Starting a Business in Prague

Considering establishing a business in Prague?

Written by
Published on 16.10.2006 14:08 (updated on 16.10.2006)

Written by Boban Stamenkovic, Ether Consulting

This article is aimed at foreign individuals and companies that are considering establishing a business in Prague, Czech Republic for the first time.

1. Why Choose Prague?

Prague is at the geographical heart of Europe and offers some major advantages over most other European countries that are relevant to any business start-up – a solid infrastructure, a highly educated and skilled workforce, lower wage costs when compared to Western Europe the average gross monthly salary in Prague is around CZK 25,000, favourable tax rates compared to western Europe (for instance, a flat tax rate of 15% for personal income tax and a corporate tax rate of 21% which will fall further in 2009 and 2010), favourable tax incentives for strategic services such as call centres, shared services centres, and others.

The strength of the economy owes a lot to the continuing high levels of foreign direct investment that flows into the country and this is testament to the growing importance of Prague as a central business location in Europe as a whole.

2. Multiple Start-Up Issues


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Choice of Business Vehicle

When deciding to start up a business, you will have to consider the form of business vehicle that you would like to adopt. The main choice tends to be between either setting up on a self-employed basis (in Czech „živnostníci“) by applying for a business licence, or you can set up a limited liability company (known in Czech as an ‘s.r.o.´). Setting up as a sole trade is generally less burdensome especially when it comes to dealing with the various tax, accounting and other compliance issues. This article will focus on the company route, as this is the most common form of doing business
Other forms include joint-stock companies (equivalent to a Public Limited Company in the UK), a branch office, commercial partnership and limited partnership.

Setting Up a Company

Assuming you adopt the company route, you will have to invest a minimum of CZK 200,000 (equivalent to EUR 8,000) in the form of share capital. You should appoint a business service provider to assist with forming the company.

This involves establishing the company by way of an articles of association, dealing with and registering its owners and directors, obtaining trading licences appropriate to the company´s activities, liaising to open bank accounts and handling initial capital subscriptions and dealing with all court registrations and certificates.

Key documents include confirmation of a registered office address for the company, and for the director, a police clearance record from the country of origin/residence (that may need to be legalised). After the company has been registered, then the share capital funds can be used to pay for the company´s expenses.

Reporting Requirements

The Commercial Code sets out the key principles that all companies are required to comply with. The Accounting Act sets out a framework for accounting law that is supported by the chart of accounts and accounting procedures. The main tax laws are governed by the Income Taxes Act, (which covers corporate tax and personal income tax), and the VAT Act.

Registrations – Corporate Tax, VAT, Road Tax

Corporate Tax

Once the company has been registered in the commercial register, there is a requirement to register for corporation tax within 30  days following the date of registration in the commercial register. The rate of corporate tax is in 2008: 21% (2009: 20%, 2010: 19%)


The company can voluntarily register for VAT purposes (in order to be able to claim back input VAT incurred on purchases). Otherwise it is generally obliged to register if it exceeds the VAT threshold of CZK 1 million over twelve consecutive months. There are also other cases when the company has to register for VAT regardless of the level of turnover, for example, upon receipt of certain services provided from another EU VAT payer. There are two VAT rates: standard rate of 19% for most goods and services and a reduced rate of 9% for certain specified supplies.

Road Tax

If you intend to use a motor vehicle for business purposes, then you will be obliged to register for road tax. You can decide on whether the company should purchase the car as a business asset or whether you should buy your own car for private use and partially use it for business purposes. Whichever option you go for will be determined by your circumstances. Road tax rates: CZK 1,200 – CZK 4,200 per year for passenger cars.

Visas and Work-Permits

According to the law for foreigners, EU nationals are no longer obliged to apply for a residence permit, however they are entitled to do so and in many cases it makes sense for them to apply for one. The foreign Police expect EU nationals to apply for an EU card within 30 days.

Non-EU nationals who wish to spend in the Czech Republic more than 90 days are required to apply for a long-term visa. An application for a visa must be made at a Czech embassy abroad and documentation needs to be submitted including health insurance cover for the Czech Republic.

Additionally if a non-EU national is working in the Czech Republic, then (s)he may also apply for a work-permit. If required, they can also apply for an ID number as well.

Book-Keeping and Accounting

Once the company is set up, even though the company may not have started to trade by the year-end, it will still be required to keep the books and records to the end of the year and to prepare a set of financial statements and a corporate tax return. All of this must be filed with the financial office by 31 March following the year-end (assuming a calendar year).

However, if you appoint a registered tax advisor, then you become entitled to an extension of the filing deadline to 30 June.

Companies requiring an audit, automatically qualify for an extension of the filing deadline to 30 June (assuming a calendar year-end) and are required to file additional papers with the commercial court that are not required for companies that do not require an audit.

Social and Health Insurance


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Before the company can start to employ people, it is required to register with the social and health insurance offices.

Everyone working in the Czech Republic is usually obliged to pay Czech social insurance contributions, whilst health insurance is only obligatory for foreigners (both EU and non-EU nationals) that have a permanent residency.

From 2007 directors have the option not to pay social security costs if (s)he is paid a small salary, otherwise (s)he is obliged to pay tax, social and health insurance contributions in the same way as an employee if he has a contract governed by Czech labour law.

Employer´s social and health insurance contributions amount to 35% of the gross salary and employee´s contributions amount to 12.5%.


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Role of Directors

According to Czech law, the director of the company is the company´s legal representative and so is the only person who can sign contracts on behalf of the company.

If you are appointed as the director of a company and become involved in the day-to-day issues, you can also claim reimbursement of business expenses. In such a case, you should agree with the company some form of remuneration and a contract should be prepared to cover this arrangement (for example, in the form of a mandate contract). Additionally, non-EU national directors may also be required to apply for a work permit.

Czech Personal Income Tax


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Another issue for foreigners employed by a Czech company, is the need to consider where they are resident for Income Tax purposes. The general rule is that individuals who are present in the Czech Republic for 183 days or more in a calendar year, are considered to be tax resident here and are liable to Czech tax on their world-wide income. If the individuals are present for less than 183 days, then they are not considered to be tax resident and are liable to Czech tax only on their Czech source income.

Generally tax should be paid in the country where work is performed but tax residency can be complicated depending on the circumstances of the individual, how permanent residency is defined and the effect of any double-tax treaties between the Czech Republic and the home country.

3. Other Start-Up Issues

There may be other issues relevant to the business start-up that you may wish to consider depending upon your circumstances. Some examples:


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Finding Office space – initially when you set up the company it may be sufficient to only pay for the use of a registered office address, but there will come a point when you will need to find proper offices to work from. In such a case, you could either search for offices yourself or appoint an agent that may or may not charge you a fee equivalent to one month´s rent.

Quasi-Finance/Administrations Director (QFD) – This is a service that is especially relevant to any start-up that wishes to develop and grow it´s business. This involves providing a suitably qualified person who would visit your offices on a regular basis to act as a part-time finance/administration director until the business appoints its own full-time finance person. The duties that a QFD would typically carry out may include control of bank accounts; design and preparation of management information reports; advising and setting up basic financial controls covering cash, bank, sales and purchases; and generally advising on how to minimise costs.
Employing Foreigners – If you second foreign nationals to the Czech Republic, you will require advice on expatriate employment structures covering different possible arrangements which will mainly affect tax administration issues.

Finding Accommodation – foreign staff that will be based in Prague will need to find an apartment to rent. Again you could either search for an apartment yourself or appoint an agent to do the ‘leg-work´ for you. If you appoint an agent, the standard fee payable is one month´s rent.

4. Conclusion


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When considering setting up a business, there are a multitude of issues ranging from legal compliance, accounting, through to tax and other issues that need to be taken into account, and some that need to be done on time to avoid penalties and interest. Ideally a company that can provide a One-Stop service could help to reduce your costs and it will reserve management time for focusing on core activities, as you do not have to contact various service providers directly to help you with different activities.


If you have any queries or require advice on any of the above issues, please feel free to contact us on

We can assist you with all of the above services.

ETHER Consulting s.r.o. is an
independent company that was established with the sole objective of providing a
one-stop service aimed at small and medium sized companies as well as
individuals interested in either establishing a business presence or acquiring
real estate in the Czech Republic. We can also assist foreign
direct investment
clients in the search for local business partners as well
as provide other services relevant in any acquisition or joint-venture deal
depending on your financing requirements.


For further
information, please refer to our web site or contact Mr Boban Stamenkovic on
+420 222 314 101, or send an email We would be only too pleased to
hear from you.


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