Starting Business in the Czech Republic

What Polish Companies Need to Know

23.9.2025

Expanding into the Czech Republic offers Polish companies a prosperous European market, but the new legal landscape brings risks of costly delays. This guide answers your key legal questions on company setup, tax, and employment. As a leading Czech law firm in Prague, EU, ARROWS has the expertise to ensure your market entry is secure and successful from the start.

Do you 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

The first choice you make when entering the Czech market is not merely administrative; it is the foundational risk management decision for your entire venture. The legal form you select determines the extent of your Polish parent company's liability, your credibility with local partners, and your operational flexibility. Understanding the profound differences between the available structures is essential to protecting your assets.

The Limited Liability Company (s.r.o.) – The Gold Standard for Asset Protection

The most common and strategically sound corporate form for foreign investors in the Czech Republic is the limited liability company, or společnost s ručením omezeným (s.r.o.). Conceptually, the s.r.o. is the direct equivalent of the Polish spółka z ograniczoną odpowiedzialnością (sp. z o.o.), making its governance structure familiar to Polish business leaders. Its primary advantage lies in its status as an independent Czech legal entity.

This legal separation creates a "corporate veil," meaning the company's debts and obligations are its own. The liability of its shareholders, including a Polish parent company, is strictly limited to the amount of their unpaid contributions to the share capital. This protection is the cornerstone of a secure investment, ensuring that any financial or legal challenges faced by the Czech operation do not endanger the assets of your core business in Poland.

Furthermore, Czech law offers remarkable flexibility, setting the minimum required share capital at just CZK 1 (approximately PLN 0.17). While this low barrier to entry is attractive, its strategic application requires careful consideration. A Czech s.r.o. is also perceived by local banks, suppliers, and customers as a fully committed, permanent local enterprise, which can significantly enhance trust and facilitate stronger commercial relationships.

The Branch Office (Odštěpný závod) – Understanding the Risk of Unlimited Liability

An alternative to establishing a new company is to register a branch office, known as an odštěpný závod or organizační složka. While this option may appear administratively simpler because it does not require new articles of association or a separate share capital, it carries a severe and often underestimated risk: unlimited liability.

A branch office is not a separate legal entity. It is legally considered an organizational part of the Polish parent company, registered to do business in the Czech Republic. Consequently, the Polish parent company retains full and unlimited liability for all debts, contractual obligations, and legal judgments against the Czech branch. Creditors of the branch can pursue claims directly against the parent company's assets in Poland, putting your entire business at risk.

This structure is only suitable for very specific, low-risk activities, such as a small sales or representative office. For any operation involving significant contracts, capital investment, manufacturing, or employment, the s.r.o. provides indispensable protection. It is also important to note that the branch itself has no independent legal capacity; the Polish parent company is the legal signatory for all contracts, acting through the Head of the Branch.

The legal framework allows for an extremely low minimum share capital of CZK 1 for an s.r.o., which provides significant financial flexibility for startups and SMEs looking to minimize initial cash outlay. However, this advantage can create a serious commercial challenge—a "credibility gap." Business relationships are built on trust and perceived stability. When potential Czech partners, banks, or major suppliers conduct due diligence, they will check the public Commercial Register. 

A company with only nominal capital can be viewed as lacking financial substance, commitment, and stability. This perception can lead to tangible negative consequences, such as banks refusing to open credit lines, suppliers demanding upfront payments, or larger companies hesitating to enter into significant long-term contracts. 

Therefore, the decision on capitalization should be a strategic one, balancing legal minimums with commercial realities. Expert legal advice in this area extends beyond mere registration to encompass strategic counsel on an appropriate capital level that aligns with your industry, business plan, and the expectations of the local market.

Risks and Penalties

How ARROWS Helps

Unlimited Liability Risk (Branch): The Polish parent company's entire asset base in Poland is exposed to debts and lawsuits arising from Czech operations.

Legal analysis of your business model to determine the optimal, low-risk structure. Want to understand your legal options? Email us at office@arws.cz.

Commercial Distrust (Low-Capital s.r.o.): Registering an s.r.o. with minimum capital (CZK 1) leads to rejection by banks, suppliers, and partners who view the company as lacking financial substance.

Strategic legal consultations on appropriate capitalization to ensure market credibility and prevent commercial setbacks. Get tailored legal solutions by writing to office@arws.cz.

Invalid Corporate Decisions: Incorrectly structuring the management of an s.r.o. or the authority of a Branch Head can lead to contracts being declared void and personal liability for directors.

Drafting legally required documentation, including a robust Memorandum of Association (Společenská smlouva) that clearly defines management powers. For immediate assistance, write to us at office@arws.cz.

 

The s.r.o. Formation Roadmap: A Step-by-Step Guide for Polish Founders

Once you have chosen the secure s.r.o. structure, the formation process is a clear sequence of steps. While Czech bureaucracy can be straightforward, precision is essential to avoid delays. This roadmap outlines the critical path and highlights common pitfalls where professional legal guidance is invaluable.

Preparing the Foundation: The Memorandum of Association (Společenská smlouva)

The foundational legal document for your s.r.o. is the Společenská smlouva (Memorandum of Association) if there are two or more founders, or a Deed of Foundation (zakladatelská listina) for a single founder. This document must be prepared in the Czech language and executed in the form of a notarial deed before an authorized Czech notary.

This is not a generic template. It must contain essential, legally mandated details, including the company name, registered office address, the defined scope of business activities, the amount of share capital, and detailed information about the shareholders and managing directors. Any errors, omissions, or improperly drafted clauses can lead to the Commercial Register rejecting your application or, more seriously, create grounds for future legal disputes between shareholders.

Contact our experts:

Essential Polish Documents: Navigating Apostille and Certified Translations

A common and costly bottleneck for Polish companies is incorrect document preparation. Czech authorities require specific documents from Poland to be authenticated and translated in a precise sequence. Failure to adhere to this process will halt your registration.

For individual Polish founders and appointed directors, you must provide a recent extract from the Polish National Criminal Register (zaświadczenie o niekaralności). If the founder is a Polish company, an up-to-date extract from the Polish National Court Register (KRS) is required. 

These documents must first be certified with an apostille in Poland. Only after the apostille is affixed can the document be translated into Czech by a sworn translator certified by the Czech courts. Submitting documents that are translated before being apostilled is a frequent mistake that leads to rejection and significant delays.

Banking, Capital, and Licensing

The sequence of the next steps is critical and must be followed precisely. Before the company can be officially registered, you must open a special bank account in the company's name to deposit the agreed-upon share capital. The bank will issue a confirmation of this deposit, which is a required document for the registration application. Czech banks can be cautious when dealing with new foreign-owned entities, and having professional assistance can streamline this process.

Next, and crucially, the company must obtain a trade license (živnostenský list) from the Trade Licensing Office (Živnostenský úřad) for its planned business activities. This license must be secured before you can file for registration in the Commercial Register. For most commercial activities, a general "free trade" license covering a wide range of fields is sufficient and can be obtained quickly with the correct documentation.

Finalizing Your Entry: Notarization, Registration, and Post-Registration Duties

With the founding documents notarized, capital deposited, and trade license in hand, the final step is registration in the Commercial Register (Obchodní rejstřík). Today, this process is highly efficient, as a notary can perform the registration directly online immediately after executing the founding deed, significantly shortening the timeline. Upon successful registration, the s.r.o. officially comes into existence as a legal entity and is assigned its identification number (IČO).

However, your legal obligations do not end there. The newly formed company must complete several post-registration duties to remain compliant. These include:

  • Tax Registration: Registering for corporate income tax with the local Tax Office within 30 days of establishment.
  • Beneficial Owner Registration: Listing the company's Ultimate Beneficial Owners (UBOs) in the Register of Beneficial Owners. This is a critical anti-money laundering requirement, and failure to comply can result in serious fines and restrictions on the company's activities.
  • Social Security: If you plan to hire employees, the company must register with the Czech Social Security Administration and a health insurance company within eight days of the first employee's start date.

FAQ – Legal tips for a smooth registration

  1. Do I need a Czech registered address before I start?
    Yes, you must have a legal address (registered office) in the Czech Republic, proven by a lease agreement or property ownership document, before you can register. We can assist with reviewing lease agreements to ensure they meet legal requirements. Need legal help? Contact us at office@arws.cz
  1. How long does the entire s.r.o. formation process take?
    With all documents correctly prepared, including apostilled records from Poland, the process can be completed in as little as one to two weeks, especially when a notary handles the direct registration. Delays are almost always caused by incorrect documentation. To ensure a fast-track process, email us at office@arws.cz
  2. Can I choose any company name I want?
    No, your chosen name must be unique and not confusingly similar to any existing company registered in the Czech Commercial Register. A rejection forces you to restart the notarization process. We perform a thorough name availability check to prevent this costly delay. For immediate assistance, write to us at office@arws.cz.

Navigating the Czech Tax System: A Comparative Analysis for Polish Businesses

The Czech tax environment offers several distinct advantages for Polish companies, including a competitive corporate tax system and a more favorable VAT regime for growing businesses. However, these benefits are paired with strict enforcement and severe penalties for non-compliance. Understanding both sides of this equation is key to maximizing financial efficiency and minimizing risk.

Corporate Income Tax (CIT): A Different Approach to Profit

The Czech Republic's standard Corporate Income Tax (CIT) rate is 21% (effective from 2024). This compares to Poland's standard rate of 19%, which can be reduced to 9% for "small taxpayers" with revenues up to EUR 2 million. While Poland's reduced rate is highly attractive for smaller enterprises, the overall Czech tax framework is often praised for its relative simplicity and lack of complex incentives, contributing to its high ranking on the International Tax Competitiveness Index.

For Polish companies planning significant operations or expecting revenues to exceed the small taxpayer threshold, the Czech 21% rate is competitive within the EU. The choice of jurisdiction from a CIT perspective depends heavily on a company's specific revenue projections and growth strategy. A key legal service is to provide a comparative analysis based on your business plan to determine the most tax-efficient structure for your cross-border operations.

Value Added Tax (VAT): A Clear Advantage for Cross-Border Sellers

For many Polish businesses, particularly in e-commerce and services, the Czech VAT system presents a clear and quantifiable advantage. The standard VAT rate in the Czech Republic is 21%, which is lower than Poland's 23% rate. This two-percentage-point difference can directly improve profit margins or allow for more competitive pricing in the EU market.

Even more significant is the difference in the mandatory VAT registration threshold. In the Czech Republic, a company is only required to register for VAT once its turnover exceeds CZK 2,000,000 (approximately €84,000) in any consecutive 12-month period. This is nearly double Poland's threshold of PLN 200,000 (approximately €43,000). This higher threshold provides substantial breathing room for startups and SMEs, allowing them to grow their business without the immediate administrative burden and cost of VAT compliance.

The Poland-Czech Double Taxation Treaty (DTT): Protecting Your Profits

A robust Double Taxation Treaty (DTT) is in place between Poland and the Czech Republic, ensuring that income earned from cross-border activities is not taxed twice. This treaty is essential for structuring payments such as dividends, interest, and royalties in a tax-efficient manner. It allows for the application of reduced withholding tax (WHT) rates, provided certain conditions are met.

For example, when a Czech company pays licensing fees (royalties) to its Polish parent, the DTT allows for a reduced WHT rate of 10%. This is a significant saving compared to Poland's standard domestic WHT rate of 20% on such income. Similarly, the treaty typically reduces the WHT on dividends to 5% for qualifying corporate shareholders. To benefit from these reduced rates, the recipient of the income must provide the Czech payer with a valid certificate of tax residency from the Polish tax authorities.

The favorable aspects of the Czech tax system, such as the lower VAT rate and higher registration threshold, can sometimes create a false sense of simplicity. This may tempt foreign companies to manage their tax compliance without professional guidance, leading them into a "compliance trap." 

The Czech tax authorities are diligent, and the penalties for errors or delays are severe. For instance, filing a tax return more than five days late triggers a daily penalty, while an audit that uncovers underpaid tax results in a steep 20% surcharge on the assessed amount. This is in addition to late payment interest, which currently exceeds 12% per annum. 

A single compliance failure can easily erase any savings achieved through the favorable rates. Therefore, professional legal and tax advisory is not a cost but a crucial investment in risk mitigation, acting as an insurance policy against potentially crippling financial penalties.

Risks and Penalties

How ARROWS Helps

20% Tax Surcharge: An audit revealing underpaid tax results in a penalty of 20% of the assessed amount, plus late payment interest (currently >12% p.a.).

Legal consultations to prevent inspections or penalties. Our experts ensure your tax filings are accurate and compliant from day one. Get tailored legal solutions by writing to office@arws.cz.

Loss of Treaty Benefits: Failure to provide correct documentation (e.g., tax residency certificate) results in withholding tax being charged at the high domestic rate (e.g., 15%) instead of the lower treaty rate (e.g., 5% or 0%).

Drafting documentation to prevent fines and penalties. We manage all cross-border tax formalities to secure the full benefits of the Double Taxation Treaty. Need legal help? Contact us at office@arws.cz.

Fines up to CZK 500,000: Failure to meet registration or reporting obligations (e.g., late VAT registration) can trigger significant, and repeatable, fines from the tax authorities.

Representation before public authorities. We handle all communications and registrations with the tax office, ensuring you meet every deadline. For immediate assistance, write to us at office@arws.cz.

 

Building Your Czech Team: A Primer on Czech Employment Law

Hiring employees in the Czech Republic requires a clear understanding of the local Labour Code. While many principles are harmonized at the EU level, there are critical differences compared to Polish law regarding contract types, termination procedures, and the calculation of labor costs. Navigating these nuances correctly is essential for building a compliant and stable workforce.

Employment Contracts – Flexibility and Formality

Similar to Poland, the standard employment relationship in the Czech Republic is based on a written employment contract. The standard workweek is 40 hours, and unless explicitly stated otherwise, contracts are presumed to be for an indefinite period. Fixed-term contracts are permitted but are strictly regulated; they can be concluded for a maximum of three years and renewed no more than twice.

Employees in the Czech Republic are entitled to a minimum of four weeks of paid annual leave, whereas in Poland, the entitlement is 20 or 26 days, depending on the employee's tenure and educational background. A significant difference lies in the structure of social security contributions. 

In the Czech Republic, the employer bears a much larger portion of the health and social insurance costs compared to the employee. This "super-gross" salary concept means the total cost to the employer is substantially higher than the employee's gross wage, a critical factor for accurate financial planning.

Termination of Employment – Navigating Stricter Czech Rules

The rules surrounding the termination of employment are a key area of divergence. In the Czech Republic, an employee can terminate their contract at any time without providing a reason, subject to a statutory notice period. However, the employer's ability to terminate is much more restricted. An employer must provide a legally valid reason for dismissal, and these reasons are exhaustively listed in the Czech Labour Code (e.g., organizational changes, poor performance, gross misconduct).

Furthermore, Czech law provides strong protections for employees during certain periods, such as pregnancy, parental leave, or certified sick leave, during which termination by the employer is generally prohibited. In Poland, while employers also need a valid reason to terminate an indefinite contract, the specific legal grounds and procedural requirements differ. 

For example, Polish law explicitly defines statutory severance pay based on tenure, with employees serving over eight years entitled to three months' salary. A wrongful termination in the Czech Republic can lead to complex and costly litigation, making it essential to seek legal advice before taking any action.

FAQ – Legal tips on Czech Employment Law

  1. Are employee social security costs higher for employers in the Czech Republic?
    The "super-gross" salary concept means the employer's total cost is significantly higher than the employee's gross wage, as the employer pays the majority of social and health insurance contributions. We provide legal consultations on labor costs to help you budget accurately. Do not hesitate to contact our firm – office@arws.cz.
  1. Can I hire contractors easily to avoid employment obligations?
    This is a high-risk area. Czech authorities are very strict about "false self-employment" (švarcsystém). If a contractor relationship resembles employment, it can be reclassified, leading to back-payment of taxes, social security, and significant fines. Our lawyers can help you draft compliant contractor agreements. For assistance, email office@arws.cz
  1. Do I need to provide professional training for my employees on Czech law?
    While not always mandatory, it is highly advisable, especially for management and HR, to understand local labor, health, and safety laws. ARROWS provides professional training for employees and management, complete with certificates, to ensure compliance and minimize risk. Get tailored legal solutions by writing to office@arws.cz.

Securing Your Operations: Property, IP, and Regulatory Compliance

Beyond establishing your corporate entity, securing your operational assets and ensuring ongoing regulatory compliance are vital for long-term success. This involves navigating the legal frameworks for commercial property, protecting your intellectual property, and adhering to modern data protection and investment screening rules.

Leasing Commercial Premises

Leasing commercial premises in the Czech Republic is governed by the Civil Code, which offers more flexibility for business leases compared to residential ones. Key terms such as rent, duration, and termination clauses are largely negotiable. 

However, a critical step that is often overlooked by foreign companies is verifying the property's official approved use, known as kolaudace. Using a space for a purpose other than what it is officially approved for (e.g., running a retail shop in a space approved only for office use) can render the lease invalid and lead to sanctions from building authorities.

While the law provides default notice periods (e.g., three months for a fixed-term business lease), it is standard practice for parties to define their own specific termination reasons and notice periods within the contract. A thorough legal review of any lease agreement is essential to protect your interests regarding repairs, maintenance obligations, possibilities for alterations, and rights to sublet.

Protecting Your Intellectual Property

Your brand, inventions, and designs are valuable assets that require proactive protection. In the Czech Republic, intellectual property (IP) rights such as trademarks and patents are registered with the Industrial Property Office (ÚPV). A registered trademark provides exclusive rights for 10 years and is renewable, giving you the legal power to prevent others from using a similar sign for competing goods or services.

Crucially, Czech law mandates that foreign applicants who do not have a registered address in the Czech Republic must be represented in registration proceedings by a locally licensed lawyer or patent attorney. This makes engaging a Czech law firm not just advisable but a legal necessity for Polish companies seeking to secure their IP rights. Protecting your brand from the outset prevents costly disputes and brand dilution down the line.

Dispute Resolution and Enforcing Polish Judgments

As both Poland and the Czech Republic are EU member states, the process of resolving cross-border commercial disputes and enforcing court judgments is significantly streamlined. Under the EU's Brussels I Regulation (Regulation (EU) No 1215/2012), a judgment issued by a Polish court in a civil or commercial matter is generally recognizable and enforceable in the Czech Republic without the need for a separate declaration of enforceability (exequatur).

In addition to the EU framework, a bilateral treaty on legal assistance further facilitates this process between the two countries. While the legal basis for enforcement is strong, the practical process of identifying and seizing a debtor's assets in the Czech Republic still requires navigating the local court and enforcement system. Having local legal representation is key to efficiently executing a Polish judgment and recovering what you are owed.

Compliance Spotlight – GDPR and Foreign Investment (FDI) Screening

Modern businesses face significant regulatory risks that extend beyond traditional corporate and tax law. The General Data Protection Regulation (GDPR) is strictly enforced in the Czech Republic. 

The Czech Data Protection Office (ÚOOÚ) has demonstrated its willingness to impose substantial penalties for non-compliance. A notable example is the CZK 351 million (approx. €14.8 million) fine levied against the Czech software company Avast for unlawful processing of user data. This serves as a stark reminder that any company processing personal data of individuals in the EU must have robust compliance policies in place, as fines can reach up to 4% of a company's total global annual turnover.

Additionally, Polish companies that are part of a larger international group should be aware of the Czech Foreign Direct Investment (FDI) Act. This law requires mandatory government screening for investments where the ultimate controlling entity is from a non-EU country, particularly if the investment targets a sensitive sector such as military equipment, critical infrastructure, dual-use technologies, or major media outlets. 

While a direct investment from a purely Polish-owned company would not trigger this screening, the rules can apply if the Polish entity is a subsidiary of a parent company based in the US, UK, or another non-EU country.

Risks and Penalties

How ARROWS Helps

Massive GDPR Fines: The Czech DPA (ÚOOÚ) imposes severe fines for data breaches, with penalties up to 4% of global turnover (e.g., a €14.8M fine against Avast).

Preparation of internal company policies and GDPR compliance audits to ensure your data processing is lawful. Want to understand your legal options? Email us at office@arws.cz.

Unenforceable Lease Agreements: Signing a commercial lease for a property not officially approved for your business activity can render the contract void and halt operations.

Contract drafting or review. Our real estate lawyers verify all permits and draft clauses that protect your right to operate. For assistance with contract review, write to us at office@arws.cz.

Trademark Infringement: Failure to register your brand in the Czech Republic leaves you unprotected against local competitors using a similar name or logo, leading to brand dilution and loss of market share.

Help with obtaining regulatory approvals. We manage the entire trademark registration process with the Industrial Property Office. Need legal representation? Write to office@arws.cz.

 

Your Partner for Success in the Czech Republic

The Czech Republic presents a landscape rich with opportunity for ambitious Polish businesses. Its stable economy, strategic location, and favorable business environment make it an ideal destination for expansion. As this guide has shown, while the legal terrain has its complexities, every risk is identifiable and manageable with proactive and expert legal guidance.

At ARROWS, we specialize in transforming legal challenges into strategic advantages for our foreign clients. Our deep understanding of both the Czech and Polish legal systems allows us to provide nuanced, comparative advice that anticipates problems before they arise. As a major international law firm operating from Prague, European Union, we are your stable partner in the heart of Europe. Our ARROWS International network, built over 10 years, gives us the global reach to handle the most complex cross-border matters, while our local expertise ensures your business is compliant and protected.

We are proud to support over 250 limited liability companies and 150 joint-stock companies, and our experience is your asset. Ensure your Czech expansion is built on a solid legal foundation from day one. Our team of experts is ready to assist you with everything from company formation and contract drafting to representation before public authorities. Get tailored legal solutions by writing to us at office@arws.cz.

FAQ – Most Common Legal Questions About Doing Business in the Czech Republic

  1. What is the single biggest legal mistake Polish companies make when entering the Czech market?
    The most costly mistake is choosing a branch office over an s.r.o. without fully understanding the unlimited liability risk. This exposes the entire Polish parent company's assets to Czech debts. A proper legal analysis of your business model is critical to avoid this. To discuss your risk management strategy, write to us at office@arws.cz.
  2. Is the Czech legal system very different from Poland's?
    Both are "continental" legal systems and share a foundation in EU law, making them broadly similar. However, critical differences exist in corporate governance, tax procedures, and labor law. Relying on assumptions based on Polish law can lead to non-compliance and penalties. Our lawyers are experts in navigating these differences. Do not hesitate to contact our firm – office@arws.cz.
  3. How much does it really cost to set up and run an s.r.o. in the Czech Republic?
    Formation costs are low (notary fees, registration fee of CZK 2,700 via notary). Ongoing costs depend on your business, but key factors include accounting services, potential virtual office fees, and social/health contributions for employees, which are structured differently than in Poland. We can provide a clear overview of expected legal and administrative costs. Get tailored legal solutions by writing to office@arws.cz.
  4. Do I physically need to be in Prague to manage my Czech company?
    Not necessarily. With a reliable legal representative, most administrative and compliance tasks can be managed remotely. ARROWS acts for many foreign clients, handling communication with authorities and ensuring all legal obligations are met without requiring your constant presence. Our lawyers are ready to assist you – email us at office@arws.cz.
  5. My Polish company is part of a larger international group with non-EU owners. Are there extra rules I need to follow?
    Yes, potentially. The Czech Foreign Direct Investment (FDI) Act may require screening if your ultimate controlling entity is from outside the EU, especially if you operate in a sensitive sector. It is crucial to assess this before making an investment. For a confidential consultation on FDI screening, contact us at office@arws.cz.
  6. Besides legal services, how else can ARROWS help my business succeed in the Czech Republic?
    As a leading Czech law firm in Prague, EU, we are deeply integrated into the local business community. We often connect our clients with each other for mutual business or investment opportunities and welcome innovative business ideas. We are more than just lawyers; we are your strategic partners for growth. To learn more, write to us at office@arws.cz.

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