If you fail to file in time, you can be held personally liable to the company's creditors for their losses.

ARROWS provides professional training for employees or management on these exact duties, ensuring you understand your personal obligations under Czech law.

Director (Jednatel) Personal Liability Risks

Risks and penalties	How ARROWS helps
Personal Liability for Company Damages: A jednatel who breaches the "Duty of Due Managerial Care" must personally compensate the company for any resulting losses.	Professional training for management: We provide certified training on the specific duties of a jednatel under Czech law. For immediate assistance, write to us at office@arws.cz.
Personal Liability to Creditors: If you fail to file for insolvency in time, you can be held personally responsible for paying the company's creditors.	Legal consultations to prevent penalties: We provide urgent legal advice on insolvency and restructuring to protect you. Do not hesitate to contact our firm – office@arws.cz.
Disqualification: A court can disqualify you from acting as a director in any Czech company for serious breaches of your duty.	Preparation of internal company policies: We draft clear internal policies to ensure you and your management team are compliant from day one. Need legal help? Contact us at office@arws.cz.

How Do You Hire Your First Czech Employees?

Once your s.r.o. is established, your next step is hiring. The Czech Labour Code is highly protective of employees. An employer cannot unilaterally change the terms of an employment contract. Employees are entitled to a minimum of 4 weeks of paid leave (though 5 weeks is the market standard), sick pay, and numerous other protections.

Contract Types: Full-Time vs. "Agreements"

The standard is a full-time employment contract (HPP), which can be for an indefinite or fixed term. Fixed-term contracts are limited to a maximum of 3 years and can only be repeated twice.

For part-time or temporary work, you can use "agreements":

• DPP (Agreement to Complete a Job): Limited to 300 hours per calendar year for one employer.
• DPČ (Agreement to Perform Work): Limited to an average of 20 hours per week.

A common and costly mistake is to hire "freelancers" to perform "dependent work" (acting like an employee) to avoid payroll taxes. This is an illegal practice (known as the "Švarc System") with severe penalties up to CZK 2,000,000. The Czech Supreme Court has even held company management personally liable for this practice.

What are the employer's costs? (Social & Health Insurance)

When you hire an employee, you must register them with the Social Security Administration and a health insurance provider. The employer's mandatory contribution is approximately 33.8% of the employee's gross salary. This is composed of 24.8% for social security and 9% for health insurance.

ARROWS provides drafting of legally required documentation, including compliant employment contracts that protect your business.

What Common Legal Mistakes Must You Avoid?

Our experience with Scandinavian clients shows that many legal problems arise from assuming Norwegian and Czech business practices are the same.

Cultural Trap: Relying on "Handshakes" vs. the Written Smlouva

Norwegian business culture often relies on relationships and trust. Czech business culture is highly formal and relies only on the exact wording of the signed smlouva (contract). A "handshake" deal or an email confirmation may be legally void for many key agreements. Do not risk your business on an email.

Legal Trap: The Smluvní Pokuta (Contractual Penalty)

This is the single most dangerous trap for Norwegian companies. In Norway, a penalty clause may be scrutinized by a court for "reasonableness".

The Czech smluvní pokuta is not this. It is a powerful, punitive tool. You must understand:

• It is payable for the breach itself, not for the damage caused.
• It is enforceable even if the other party suffered zero financial damage.
• You are liable even if you were not at fault (e.g., your own supplier was late).

Never sign a Czech contract without a legal review to identify and neutralize these punitive clauses. For a contract review, contact us at office@arws.cz.

Administrative Trap: Forgetting Your Public Registers

Your company has ongoing filing obligations. Failure to file your financial statements in the Commercial Register's Collection of Deeds can lead to fines up to CZK 100,000. If you repeatedly fail to file, the court can liquidate your company.

Similarly, failure to keep your Beneficial Owner (UBO) register up-to-date can result in fines of up to CZK 500,000. Our firm provides ongoing representation before public authorities to manage these filings, preventing fines and penalties.

Operational, Employment & Contractual Risks

Risks and penalties	How ARROWS helps
Fines up to CZK 2,000,000 for misclassifying employees as freelancers ("Švarc System").	Legal consultations to prevent inspections: We review your hiring models to ensure 100% compliance with the Labour Code. Get tailored legal solutions by writing to office@arws.cz.
Using Unenforceable Contracts: Including a "contractual penalty" against an employee (e.g., in an NDA) is void under Czech law and can invalidate the entire clause.	Contract drafting or review: We draft employment contracts and NDAs that are valid and enforceable in the Czech Republic. Do you need a contract prepared? Contact us at office@arws.cz.
Incurring a Punitive Smluvní Pokuta: Signing a contract without understanding that this penalty is due even if no damage occurs.	Contract drafting or review: Our lawyers review your commercial contracts to protect you from financially devastating penalty clauses. For immediate assistance, write to us at office@arws.cz.
Company Liquidation: The court can dissolve your company for repeatedly failing to file financial statements in the Commercial Register.	Representation before public authorities: We manage your corporate compliance, handling all mandatory filings. Our lawyers are ready to assist you – email us at office@arws.cz.

What Are the Tax Benefits for Norwegian Investors?

The Czech-Norway DTT, combined with EU directives, makes the Czech Republic an exceptionally tax-efficient jurisdiction for a Norwegian parent company. The benefits cover the entire life of your investment, from operations to exit.

• Operational Benefit: Under the DTT and EU parent-subsidiary directives, withholding tax on dividends paid by your Czech s.r.o. to its Norwegian parent company can be 0%, subject to meeting holding requirements. Similarly, withholding tax on interest payments to an affiliated Norwegian company is also 0%.
• The Exit Benefit: This is a crucial advantage. Income derived by your Norwegian resident company from the sale of shares in its Czech subsidiary is tax-exempt in the Czech Republic. This tax-free exit applies provided you held at least 10% of the shares for a 12-month period.

Why Choose ARROWS for Your Czech Market Entry?

Entering the Czech market requires more than just a translator; it requires a legal partner who understands the gaps between Czech and Norwegian law. As this article demonstrates, what is "reasonable" in Oslo may be a costly legal trap in Prague.

ARROWS is an international law firm operating from Prague, European Union. We have a 10-year track record within our ARROWS International network, which operates in 90 countries worldwide.

Our team supports over 150 joint-stock companies and 250 limited liability companies with their ongoing operations. We have the scale and experience to handle the most complex cross-border matters.

We provide a full-service solution for your market entry. We handle the preparation of internal company policies, drafting documentation to prevent fines, contract review to protect you from a smluvní pokuta, representation before public authorities, and professional training for your new management on their jednatel duties. We are also known for connecting clients with mutual business interests.

Do not risk your Norwegian investment on assumptions. Start your business in the Czech Republic with confidence. For a comprehensive legal consultation to discuss your specific market entry strategy, contact our expert team today.

Get tailored legal solutions by writing to office@arws.cz.

FAQ – Most common legal questions about setting up a business in the Czech Republic

1. Which is truly better for limiting my risk: an s.r.o. or a branch?
The s.r.o. is unequivocally better. It is a separate legal entity that limits your liability. A branch exposes your entire Norwegian parent company to unlimited liability for all Czech operations. To discuss your risk management strategy, write to us at office@arws.cz.

2. What is the real minimum capital needed for a Czech s.r.o.?
The legal minimum is just CZK 1. This is a significant advantage compared to the NOK 30,000 required for a Norwegian Aksjeselskap (AS). Our lawyers can establish your company for this minimum amount. For immediate assistance, write to us at office@arws.cz.

3. Do I need to travel to Prague to set up the company?
We can handle most of the incorporation process remotely using a power of attorney. However, opening the corporate bank account often requires the director's personal presence due to strict EU anti-money laundering (AML) rules. We will coordinate with the bank to make this step as efficient as possible. Need legal help? Contact us at office@arws.cz.

4. What are the fines for not registering my company's beneficial owner?
Failure to register your Ultimate Beneficial Owner (UBO) can result in fines of up to CZK 500,000. It can also get your company banned from public procurement contracts. We manage this registration for you to ensure compliance. Get tailored legal solutions by writing to office@arws.cz.

5. My company will send Norwegian managers to Prague. Can ARROWS help with visas?
Yes. As a full-service firm, we handle all immigration and residency matters. This includes Employee Cards and Blue Cards for highly-skilled managers and their families (Norway is non-EU, so these are required). Do not hesitate to contact our firm – office@arws.cz.

6. Can I use my Norwegian employment contracts for my Czech staff?
No. This is a common and costly mistake. Czech labour law is very specific, and foreign contracts are often unenforceable or non-compliant. For example, including a "contractual penalty" against an employee is illegal in the Czech Republic. We must draft new, compliant Czech contracts. Our lawyers are ready to assist you – email us at office@arws.cz.

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