Known as SRO - its Czech abbreviation name, the limited liability company is the most common business form chosen forregistration amongsmall and medium-sized businesses. The SRO in Czech Republic can be set up by other legal entities, natural persons or entities registered as associations.
The registration can be done based on a memorandum that can be signed by legal entities or natural persons, the maximum number of associates of this type of company being 50. In both cases, thedeed or the memorandum needs to be signed in front of a public notary and our team of specialists in company formation in Czech Republiccan offer legal assistance on this matter.
What are the legal aspects for the incorporation of an LLC in Czech Republic in 2021?
The Czech law states that a SRO founded by a singleshareholder can’t constitute itself the sole shareholder of another limited liability company. However, one individual can be the only shareholder of a maximum of three suchcompanies. The limited liability company set up in Czech Republic requires a minimum CZK 1 (around 5 euro cents) as registered capital.
Before the company is registered with the Commercial Register, the non-monetary contributions must be fully settled. The court appoints an expert to determine the value of thenon-monetary contributions clearly specified in thefounder’s deed or memorandum. Another step to be done, before applying to the Commercial Register, is the payment of at least 30% of the subscribed monetary contributions. In case there is only one founder of the company, the registered capital must be fully paid before the limited liability company is registered with the Commercial Register.
What is the content of the memorandum of an LLC in Czech Republic?
When drafting and signing the memorandum of association of a Czech LLC, one should verify if the document contains the mandatory set of provisions, which are stated by the Czech commercial law. Since this is afounding document, it is advisable to receive legal assistance fromour team of consultants in company formation in Czech Republic, who can verify if the following aspects are properly included in the document:
•the company’s trading name and the object of activity that will be performed through this business form;
•details regarding the company’s founding members, such as their name and the place of residence;
•the name of the persons who are appointed as company directors or executives;
•the number of company’s executives and the manner in which they mayact in the name of the company.
The following video offers a short presentation on the Czech LLC:
What are the documents for obtaining a trade license in Czech Republic?
When opening a company in Czech Republic as an LLC, one has to complete specific steps, in a given order. An important registration step is to obtain a license that is issued by the Trade Licenses Office. The necessary documents include thefounder’s deed or the memorandum of association forcompanies not registered with the Commercial Register or an excerpt from the Register for thecompaniesalready established and the papers for the office space and anadministrative fee.
Once the license is released, there is a term of 90 days for the company to apply to the Commercial Register. Along with the incorporation documentation, thebank evidence of the payment of 30% of the capital, thespecimen signatureand the clean criminal record for all members are required when obtaining a trading license in Czech Republic.
After the company is incorporated, the legal entity can be registered for corporate income tax purposes. As a general rule, the registration of the company can take approximately five working days. In Czech Republic, this tax is imposed at the rate of 19%; however, the country also applies reduced corporate tax rates (15% and 5%). The first day of work of thefirst employee generates the obligation for the company to register forhealth insurance and social security taxesin not more thaneight days since the employment contract began.
The corporate tax is a type of tax that is applied to all types of companies, including to the Czech SRO. The obligation to pay the corporate tax is imposed to branches of foreign companies which are registered here, but also in the case of foreign, non-resident businesses. However, foreign companies have to pay the corporate tax only for the income obtained from activities developed in this country.
Those who open a company in Czech Republic as a limited liability company have to know that this tax is imposed to all types of business profits and that is also charged to income obtained from the sale of shares of a company. As we presented earlier in this article, the tax law prescribes a lower rate on the corporate tax, of 15%, that is charged to the dividend income. However, this lower tax rate is applicable only in certain conditions.
What are the steps in registering with the Czech Commercial Register?
As we presented above, legal entities incorporated in Czech Republic have to be registered with the Commercial Register. The requirement is also applicable in the case of a limited liability company and the process will contain a wide range of documents and compulsory steps, and this is why we recommend you to request in-depth information from our team of consultants in company registration in Czech Republic.
This process can be completed by the company’s representatives, whose signatures are officially verified and included in the company’s documents, by the notary at which the incorporation formalities are concluded or by persons who have received the right to act on behalf of the company.
This is done through the power of attorney, which can grant the right of legal representation to specific entities, including to our team of consultants in company formation in Czech Republic. When preparing the file for the Commercial Register, one should submit the following documents, regardless of who will submit them with the local authority:
• the notarial deed that contains the founding document of the Czech SRO;
• the trade license and any other type of license the company might need in order to properly function in this country;
• documents attesting that the company has an official registered office, along with the consent for using the premises as the registered office of a company, given by the owner of the respective space;
• a written statement of the company’s statutory body on the location of the registered office;
• a document showing that each shareholder has taken the obligation to pay the required contribution to the company’s capital and that the obligation was fulfilled;
• documents showing that the members of the company meet the minimum legal requirements for being a part of a company.
What are the main taxes available for Czech companies?
Businessmen who want to open a company in Czech Republic will becomeliable for taxation, which is also available in the case of Czech LLCs. The main taxes that are imposed to local businesses are thecorporate income tax, the withholding tax, the valued added tax, social security contributions (applicable to the company’s employees) and thereal property tax.
The corporate income tax in Czech Republic is imposed at the standard rate of 19%; the withholding tax is applicable for a wide category of company assets, such as dividends, interest, royalties. In the case of the withholding tax on dividends, the tax rates are applicable based on two tier system, of 15% and 35%. Interests and royalties, as well as technical service fees, are imposed with the same withholding taxes.
The VAT in Czech Republic is applied at the standard rate of 21%, but companies can also benefit from lower VAT rates, imposed at rates of 15% and 10%, or can even benefit from an exemption in this sense. The overall tax applicable on social security contributions and health insurance is set up at 34%, while the transfer tax for thetransfer of real estate propertiesis imposed at a rate of 4%.
The rate at which your Czech SRO will be taxed on the VAT will vary based on the types of services or products the company sells on the local market. The lower rates are available for foodstuffs, water, transportation, admission to various events, medical and dental care, baby products and foodstuffs, newspapers, books and e-books.
What are the social security taxes payable in 2021 in Czech Republic?
Social security taxes are payable by both the employer and the employee of a Czech company. The same applies for health insurance. In Czech Republic, the employer pays a larger rate for these two social security components, compared to the rates charged to the employee. In 2021, the Czech employer is required to pay 24.8% for social security and 9% for health insurance, while the employee pays 6.5% and 4.5% respectively.
Are there any tax deductions for companies in Czech Republic?
Yes, companies operating in Czech Republiccan benefit from several tax deductions. For example, they are available for operating expenses or for the transfer of know-how; the country applies deductions for corporate entities involved in charitable donations which have a higher value than CZK 2,000. Companies operating here are also entitled toobtain deductions on any travel expenses (however, there is a maximum threshold for the value of the respective business travel).
As a general rule, Czech companiescan also be entitled to obtain deductions on the costs of the company’s assets that have a low-value, but this also available in the case of lease payments. Businesses involved in research and development (R&D) can also obtaintax deductions, as long as the respective activities fall under the definition of R&D under the local legislation; our team of specialists in company registration in Czech Republic can provide more information on theR&D regulations available here.
Please note thatcompanies that are registered as investment funds in Czech Republic can benefit from alower corporate income tax, imposed at a rate of 5%, but this regulation is available only in the case of specific types of funds, which can be presented by our team of specialists.
How many new Czech businesses were registered in the last years?
Czech Republic is a competitive economy in Europe and of the leading jurisdictions in its area. On a yearly basis, it attracts foreign investments from numerous country, its basic trading partners being other European countries, with Germany as the main investor. Foreign businessmen who want to open a company in Czech Republic should know the following:
• starting from 2011, the business density increased at a steady pace (measured as the number of new registrations per 1,000 persons with an age between 15 to 64 years);
• in 2011, there were 2,894 business registrations per each 1,000 persons;
• in 2013, there were more than 3,000 business registrations (3,093) pers each 1,000 persons;
• in 2016, the number or registrations reached 3,982 and the highest number was in 2017, with 4,487 businesses;
• in 2018, there was observed a slight decrease, of only 4,393 registrations, as per the data gathered by the World Bank.
Our specialists in company formation can offer you more information on the incorporation of an LLC and othertypes of companies in the Czech Republic. Contact our representativesfor in-depth assistance regarding the registration of an LLC in this country, as well as on other associated matters.
The team from CzechCompanyIncorporation.com is very qualified and benefits from extensive expertise in this area. I would definitely recommend them to any entrepreneur decided to start his own business here.
Mihai Cuc, Partner of Enescu&Cuc; Law Firm www.romanianlawoffice.com