How to Incorporate an LLC Company in Czechia
Incorporation a limited liability company (společnost s ručením omezeným, s.r.o.) in Czechia involves several steps. Below we present a Step-by-Step Guide: How to Incorporate an LLC Company in Czechia.
In brief:
1. Choose a Company Name
Verify Availability: Ensure that the name is unique and not already in use by checking with the Czech Commercial Register (Obchodní rejstřík) that is available at the following address: Justice.cz.
Name Requirements: The name must comply with Czech law and include the suffix s.r.o. or spol. s r.o. In Czechia, as in many countries, certain restrictions apply to company names. Below you can find a list of what might be prohibited or restricted when naming a company:
Names that are Identical or Similar: A company name must be distinguishable from any other name already in use or registered in the Commercial Register to avoid confusion.
Protected Names and Terms: Names that imply state authority or national affiliation (such as "state", "country", "municipal") and certain professional or international terms (like "bank", "insurance", "university") may require special permissions or be outright forbidden if the company does not hold the appropriate licenses or status.
Names Suggesting Unrelated Activities: The company name should not be misleading in terms of the nature and scope of the business or its organizational form.
Offensive or Inappropriate Names: Names that could be considered offensive, vulgar, or inappropriate are not allowed.
Trademarked Names: Names that infringe on registered trademarks cannot be used.
Restricted Symbols and Characters: The use of symbols, punctuation, or numerals may be subject to restrictions, especially if they cause confusion or misrepresentation.
Foreign Names: When using foreign words or phrases, certain conditions may apply, and they generally must not be misleading regarding the company’s scope of business or legal form.
Geographical Names: The use of certain geographical names may be restricted to avoid misrepresentation.
When choosing a company name, it is crucial to conduct a thorough search in the Czech Commercial Register to ensure that the name is unique and does not infringe on these restrictions. Moreover, it is advisable to consult with legal experts or a company formation service, especially if you are unfamiliar with the Czech language or legal nuances. The final approval of the company name is given by the Commercial Register during the registration process.
2. Draft the Articles of Association
The Articles of Association (společenská smlouva for a company with more than one founder or zakladatelská listina for a sole proprietor) is a foundational legal document required for the establishment of a limited liability company (s.r.o.). There isn’t a universal template that fits all businesses because the content can vary depending on the specific needs and structure of the company. Nevertheless, there are certain essential elements that the Articles of Association must typically include:
Company Name and Registered Office: The legal name of the company and the location of its principal place of business.
Business Purpose: A clear description of the business activities the company will engage in.
Founders: Details of the founders of the company.
Share Capital: The amount of share capital, the nominal value of shares, the distribution of shares among the founders, and the form of contribution (cash or kind).
Managing Directors: Information about who will manage the company and their scope of authority.
Legal Form: Statement that the company is a limited liability company.
Other Provisions: Any other agreements between shareholders regarding the operation and management of the company.
The signing of a draft of the Articles of Association should be made before the notary. The notary fee is calculated individually and depends on factors such as the number of documents and signatures to be authenticated and any additional services provided by the notary.
3. Secure a Registered Office
You need to have a registered address in Czechia where your company will be based. Please note that you can use a virtual office for an LLC in Czechia. The use of virtual offices is quite common, as they provide a registered business address without the need for a traditional physical office space, which can be cost-effective for startups and small businesses.
However, there are certain conditions and legal requirements that must be met for all registered addresses:
Registered Address: The company must have a registered address in Czechia, which will be used for official correspondence and registered in the Commercial Register. A virtual office can provide this address.
Service Agreement: Typically, you would have a service agreement with the virtual office provider outlining the services provided, which may include mail handling, call answering, and use of office facilities.
Consent of the Property Owner: If you are not the owner of the property being used as the virtual office, you must obtain written consent from the property owner to use the address as the registered office of your company.
Compliance with Regulations: The virtual office address must comply with all relevant local business regulations and zoning laws.
Physical Mail: The company must be able to receive physical mail at the virtual office address. Some virtual office providers manage mail forwarding or offer a physical mailbox within their premises.
Signage: There may be requirements for a company sign or plaque at the virtual office location, indicating that your company is registered at that address.
4. Arrange for Share Capital
An s.r.o. requires a minimum share capital of CZK 1 (Czech koruna), which must be paid up before the registration or within a period specified in the Articles of Association. Please note however, while the legal minimum is quite low (same in Poland), the actual amount of share capital you decide to set for your LLC can vary greatly depending on the needs of your business. It should be sufficient to cover the initial operations and obligations of the company until it can generate enough cash flow from its operations. It is not uncommon for businesses to set a higher share capital than the minimum required to show greater financial stability and credibility to potential clients, suppliers, and lenders.
When determining the appropriate amount of share capital for your LLC, consider the following:
Nature of the Business: Some types of businesses may require more substantial initial capital to cover the costs of equipment, inventory, or upfront expenses.
Credibility with Financial Institutions: A higher capital may help when seeking loans or credit lines.
Investor Expectations: If you're looking for investment, investors may expect a certain level of capital commitment from the founders.
Operational Costs: The initial working capital should be enough to sustain the business operations until it starts generating income.
Keep in mind that even though you can start an LLC with minimal capital, you should always have a solid financial plan to ensure the viability of your business. Also, regulatory changes can occur, so it's a good idea to verify the current requirements for share capital when you're ready to incorporate your LLC in Czechia.
5. Open a Bank Account
Open a corporate bank account where the share capital will be deposited. This is necessary for the foundation of the company. The duration to open a bank account for an LLC (s.r.o.) in Czechia can vary depending on several factors like bank policies, documentation required, due diligence and AML procedures, and communication with the bank. In general, if everything is straightforward and the bank does not require additional information, opening a bank account for an LLC in Czechia might take anywhere from a few days to a couple of weeks. However, in more complex cases, especially involving international elements, it might take longer.
6. Register with the Commercial Register
Registration Application: Prepare and submit an application for registration to the Commercial Register held at the Regional Court. The fee for registering a company in the Commercial Register (Obchodní rejstřík) is CZK 6,000 if done electronically through the information system, or CZK 12,000 if the application is filed in paper form.
The application must be accompanied by the Articles of Association, proof of the administrative fee payment, consent to the location of the registered office if not owned by the company, and proof of capital deposit.
7. Trade License and Other Permits
Obtain a trade license from the appropriate Trade Licensing Office (Živnostenský úřad). In Czechia, a trade license is often required for an LLC (společnost s ručením omezeným, s.r.o.) to legally conduct business activities that are categorized under the Czech Trade Licensing Act. Essentially, if your business activities are defined as a trade under this act, you need to obtain a trade license. The Czech Trade Licensing Act is available here. Depending on the business, other permits and qualifications may be required.
8. Tax Registration
Register with the local Tax Office for income tax and obtain a tax identification number (TIN). In the Czech Republic, the Tax Identification Number (TIN) is known as the "identifikační číslo" (IČO).
The IČO is usually obtained as part of the company registration process. Once the company is entered into the Commercial Register, the IČO is assigned. The registration process, including obtaining the IČO, may take a few days to several weeks, depending on various factors such as the chosen method of registration (e.g., standard or expedited process), the completeness of the required documents, and the specific workload of the registering court.
For VAT registration and obtaining the DIČ, if the company expects to be active in taxable sales or purchases, it must apply for VAT registration separately. This process can take up to 30 days from the time the complete application is submitted to the tax authorities. In some cases, if additional review or an audit is required, the process may take longer.
Keep in mind that these time frames can vary and are subject to change based on the current workload of the Czech authorities, the accuracy of your application, and changes to the registration procedures. For the most current information and to ensure a smooth registration process, it is advisable to contact the Czech Financial Administration directly or to consult with a local legal or tax professional.
9. VAT Registration
In Czechia, registration for VAT (Value Added Tax) is mandatory for companies that reach or expect to reach a certain level of turnover (sales), and it can also be done voluntarily under certain conditions. The VAT number is known as the "daňové identifikační číslo" (DIČ). Detailed information on VAT registration in Czechia can be found in our other article.
10. Social Security and Health Insurance
Register with the Czech Social Security Administration and relevant health insurance companies if you will have employees.
In the Czech Republic, a business entity employing people, including a limited liability company (LLC), is generally required to register with the Czech Social Security Administration (CSSA) and relevant health insurance companies for social security and health insurance contributions. Here are the situations when registration is necessary:
Hiring Employees: If your LLC hires employees, you must register for social security and health insurance contributions on their behalf. The registration for social security should be done within 8 days of the employee’s commencement of work.
Business Owners/Managing Directors: In some cases, managing directors (executives) of an LLC who are not simultaneously employed under an employment contract with the company (but receive a salary for their position in the company's statutory body) are subject to compulsory social security and health insurance payments. This means that the company must register them as well.
Self-employed Persons (Trade License Holders): If you operate as a self-employed person (živnostník) or freelancer with a trade license (živnostenský list), you need to register for social security and health insurance yourself within 30 days of starting your business activity.
Here is the typical process:
Social Security: The LLC should register with the CSSA. Both the employer and the employee contribute to the social security system, which includes pension insurance, sickness insurance, and state employment policy contributions.
Health Insurance: The LLC must also register with a health insurance company. In the Czech Republic, there are several health insurance companies to choose from. Just like with social security, health insurance contributions are paid by both the employer and the employee.
11. GDPR Compliance
There are certain GDPR obligations in Chechia that may necessitate interaction with the Czech Office for Personal Data Protection (UOOU). If your company will be handling personal data, ensure compliance with GDPR and local data protection regulations.
12. Other Considerations
Bookkeeping: Establish a system for accounting and bookkeeping that complies with Czech standards. Limited Liability Companies (LLCs) in Czechia are required to adhere to the Czech accounting standards, which are closely aligned with the International Financial Reporting Standards (IFRS), however, it is always worth checking the differences between Czech and IFR standards.
Legal Requirements: Stay informed about any ongoing legal obligations, such as annual filings, tax submissions, and audits if applicable.
Legal Assistance and Notarization: Throughout this process, you may require the services of a notary and it’s highly recommended to consult with a lawyer or a professional incorporation service to navigate the legal requirements, especially if you are not familiar with Czech law or do not speak Czech.
Timeline: The entire process can take several weeks to a few months, depending on various factors such as the complexity of the business, how promptly you gather the necessary documents and the processing times of the respective offices.
Local Requirements: Local regulations and procedures can change, and there may be additional regional requirements, so it’s important to check the most current information or consult with a local expert.
Please note information included in this article is subject to change. Therefore, it is advisable to check the latest regulations with the Czech Financial Administration or consult a tax advisor for up-to-date and personalized advice.
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