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Establish a Branch in the Czech Republic

Updated on Thursday 01st April 2021

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A branch opened in the Czech Republic is considered an extension of a foreign company and does not have a legal personality. For all the actions of the branch, the foreign company is held responsible. The name of a branch is the same as the parent company’s name followed by the termination “organizational unit”; our team of consultants in company registration in Czech Republic can advise on other characteristics of a local branch, besides the ones mentioned in this article.

 

The legal provisions for a branch in Czech Republic

 
A branch cannot acquire real estate in the Czech Republic, it can only lease a Czech property and may be managed only by a Czech resident or a foreigner with a Czech residency permit. The list of actions that the branch opened in the Czech Republic will perform must be written in full in the application deposited at the Commercial Registry. The branch is then allowed to perform only those actions on the Czech territory
 
 
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When opening a company in the Czech Republic that operates as a branch office, the main regulations which govern its registration are given by the Civil Code, the Trade Licensing Act, the Act on Commercial Codes of legal and natural entities, the Act on Business Corporations, but also the Act on International Private Law
 
From a legal point of view, it is important to know that a branch office is considered a permanent establishment of a foreign company. One of the main advantages of opening a branch office refers to the fact that it benefits from a simpler registration procedure, but the company operating there will have the same rights and obligations prescribed to all businesses operating in this country. 
 
Following the incorporation of the Czech branch, the company is required to use in its official documents a set of information regarding both the branch and the parent company. In this sense, it is necessary to mention the place of incorporation of the parent company and of the branch, but also the address where the branch performs its activities.  
 

The video below provides more information on the Czech branch:

 

 

What are the main procedures for establishing a branch in the Czech Republic?

 
The procedure of establishing a branch in the Czech Republic requires a few steps and some mandatory documents. After opening a bank account, where the initial capital is subscribed, the parent company must prepare a set of documents that will be further on deposited with the Czech authorities:
 
  • an application (with the name of the foreign company, the country were it was settled,  the type of company, the names of the owners, the share capital);
  • the foreign company’s articles of association or the memorandum of association;
  • the certificate of registration and the name and address of the branch;
  • the decision of opening a branch, as well as the name of the branch’s representatives.
The parent company’s registration certificate, articles of association and the name of the secretary and directors must be followed by a document drafted in the Czech language. The first step of incorporating a branch in the Czech Republic is registering it with the Trade Licensing Office and receiving an extract of the trade license. The licenses may be issued for a professional trade, a vocational trade, a permitted trade or an unqualified trade.
 
After that, the appropriate documents must be deposited at the Business Commercial Registry of the Regional Commercial Court and a unique identification number must be received. The last step is registering for taxes, a process that is performed simultaneously with registering for social security and health insurance and our team of specialists in company formation in Czech Republic can assist with in-depth advice on these procedures. 
 
Owning a branch in the Czech Republic may be considered advantageous from an administrative point of view - there aren’t numerous obligations deriving from this business structure. However, the main disadvantage is the full liability of the parent company for the actions of the branch, as this structure does not have a separate legal personality, as it is the case of a subsidiary.
 

Are there any accounting requirements for Czech branches? 

 
Yes, since the branch office in the Czech Republic represents a commercial entity, it is also obligated to respect a set of legal requirements concerning its accounting documents. The accounting documents that must be kept by a local branch office have to follow the accounting principles available in the Czech Republic
 
In this sense, it is necessary to know that a Czech branch needs to file value added tax (VAT) returns on a quarterly basis; this type of entity also needs to complete annual tax returns and foreign businessmen can request for further information on other necessary accounting procedures applicable in this case from our consultants in company formation in the Czech Republic
 

What are the basic characteristics of a Czech branch office? 

 
As we presented above, the Czech branch office is characterized by the fact that it is a subordinate structure to its parent company. This can provide a set of advantages and disadvantages and the decision of opening a company in Czech Republic under a branch office should be based on the general plans the investors have when expanding here. As a general rule, the branch office is a structure that will need to conclude less accounting requirements compared to other types of corporate entities and it is also characterized by the following: 
 
  • liability – the parent company is fully responsible for the activities of the branch office registered in the Czech Republic;
  • upon its registration in the Czech Republic, it is compulsory to submit the parent company’s incorporation documents, as well as its financial statements;
  • the branch office can represent a cost saving solution when expanding on a foreign market;
  • important company documents of the branch office in the Czech Republic will need to be ratified by the parent company’s board;
  • when opening a branch office, it is necessary to appoint a representative, who does not have to be a Czech citizen, but the person needs to have his or her residency in this country; 
  • at the same time, it is important to know that the branch can have as a local representative a corporate body.
 
We mention that the process of company formation in the Czech Republic for a branch office is rather similar with the one available for the incorporation of any other corporate body, but certain differences are applicable. Differences are also available depending on the parent company’s residency
 
In the case of foreign companies registered outside the European Union (EU), the Czech branch office is legally required to register with the Commercial Register. In the case of branches registered here by foreign companies incorporated in the EU, this is not required but in practice, foreign entities prefer to register their branches with this institution. 
 

What is the exchange policy in the Czech Republic? 

 
The country’s national currency is the Czech koruna (CZK), used for various types of transactions. The main regulations concerning the exchange policies applicable to the country’s national currency are prescribed under the Foreign Exchange Act. This currency can be converted into any other type of currency and it is necessary to know that foreigners can repatriate this currency into another currency without any types of restrictions. 
 
It is also allowed to transfer the funds of a bank account opened in the Czech currency, and this can be easily concluded by all types of nonresidents, including natural persons or branch offices of foreign companies operating in this country. Our team of specialists in company registration in the Czech Republic can provide more information on how to set up a bank account here.  
 

What are the main taxes for Czech branches in 2021? 

 
A branch office incorporated in the Czech Republic is liable to the same types of taxes that other companies are liable to, with the difference that such taxes will be applied only to the profits obtained on the Czech territory and not to the overall income of the respective company. 
 
The corporate tax rate is applicable at the standard rate of 19%, the withholding tax (applied to dividends, interest, royalties or to technical service fees) can be imposed at the rate of 15% or 35%, the social security tax, the health insurance tax, the transfer tax or the real estate tax, are some of the taxes available for branches. Of course, the branch office is also liable for the payment of the VAT. 
 
In the Czech Republic, there are more categories of VAT rates. The standard VAT rate is imposed at 21% from the value of a good or a service traded on the local market, but there are several reduced rates – available at 10% or 15%. However, it is necessary to know that the country also provides a full exemption on the payment of the VAT; investors can request for assistance regarding the VAT registration from our team of agents in company registration in the Czech Republic
 
During 2020, when the Covid-19 pandemics hit the world’s economies, Czech Republic took certain tax measures to relief the financial burden on companies and individuals alike. One of the main tax reductions applied in 2020 was on the reduced VAT rate of 15%, applicable to accommodation, cultural and sporting events, which was charged at a rate of only 10% by the end of 2020. However, by the end of the year, the Czech officials have decided to maintain this reduced tax until 16 August 2021. 
 
 
Our specialists in company formation in Czech Republic can help you register a branch in this country or any other type of company. Businessmen are invited to contact our consultants for any matter related to the registration of a business, including on the legislation referring to employment contracts. 

 

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