Subsidiary Entity Set Up
Entity set up in the Czech Republic
Global expansion into the Czech Republic generally means that you need to set up an in-country entity. However, by partnering with us you create the possibility to bypass this process and utilize our expertise. By using our PEO-service we take care of the complicated paperwork. Expanding into a new country is always an adventure, but we believe this adventure should be exciting instead of just frustrating and time-consuming. Therefore, we have been supporting companies in over a hundred countries with their expansion plans.
In this guide, we will share what documents you need and procedures to follow to establish an entity in the Czech Republic, but also where you will need to register your business address and company’s name. We will also break down the advantages and disadvantages of setting up an entity in Czechia.
How to set up a Czech Republic Subsidiary:
- Various formalities and documents must be completed before the subsidiary can obtain a Czech identification number from the Commercial Register. These include:
- Presenting the subsidiary’s Memorandum and Articles of Association with an extract from the commercial register of the parent company
- Minimum share capital of at least 1 CZK presented on registration. By comparison, a joint stock company requires minimum share capital of CZK 200,000 (€7,850, US$9,580)
- Parent company’s formal decision to launch a subsidiary and confirming the number and identity of shareholders, a minimum of one with no upper limit
- Registered Czech office address
- Named executive director (not necessarily a Czech) and proof of clean criminal record from home country or last residency
- Open a business bank account
- The subsidiary is established by notarized deed, which can be performed under power of attorney. Shareholders and directors do not need to be in Czech Republic at the time.
The company must be registered with the General Financial Directorate of the Czech Financial Administration for taxation and with the Czech Social Services Administration. Registering for VAT is compulsory if turnover exceeds CZK 1,000,000 (€39,240, US$47,550). Companies must comply with the Czech Act on Accounting, which regulates all businesses, and produce annual accounts, which under certain conditions must be independently audited.
What you need to set up a Czech Subsidiary
A limited liability company is the typical choice for a Czech subsidiary. What is needed? Check the following:
- Articles of Incorporation
- Registration with the Commercial Register
- Names of the director(s)
- List of shareholders, whose individual shares must be logged with the Czech Commercial Register, which may issue share certificates
- Resolution from the director(s) on the organizational structure of the subsidiary
- Company name and proof of registered address
- A business bank account
- Deposit share capital of at least 1 CZK presented on registration for a subsidiary – but, by comparison, a joint stock company requires minimum share capital of CZK 200,000 (€7,850, US$9,580)
- Application for relevant permits at the Trade Licensing Office
- Extracts clearing directors of criminal activity or liability for debts
- Benefits of setting up a Czech Republic Subsidiary
- Subsidiaries in the Czech Republic are typically set up as limited liability companies. These are separate legal entities from foreign parent companies, which are generally free from responsibility for debts or liabilities of their subsidiary beyond the individual contributions of the shareholders.
Also, the foreign parent company’s financial statements and accounts do not need to be lodged with the Czech financial authorities.
Subsidiaries can have a different name from the parent company, pursue the same or different business activities and conclude their own contracts. Subsidiaries are treated as residents for taxation and will be liable for 19% corporation tax on their business profits. The subsidiary must register with the General Financial Directorate (GFD) of the Czech Financial Administration for taxation and the Czech Social Services Administration (CSSA).
Other benefits for a subsidiary:
- Easier to obtain regulatory approvals, loans and finance and enter into contracts with other Czech and European Union companies
- More impact with clients and suppliers, as subsidiaries imply more permanency than branches
- Employees feel there is more stability and job security than from being with a branch
- In the wider commercial sense opening a subsidiary makes a statement of a company’s commitment to expanding into foreign markets. Via its subsidiary, the parent company has the advantage of exploring the potential of the Czech market and further afield into the Central and Eastern Europe economic bloc.
However, there is a more straightforward option to the risks and costs of setting up a subsidiary in the Czech Republic by working with Bradford Jacobs. Using a global Professional Employer Organization (PEO) such as Bradford Jacobs means staff can be sourced, placed in their roles, and be up-and-running within days, rather than months, and with all the difficulties of payroll, taxation, and compliance under control thanks to our Employer of Record (EOR) services.
Czech Republic Subsidiary Laws
All companies must be registered in the Commercial Register and with the Trade Licensing Office. Other Acts in play include those on Commercial Companies and Cooperatives, Business Corporations Act, the Civil Code and Corporate Governance Code. General requirements for a limited liability company include:
- Registration and Documentation:
- Register the unique company name with the Czech Registry Court and Commercial Register to obtain a Tax Identification Number (TIN)
- Present the subsidiary’s Memorandum and Articles of Association or Incorporation with an extract from the commercial register of the parent company to the Czech Commercial Register
- Provide parent company’s formal decision to launch a subsidiary and confirm the number and identity of shareholders, a minimum of one with no upper limit
- Register a Czech office address
- Application for relevant permits at the Trade Licensing Office
- List of shareholders, whose individual shares must be logged with the Czech Commercial Register
Accounts and Taxation:
- The company must be registered with the General Financial Directorate of the Czech Financial Administration for taxation and with the Czech Social Services Administration
- Registering for VAT is compulsory if turnover exceeds CZK 1,000,000 (€39,240, US$47,550)
- Filing returns for the tax year, which runs from January 1 till December 31. Returns are due by April 1 of the next year, May 1 if filing electronically or July 1 if sent by an accountant or solicitor with their power of attorney registered by April 1
- The subsidiary will be liable for corporate taxes at the standard rate of 19% on its worldwide profits
- Subsidiary shareholders are liable for income tax on their dividends
- Must file annual returns with the tax authorities
- Designate an executive /managing director (not necessarily a Czech) and proof of clean criminal record from home country or last residency
- Shareholders should hold at least one meeting annually regarding such as financial statements, dividends, losses or electing auditors
- Require minimum of one shareholder (with no upper limit) and one managing director