Have you ever considered establishing a company?
Below you'll find some tips and info about starting a business in the Czech capital city.
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
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%)
VAT
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
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%.
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
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:
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
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.
Source: https://www.expats.cz/prague/article/prague-business/starting-a-business-in-prague/
