Articles
Establish a Subsidiary in the Czech Republic
Updated on Thursday 16th March 2023 Rate this article
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Subsidiaries are companies with legal personality and freedom of administration, opened by foreign companies in the Czech Republic. The operations of this type of business are based on the trade license received from the Trade Licenses Office. There are many forms a subsidiary may take in the Czech Republic, but the most popular one is the limited liability company; investors can receive advice on the advantages of a subsidiary registered here from our team of specialists in company registration in Czech Republic, who can assist in all the registration steps that have to be concluded in this case.
| Quick Facts | |
|---|---|
| Applicable legislation (home country/foreign country) | Czech Company Law |
| Best used for | - banking, - insurance, - automotive, - manufacturing, - trading |
| Minimum share capital | Yes |
| Time frame for the incorporation (approx.) | Around 1 month |
| Management (local/foreign) | Local |
| Local bank account | Yes |
| Independence from the parent company | Yes |
| Liability of the parent company | No, the subsidiary is fully liable |
| Corporate tax rate | 19% |
| Possibility of hiring local staff | Yes |
The characteristics of the Czech limited liability company
A limited liability company opened by a foreign company in the Czech Republic must be established by at least one shareholder but not more than 50. There is a minimum share capital requested at registration of at least CZK 1. This type of company is established by drafting the articles of association and the memorandum.
The foreign company must issue the decision of opening the subsidiary in the Czech Republic and accompany it with the articles of association and a list of the shareholders and their contribution. The above documents must be notarized. A bank account must be opened and the Czech subsidiary must deposit the minimum share capital. The bank will issue a certificate of deposit, necessary for future transactions.
The next step is registering the company with the Trade Licensing Office and receiving the trade license. This trade license is used, along with the foundation deeds and the certificate of deposit, at registration in the Business Commercial Registry of the Regional Commercial Court; our representatives can assist investors on this procedure.
Which are the tax requirements for Czech companies in 2023?
Like any other ordinary company, the subsidiary established in the Czech Republic must pay the same taxes as a limited liability company, so it’s important to register with the tax authorities and apply for a VAT number. This procedure is made at the same time with the registration for the social security and for health insurance.
Considering that the company will have a VAT number, this will imply having VAT obligations during a financial year. Those opening a company in Czech Republic have to be aware the company’s tax accounts must be evaluated on a yearly basis. Then, the company is legally required to submit its financial statements following the tax rules, which can be presented to foreign investors by our team of consultants in Czech company formation.
The registration process of a subsidiary in the Czech Republic takes approximately 20 days and, only after the completion of this process, the company may begin the commercial activities. The subsidiaries opened in the Czech Republic receive the same treatment as the local companies, but due to the different treaties signed with other countries, the taxation may differ.
If the subsidiary in the Czech Republic is set up as a limited liability company, an external audit is required, if the balance sheet is above EUR 1,5 million, it has more than 50 employees, and an annual turnover exceeding EUR 3 million.
The payment of VAT is mandatory if the annual turnover exceeds CZK 1 million. As such, VAT accounts must be submitted monthly or quarterly. Our Czech tax advisors can provide complete information on this topic.
What are withholding taxes considerations for subsidiaries in Czech Republic?
Czech Republic has signed treaties on double taxation avoidance with more than 80 countries. These treaties assure the single taxation of a foreign company in the country of origin or the refund of the paid taxes. The withholding tax on dividends, interests and royalties paid by the subsidiary to the foreign company may be lowered or even abolished in some cases if the double tax treaties provide so. This is the main reason why so many foreign companies choose to open subsidiaries in the Czech Republic.
With regards to the payment of the withholding taxes, those interested in company formation in Czech Republic under a local subsidiary must know that they are entitled to an exemption on the withholding tax on dividends paid to the parent company (under the European Union’s Parent-Subsidiary Directive) if the company owns at least 10% of the shares of the subsidiary for a period of minimum 12 months (uninterrupted period of time).
Subsidiaries of foreign companies that are tax residents of non-EU countries can benefit from this exemption if the stipulations of the double tax treaties signed with the respective countries provide such advantages. This can also be obtained if the subsidiary is incorporated under a specific legal entity.
The same applies if the company is taxed in its home country with a tax similar to the corporate income tax in Czech Republic at a rate of at least 12%. Please mind that if the company is exempt from the payment of the corporate income tax or a tax similar with this one, the exemption on the payment of the withholding tax on dividends will no longer apply. In this case, the tax applicable when the payment of dividends is made is of 15%.
The tax exemption on the payment of the withholding taxes on dividends can apply if the subsidiary incorporated in Czech Republic is registered as a limited liability company, a joint stock company or a co-operative. This regulation will also come into effect if the subsidiary has not entered the liquidation process.
Foreign businessmen who want to open a company in Czech Republic as a subsidiary in 2023, interested in obtaining the tax deductions or exemptions applicable to this structure, should know that the business form of the parent company abroad is also of importance. Thus, the exemption on the withholding tax will be granted if the parent company is incorporated as one of the legal entities presented earlier (limited liability company, joint stock company or co-operative).
What documents should investors provide for starting a Czech subsidiary?
In order to set up a Czech subsidiary, it is necessary to provide a set of legal documents, as prescribed by the regulations of the Commercial Code. Since the subsidiary is treated just like a regular company incorporated in Czech Republic, the subsidiary will need to follow the standard registration procedures. However, when registering a subsidiary, the investors will need to submit the following:
- • the memorandum and articles of association of the parent company;
- • an extract from the Commercial Register of the founder company;
- • a resolution provided by the parent company, which states its decision to set up a subsidiary in Czech Republic;
- • a proof regarding the company’s registered office operating in Czech Republic;
- • an extract from the Criminal Register providing information on the appointed director of the subsidiary, issued by the authority in the country where the respective person had his or her last residency (or from the country of citizenship).
More details on the Czech subsidiary are available in the video below:
What are the statistics on foreign investments in Czech Republic?
Considering that the registration of a subsidiary in Czech Republic represents a form of foreign investment, concluded by a foreign company, we will present in the list below the latest data available with regards to the value of the foreign direct investment (FDI), the top investment sectors preferred by foreign investors, as well as the top investors (by nationality) that preferred this country as their investment destination:
- the Czech Republic's most important investment partner is Germany, leading by far the list of foreign investors (it has a rate of 41.9% from all the investments, while the 2nd most relevant partner is Japan, accounting for only 6.6%).
- The FDI stock of the Czech Republic in 2021 was approximately USD 200, 5 billion.
- The value of the greenfield investments was around USD 3.094 billion in the same year.
- Around USD 3 billion was the total FDI inflow in the Czech Republic in the first semester of 2022.
You may contact our specialists in company formation in Czech Republic if you need to open a subsidiary in 2023 or other type of company in this country. Our representatives can also present the main advantages of operating through a branch office in this country and can advise on the tax system applicable in this case.
Meet us in Brno
Call us at +420 721 565 868 to set up an appointment with our specialists in company formation in Brno. Alternatively you can incorporate your company without traveling to Czech Republic.
As an CorpexLab client, you will benefit from the joint expertize of local experts and international consultants. Together we will be able to offer you the specialized help you require for your business start-up in Czech Republic.
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