How to Set Up a Company or Branch in the Czech Republic: Legal Basics and Practical Tips for Polish Businesses

For Polish businesses, the Czech Republic offers a nearby and attractive market, but entering it requires understanding local legal specifics. This guide outlines how to set up a company or branch, highlighting ARROWS’ extensive experience assisting foreign clients. With our support, Polish entrepreneurs can ensure a smooth, compliant, and well-structured 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 Strategic Decision: Choosing the Right Czech Business Structure

Entering the Czech market begins with a fundamental choice that extends beyond mere legal formality; it is a strategic decision that will define your company's liability, operational flexibility, and growth potential. Foreign entities, including Polish companies, are permitted to conduct business under the same conditions as local firms. Your primary options are to establish a new Czech subsidiary company or to register a branch of your existing Polish enterprise.

This choice is not just about the path of least administrative resistance. It is fundamentally about your risk appetite. A subsidiary creates a "corporate veil," legally separating the Czech operations from the Polish parent company. A branch, in contrast, directly exposes the Polish parent to all liabilities incurred in the Czech Republic. A simple sales office might function as a branch, but a manufacturing plant or a venture with significant capital investment almost certainly requires the protection of a subsidiary.

What are your options? A direct comparison.

The Czech legal framework offers several business structures, but for Polish companies, three options are most relevant:

• Limited Liability Company (společnost s ručením omezeným - s.r.o.): This is the most common and versatile corporate form in the Czech Republic, directly analogous to the Polish spółka z ograniczoną odpowiedzialnością (Sp. z o.o.). It is the preferred choice for small and medium-sized enterprises (SMEs) due to its flexibility and the liability protection it affords its owners.
• Joint-Stock Company (akciová společnost - a.s.): Suited for larger businesses, companies intending to raise public capital, or those requiring a more formal governance structure. The Czech a.s. is the equivalent of the Polish spółka akcyjna (S.A.) and is often used for significant investments.
• Branch Office (organizační složka): This is not a separate Czech legal entity but a registered extension of the Polish parent company. While administratively simpler to set up, it offers no liability protection, making it a strategically limited choice.

FAQ – Legal tips about business structures

• Which structure is best for a small to medium-sized enterprise?
  The s.r.o. is overwhelmingly the best choice. It provides the crucial benefit of limited liability, protecting the Polish parent company's assets, while offering significant operational flexibility with relatively straightforward governance. For a detailed consultation on your specific situation, email us at office@arws.cz.
• Can I start with a branch and convert to an s.r.o. later?
  Yes, this is possible, but it involves two distinct legal processes: closing the branch and incorporating a new company. It is often more time- and cost-efficient to select the appropriate long-term structure from the outset. For a strategic consultation, contact us at office@arws.cz.
• Do I need to be a Czech resident to own a company?
  No. Foreign nationals and foreign companies can be the sole shareholders of a Czech company without any residency requirements, making it a very accessible jurisdiction for Polish investors. For more details, email us at office@arws.cz.

The Czech s.r.o. vs. The Polish Sp. z o.o. – Key Differences You Must Know

For Polish entrepreneurs, the s.r.o. will feel familiar, but there are critical differences compared to a Polish Sp. z o.o. that present both strategic advantages and potential pitfalls. Understanding these nuances is essential for effective planning.

How does the minimum capital differ?

One of the most striking differences is the minimum share capital requirement. A Polish Sp. z o.o. requires a minimum share capital of PLN 5,000 (approximately €1,150). In contrast, a Czech s.r.o. can be legally established with a share capital of just CZK 1 (less than €0.05).

This extremely low barrier to entry offers significant financial flexibility, allowing you to allocate capital to operations rather than tying it up in legal formalities. However, this flexibility must be used strategically. A company registered with only nominal capital may be perceived by potential Czech partners, banks, or major suppliers as lacking financial substance and credibility.

The decision on capital should therefore be a commercial one, not merely a fulfillment of the legal minimum. A prudent approach is to select a capital amount that projects stability and seriousness without being prohibitive.

What are the differences in management? The role of the Jednatel.

In a Czech s.r.o., the executive body is the Jednatel (Managing Director). This role is comparable to a member of the Zarząd (Management Board) in a Polish Sp. z o.o. A key advantage for Polish businesses is that a foreign national can serve as a Jednatel without needing a Czech residency permit, provided they do not reside in the country. This simplifies the appointment of management from the Polish parent company.

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How do the registration processes compare?

The Polish system offers two main paths for incorporation: the traditional method involving a notary and filing with the National Court Register (KRS), or the fully electronic S24 portal for standardized company agreements. The Czech process is centered on the role of a public notary. The company's founding document must be executed as a notarial deed.

A significant advantage in the Czech Republic is the possibility of direct registration by the notary. If all documents are in order, the notary can enter the new company into the Obchodní rejstřík (Commercial Register) almost immediately, a process that can be completed in just a few business days. This can be considerably faster than the standard court registration timeline in Poland, which can take several days or even weeks.

Risks and penalties	How ARROWS helps
Company name rejected: The chosen name is too similar to an existing Czech company, causing rejection by the Commercial Register and forcing a costly, time-consuming restart of the entire process.	Legal analysis of company name: We conduct a thorough search of the Obchodní rejstřík to ensure your proposed name is unique and compliant. Want to secure your company name? Email us at office@arws.cz.
Commercial distrust due to low capital: Setting the share capital at the legal minimum of CZK 1 may cause potential partners, banks, or suppliers to view the company as lacking substance and financial stability.	Strategic legal consultation: We advise on a commercially appropriate share capital that projects stability without tying up unnecessary funds. Get tailored legal solutions by writing to office@arws.cz.
Invalid founding documents: The Společenská smlouva (Memorandum of Association) is drafted incorrectly, omitting mandatory clauses required by Czech law, leading to registration delays or future legal disputes between shareholders.	Drafting legally required documentation: Our experts draft a bespoke, legally compliant Memorandum of Association that protects your interests. Need your founding documents drafted? Contact us at office@arws.cz.
Document authentication delays: Documents from Poland (e.g., criminal records, parent company extracts) are submitted without the required certified translation and apostille, halting the registration process.	Legal assistance with documentation: We guide you through the entire process of obtaining and authenticating foreign documents to prevent delays. For immediate assistance, write to us at office@arws.cz.

Step-by-Step Guide: How to Establish a Czech Limited Liability Company (s.r.o.)

The process of establishing an s.r.o. is systematic and can be completed efficiently with proper preparation. Here is a practical checklist for Polish investors.

A common source of delay is improper documentation from the home country. To avoid this, ensure you have the following prepared:

• For individual founders and directors: A valid passport and an extract from the Polish National Criminal Register (zaświadczenie o niekaralności). This document must be certified with an apostille and then translated into Czech by a certified translator.
• For a Polish parent company (as a founder): An up-to-date extract from the Polish National Court Register (KRS). This document must also be certified with an apostille and translated into Czech. It must clearly show who is authorized to legally represent the Polish company.

What is the role of the Czech notary?

The notary is central to the Czech incorporation process. Their primary role is to formalize the company's founding document—either a Zakladatelská listina (Deed of Incorporation for a single founder) or a Společenská smlouva (Memorandum of Association for multiple founders)—in the form of a notarial deed. As mentioned, a key service offered by notaries is the direct registration of the company into the Commercial Register, which significantly accelerates the process.

How do you secure a registered office (Sídlo) in Prague?

Every Czech company must have a registered physical address (sídlo) in the Czech Republic. To fulfill this requirement, you must provide a written consent from the property owner, and their signature on this document must be officially verified (notarized). For many foreign companies, using a professional virtual office service is a common, cost-effective, and legally permissible solution to meet this requirement without leasing physical premises immediately.

What are your post-registration obligations?

Once the company is founded, several crucial registration steps must be completed before it can legally operate:

1. Obtain a Trade License (Živnostenský list): Before the company can be entered into the Commercial Register, it must obtain a trade license for its intended business activities from the Trade Licensing Office. For most business activities, a general "free trade" license is sufficient.

2. Register in the Commercial Register (Obchodní rejstřík): This is the final step that establishes the company as a legal entity. The application must be filed within six months of the founding of the company.

3. Register with the Tax Office: The new company must register for corporate income tax within 30 days of its establishment.

4. Register for Social Security and Health Insurance: If the company plans to hire employees, it must register with the Social Security Administration and a health insurance company within eight days of the first employee starting.

5. Activate your Data Box (Datová schránka): Upon registration, every legal entity is assigned a datová schránka, an official electronic mailbox. This is the mandatory channel for all official communications with public authorities in the Czech Republic, and its use is legally binding.

For Larger Ventures: The Joint-Stock Company (a.s.)

For Polish corporations planning a more substantial investment, aiming to attract external capital, or requiring a more formal governance structure, the Czech joint-stock company (a.s.) is the appropriate legal form. It is the equivalent of the Polish spółka akcyjna (S.A.).

What are the capital and structural requirements?

There is a notable difference in the minimum capital requirements between the two countries. A Polish S.A. requires a minimum share capital of PLN 100,000 (approximately €23,000). The Czech a.s., however, demands a significantly higher minimum capital of CZK 2,000,000 (approximately €80,000). Polish investors accustomed to the lower S.A. threshold must factor this higher financial commitment into their business plan.

Structurally, the Czech a.s. typically operates under a dualistic system with a Board of Directors (představenstvo) as the executive body and a Supervisory Board (dozorčí rada) as the oversight body, a framework that will be familiar to those experienced with the Polish S.A..

Risks and penalties	How ARROWS helps
Complex corporate governance: Failure to properly constitute and run the Board of Directors and Supervisory Board can lead to decisions being declared invalid and director liability.	Preparation of internal company policies: We draft robust Articles of Association and internal rules to ensure clear governance and compliance. Need legal help? Contact us at office@arws.cz.
Higher compliance costs: The a.s. form requires mandatory audits and more formal shareholder meetings, leading to higher administrative and financial burdens if not managed efficiently.	Legal consultations to prevent penalties: We provide ongoing legal support to ensure all corporate secretarial duties are met efficiently and on time. Our lawyers are ready to assist you – email us at office@arws.cz.
Shareholder disputes: Vague or poorly drafted Articles of Association regarding share transfers or shareholder rights can lead to costly internal litigation, paralyzing the company.	Contract drafting or review: We specialize in drafting clear, enforceable shareholder agreements to prevent future disputes. Get tailored legal solutions by writing to office@arws.cz.

The Branch Office: A Simpler Path with Critical Liabilities

Establishing a branch office (organizační složka) is an alternative to forming a new subsidiary. The setup process is generally simpler and faster because it does not require drafting new articles of association or contributing share capital. However, this simplicity comes with a critical trade-off that is often underestimated: unlimited liability.

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When should you choose a branch over a subsidiary?

A branch may be suitable for low-risk activities where a separate legal identity is not necessary. Examples include a representative office for market research, a marketing hub, or a support center that does not enter into significant commercial contracts or incur substantial debts.

What does "unlimited liability" mean for your parent company in Poland?

A branch office is not a separate legal person; it is a direct, inseparable part of the Polish parent company. This creates a legal and financial umbilical cord. Any debts, legal judgments, or other liabilities incurred by the Czech branch are automatically and fully the liabilities of the parent company in Poland. Creditors of the Czech branch can legally pursue the assets of the Polish parent company to satisfy their claims. This exposure of the entire Polish enterprise to risks arising from Czech operations makes the branch a strategically hazardous choice for most commercial activities.

FAQ – Legal tips about branch office liability

• Is the Polish parent company's entire asset base at risk?
  Yes. Creditors of the Czech branch can pursue claims against the assets of the parent company in Poland. This is the single most important risk to consider when choosing this structure. Do not hesitate to contact our firm – office@arws.cz.
• Who is the legal signatory for contracts?
  The Polish parent company is the legal party to any contract, acting through the appointed Head of the Branch. The branch itself has no independent legal capacity to enter into agreements. For assistance with contract review, write to us at office@arws.cz.

Navigating the Czech Legal System: How ARROWS Protects Your Investment

Successfully establishing your company is only the beginning. Ongoing compliance with Czech corporate, tax, and labor law is essential to avoid significant financial penalties and legal trouble. As an international law firm operating from Prague, European Union, ARROWS has over 10 years of experience guiding foreign companies through these complexities via our ARROWS International network.

How can you avoid legal risk and penalties?

Two areas frequently pose a risk for foreign companies operating in the Czech Republic:

• Employee Misclassification (Švarc systém): This illegal practice involves forcing individuals who are functionally employees to operate on a trade license (živnostenský list) to avoid paying social security and health insurance contributions. Czech authorities actively investigate this, and penalties for the company can be severe, reaching up to CZK 10,000,000 (over €400,000).
• Commercial Register Compliance: Czech law mandates that companies keep their data in the Obchodní rejstřík current and file their annual financial statements in the Collection of Deeds. Failure to comply can result in repeated fines of up to CZK 100,000 and, in cases of prolonged inactivity, the court can initiate proceedings to dissolve the company.
  

Risks and penalties	How ARROWS helps
Failure to file financial statements: Not filing financial statements in the Commercial Register can result in repeated fines up to CZK 100,000 and, in persistent cases, involuntary dissolution of the company by the court.	Ongoing legal support: We monitor your corporate deadlines and manage filings to ensure full compliance. For immediate assistance, write to us at office@arws.cz.
Incorrect Beneficial Owner registration: Failure to correctly identify and register the Ultimate Beneficial Owner (UBO) can lead to fines up to CZK 500,000 and prevent the company from receiving profit distributions or its shareholders from exercising voting rights.	Legal opinions and registration: We provide a legal analysis to correctly identify the UBO and handle the registration process. Need legal help? Contact us at office@arws.cz.
Employee misclassification (Švarc systém): Treating an individual as a contractor when they are legally an employee can lead to massive fines (up to CZK 10,000,000) and back-payment of social security contributions.	Contract drafting and employee training: We draft compliant employment and contractor agreements and can provide professional training for your HR managers to avoid these risks. Get tailored legal solutions by writing to office@arws.cz.
Late tax filings: Missing deadlines for corporate income tax or VAT returns triggers automatic penalties, including daily interest charges on unpaid tax.	Representation before public authorities: We can represent your company before the tax authorities and ensure all filing obligations are met correctly and on time. Our lawyers are ready to assist you – email us at office@arws.cz.

Your Next Step to a Successful Czech Expansion

Expanding your Polish business into the Czech Republic is a strategic move with immense potential. The legal framework is favorable to foreign investors, and the process is efficient when managed correctly. However, as this guide has shown, success depends on making informed decisions from the start and maintaining rigorous legal compliance. Missteps can lead to unnecessary costs, delays, and significant financial penalties.

As a leading Czech law firm in Prague, EU, ARROWS has a proven track record of helping international businesses thrive in the Czech market. We support over 250 limited liability companies and operate in 90 countries worldwide, combining deep local knowledge with a global perspective. Our team is ready to provide you with comprehensive legal support, including:

• Preparation of internal company policies
• Drafting all legally required documentation to prevent fines
• Contract drafting and review
• Representation in court and before public authorities
• Professional training for your management and employees

Do not let legal complexities hinder your expansion. Ensure your entry into the Czech market is secure, compliant, and successful from day one. For a confidential consultation tailored to your business needs, contact our expert team today by writing to office@arws.cz.

FAQ – Most Common Legal Questions for Polish Businesses

1. How long does it really take to set up an s.r.o. in the Czech Republic?
If all documents from Poland are correctly prepared and apostilled, a notary can perform a direct registration into the Commercial Register in just a few business days. The entire process, including document preparation and obtaining a trade license, typically takes 2 to 4 weeks. To ensure an efficient process, get in touch with our legal team at office@arws.cz. 

2. Is it expensive to register a company in the Czech Republic?
The official fees are relatively low. For example, the court fee for the first registration of an s.r.o. is CZK 6,000. The primary costs are for notary services, certified translations, and professional legal support. The extremely low minimum capital requirement makes the initial financial outlay very accessible. For a detailed cost estimate for your project, contact us at office@arws.cz.

3. Do I need to open a Czech bank account?
Yes, a Czech bank account is a practical necessity and a legal requirement for depositing share capital if it exceeds CZK 20,000. Due to strict anti-money laundering regulations, most Czech banks require at least one company director to visit a branch in person to finalize the account opening. Our lawyers can assist with this process; contact us at office@arws.cz.

4. What are the main taxes my Czech company will pay?
The primary corporate taxes are Corporate Income Tax, which is currently 21%, and Value Added Tax (VAT), with a standard rate of 21% and a reduced rate of 12% for certain goods and services. If you have employees, you will also be responsible for social security (24.8%) and health insurance (9%) contributions. Our tax experts can provide detailed advice. Get tailored legal solutions by writing to office@arws.cz.

5. Can my Polish company own 100% of the Czech s.r.o.?
Absolutely. The Czech Republic places no restrictions on foreign ownership. A Polish company (spółka z o.o. or S.A.) can be the sole shareholder of a Czech s.r.o. We can help structure this corporate relationship correctly. For immediate assistance, write to us at office@arws.cz.

6. Do I need to speak Czech to run a company there?
While it is not a legal requirement for a director to speak Czech, it is a practical necessity for navigating the business environment. All official documents for authorities must be in Czech, and all communication with government bodies, including the tax office and courts, is conducted in Czech. A reliable local legal partner who is fluent in both English and Czech is therefore essential for success. Our lawyers are ready to assist you – email us at office@arws.cz.

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