Entering the Czech market as a foreign business is easier than you think

Expert advice on the most time-saving and efficient way to form a company in the Czech Republic - from Jake&James

Commercial provider

Written by Commercial provider Published on 03.11.2021 14:21:00 (updated on 06.01.2022) Reading time: 4 minutes

Foreign companies perceive the Czech market as very promising for expansion. Various factors play a role, ranging from increasing product sales and efficiency to finding a new workforce while reducing overall costs. How can a foreign company enter the Czech market? What is the most time-efficient way, and who can you turn to for advice?

First, you need to determine how to start your business in the Czech Republic as a foreigner. The Commercial Code lists three possible ways:

  • 1.Through a new company or a branch office in the Czech Republic,
  • 2.Participation in the business of a Czech legal entity,
  • 3.Relocation of the registered office to the Czech Republic.

Since the second and third options are only marginally used, let's focus on the first one. We will discuss the advantages of setting up a new limited liability company and explain the specifics of a branch office. These two options differ from each other mainly by the different levels of time and administrative complexity involved in establishing and then operating them.

How long does it take to set up a limited company? And what can go wrong?

Establishing a limited liability company is the fastest option to start your business in the Czech market. However, you must consider that the subsequent administration, operation, and liquidation of the company is a bit more demanding than a branch office because the LLC is a separate legal entity with a share capital. It must also have its managing directors and shareholders, and hold general meetings.

If you are concerned about time and want to avoid procedural delays, it is better to cooperate with experts who will carry out most of the administrative tasks for you and establish the company within 10 business days. In today's digital age, you can also opt for an online solution, where 15 minutes of your time and a few clicks are enough to order an LLC. In case you are in a real hurry, you can form a company expressly within 24 hours with the consulting company Jake&James Accounting.

You also have the option to manage the whole process alone. But you should understand the two most common reasons that delay company formation. First, it's necessary to obtain and submit a criminal record excerpt of the managing directors from their places of permanent residence within the EU. For non-EU citizens, the authorities may require an official translation of the excerpt into Czech with an apostille (a higher form of authentication of the document).

The second recommendation is to deposit a registered capital of less than CZK 20,000 during the registration process because this amount can be deposited in cash. This will avoid the complications associated with opening a bank account for foreigners.

Benefits of establishing a branch office

Establishing a branch office is generally a more financially and time-consuming way to start a business in the Czech Republic. The benefit is that you don't have to create a new company. The subsequent tax advantages and a simpler administration compared to an LLC are also definitely worth considering. A branch office is not a separate legal entity but a part of the parent company in a given country with an assigned manager.

The process to create a branch can take over 3 weeks, so make sure you account for this time in your business plan. The first step is the parent company's decision to set up a branch office, followed by an application for the necessary trade licenses and registration in the commercial register. Next, you have to supply the Czech government with a number of legal documents. But the good news is that all of these steps can be undertaken on your behalf by a lawyer with power of attorney.

What about accounting and taxes?

The requirements for bookkeeping, including any obligation to audit the financial statements, are the same for an LLC as for a branch. In both cases, you keep your accounts in accordance with the Czech accounting regulations, and you are obliged to publish your financial statements in the Commercial Register.

In the case of an LLC, you must also hold general meetings and enter into contracts with the parent company when selling assets. On the other hand, as a branch office, you make all transfers of assets de facto informally, without the need to conclude contracts between the Czech subsidiary and the parent company.

The profit made by the LLC is paid to the parent company through profit sharing. In the case of a branch office, the profit is part of the profit of the foreign founder. Income tax is an item that the foreign founder may (if the conditions are met) include in its foreign tax liability under the relevant double taxation treaty.

Rely on the experts

Your particular situation, legal and tax specifics, and the plans and strategy of the parent company are crucial factors that influence the decision to create an LLC or a branch. It is quite possible that you will not find a clear advantage for either. However, you always have the option of consulting experts who can evaluate your specific situation from different perspectives and give you the best recommendation.

With the help of the experts, you will also avoid all the administrative tasks when setting up a company or a branch office. Your company's entry into the Czech market will then be smooth and, most importantly, fast without unnecessary delays.

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