How To Start A Business In The Czech Republic 2024

The Czech Republic is famous for its tennis, particularly female players, the old Town Hall which is one of the world’s most visited monuments and of course, its heritage of beer which is arguably the best in the world.

The Czech Republic is also an attractive destination for entrepreneurs, however, there are some key factors to consider before setting up shop there. These include the economic conditions, the legal and regulatory requirements businesses must adhere to, as well as the taxation policies and labour laws.

The Czech Republic can be an exciting location for startups, but thorough preparation is necessary to ensure a successful venture.

 

What Is The Appeal Of Starting A Business In Czech Republic?

 

The leading industries in the Czech Republic make it an alluring to start a business there. These include high tech engineering, electronics and machine-building, steel production, and cybersecurity among others.

Another key factor that makes this country so appealing, is the high quality of life alongside its affordability. Low costs such as office rent, operations and even salaries can be a major benefit for new businesses.

Another perk of the Czech Republic, is that its population is educated and has a strong technical backbone, which is particularly beneficial for tech companies.

 

Czech Republic’s Economic Overview

 

The Czech Republic has seen a dip in economic growth due to high inflation and the war in Ukraine. The economy did slightly shrink in 2023, with the rising prices discouraging household spending.

The Czech Republic faces pressure from the government and needs to address the problem of having a shortage in workforce, especially working women. The Organisation for Economic Co-operation and Development encourages the Czech Republic to amend their policies so that mothers will continue working.

To contrast the economic challenges Czechia faces, the European Union reports that the real GDP in the Czech Republic is foreseen to grow by 1.2% in 2024. Inflation is also expected to significantly decrease, which shines a light of hope for residents. Furthermore, Czech unemployment rates are still very low.

The government seems to also have plans to attract more foreign investment, particularly in the renewable energy sector.

 

Czech Republic’s Legal And Regulatory Framework

 

The legal and regulatory framework in the Czech Republic is relatively straight forward. Here are a few legal things new entrepreneurs should consider:

 

Choosing An Appropriate Business Structure

The Czech Republic has several legal structures businesses can choose from. The most popular structure is the limited liability company, or s.r.o., that has a minimum share capital of CZK 1 (about €0.04).

 

The Registration Process

The business registration process can be done in person or online through the Commercial Register, and businesses must acquire a trade licence and the appropriate documents such as the Memorandum and Articles of Association.

While the business registration process is relatively simple, it is still recommended to speak to a lawyer or business advisor to ensure entrepreneurs are compliant and have the necessary documents and permits in place.

 

Czech Taxation And Financial Management

 

The Czech Republic has a relatively low corporate tax rate, although there are other taxes entrepreneurs may have to deal with. Consulting a tax advisor can help ensure compliance with all regulations and can help you optimise your tax duties.

 

Corporate Income Tax And VAT In Czech Republic

The current corporate income tax rate in Czechia is 21%, which has temporarily increased from 19%. This tax applies to all the profits businesses generate.

The standard VAT rate in the Czech Republic is 21%, although some products have lower rates of 15% or 10%. Businesses must register for VAT once their annual turnover rate exceeds CZK 1 million, which is roughly €40,000.

Sole proprietor companies are also responsible for making social security and health insurance contributions, which is separate from income taxes.

 

What Are The Corporate Income Laws In Czech Republic?

 

Companies in the Czech Republic with their management and control exercised there are considered resident companies and are taxed on their worldwide income, while non-resident companies are taxed only on their Czech-source income.

Standard corporate income tax returns must be filed online in three months of the end of the taxable period. Audited income tax returns may be filed within 6 months.

There are also special rates, such as 15% applied to dividend income received by Czech tax residents from non-resident entities, and a surcharge of 60% corporate income tax (windfall tax) will be applied to large banks and energy companies throughout years 2023 to 2025.

 

Hiring And Managing Employees In Czech Republic

 

The Czech Republic places emphasis on employee protection. Formally written contracts are mandatory, regardless of the role. These contracts must clearly include the details of employment, such as the job description, salary, working hours, and notice periods for termination, according to Accace.

The typical work week looks like 40 hours of work that is distributed over 5 days, and overtime work is regulated with additional payment and time off. Employees are also entitled to paid leave and sick leave, as well as maternity leave. Employers must also contribute to their employees’ social security and health insurance.

The termination procedures in Czechia are quite strict, and there are specific notice periods that depend on employee seniority and the justification for termination.

To conclude, the Czech Republic, with its bohemian culture and technical backbone, can be an exciting environment for startups and new entrepreneurs.

The low costs of offices and operations can be a particular advantage, however new businesses must consider the key factors that are the economic conditions, legal and regulatory requirements, as well as taxation policies and labour laws to successfully set up a business there.