Doing Business in
the Czech Republic
In a world of different
cultures, it’s good to
have advisors who are
consistent everywhere.
RSM International is one of the largest
networks of independent audit and
consulting firms in the world. RSM
International is represented in 90 countries
and brings together the talents of 32,500
individuals. RSM member firms are driven
by a common vision of providing high
quality professional services to ambitious
and growing organisations.
­­­­­Foreword
Welcome to the Czech Republic. I believe this publication will guide you through the world
of Czech business and, hopefully, you will decide to do business here. If you have already
made the decision, you will be given a warm reception in a country with a rich history and
good conditions for both doing business and living. Our country offers a stable economic
and political situation and a strategic location in the heart of Europe. The Czech Republic
is a member of the EU, offers skilled and educated workers, attractive tax legislation and
a number of incentives for foreign investors.
The following chapters will answer certain key questions that may arise and help you
understand the characteristics and workings of this market. As legislation and business
practices are subject to change and reinterpretations, it is sensible to seek local advice
from appropriately qualified professional sources to deal with specific matters.
This RSM Doing Business In guide offers access to an in-depth knowledge and
understanding of local business in the Czech Republic in customs, tax and regulatory
matters. Our aim is to attract companies to do business in the Czech Republic and to
make it as easy and reliable as possible.
We provide our clients with active and quality support in the fields of mergers &
acquisitions, corporate finance, valuation, tax, trust services, audit, accounting, and
payroll. The material included in this guide was compiled on the basis of data and
information available at January 2012.
Monika Marečková
Managing Partner
[email protected]
DOING BUSINESS IN THE CZECH REPUBLIC | 3
The Prague Astronomical Clock (the
Prague Orloj), installed in 1410
Previous image - Castle Konopiště
Contents
1
About RSM International
6
2
About RSM TACOMA
7
What defines us?
7
Our clients
7
3
General information
9
Basic facts
9
Background & history
Climate
Constitutional Institutions
9
10
11
Economy
13
Types of Czech business companies
14
Economic Freedom Index
15
Czech Republic’s ranking in ‘Doing Business 2011’
18
4Taxation24
5
Labour Law in Czech Republic
28
Employment contract
28
Working hours
29
Holidays & absences
29
6Accounting
30
7
Intellectual Property
33
Industry property rights
33
Copyright
34
Intellectual protection bodies
35
Protecting intellectual property rights abroad
35
Combating counterfeiting & piracy
35
8
Contact details36
1
About RSM International
RSM International is a worldwide network of independent accounting and consulting
firms. RSM International and its member firms are separate and independent legal
entities. RSM International does not itself provide accounting or consultancy services.
All such services are provided by affiliate members practicing on their own account.
RSM International is represented by affiliate independent members in 86 countries and
brings together the talents of over 32,600 individuals in over 700 offices worldwide.
The network’s total fee income of USD 3.9bn places it amongst the top six international
accounting organizations worldwide. Affiliate member firms are driven by a common
vision of providing high quality professional services, both in their domestic markets and
in serving the international professional service needs of their client base.
RSM International is a member of the Forum of Firms. The objective of the Forum of
Firms is to promote consistent and high quality standards of financial and auditing
practices worldwide.
Amphawa
6 | DOING BUSINESS IN THE CZECH REPUBLIC
Amphawa floating market, Bangkok
2
About RSM TACOMA
What defines us?
RSM TACOMA is a leading advisory firm focusing mainly on project and transaction
services, acquisitions, mergers and restructuring. In addition, we specialize in:
•
Corporate Finance
•
Valuation
•
Tax
•
Trust Services
•
Consulting
•
Accounting and Payroll.
Our clients
Large and medium-sized companies. Leading international and Czech banks, insurers,
investment and financial companies, funds, chambers of industry and commerce,
service providers, building contractors and developers, Czech ministries and other
administrative authorities, regions and chartered towns, and international investors
entering the Czech market.
•
18 Czech Top 100 companies.
•
6 Fortune 500 companies.
DOING BUSINESS IN THE CZECH REPUBLIC | 7
Lake in Rock City,
8 | DOING BUSINESS IN THE CZECH REPUBLIC
National Park of Adrspachĉ č
3
General Information
Basic facts
The Czech Republic is a landlocked country in Central Europe. The country is bordered
by Poland to the northeast, Slovakia to the east, Austria to the south, and Germany to
the west and northwest. The Czech Republic is a pluralist multi-party parliamentary
representative democracy. The Parliament has two chambers: the Chamber of Deputies
and the Senate. It is a member of the European Union, NATO, the OECD, the OSCE, the
Council of Europe and the Visegrád Group.
The Czech Republic has a land area of about 100,000 square kilometers. The population
of the Czech Republic is 10.5 million inhabitants with GDP $253 billion, $24.093 per
capita. Unemployment is currently stabilized at 6.7 percent. The inflation rate is 1.0
percent. Foreign direct investment inflow is calculated to be $2.7 billion. The national
language is Czech.
Background and history
The Czech state, known as Bohemia and later as the Bohemian Crown, was formed
in the late 9th century. The country reached its greatest territorial extent during the
13th and 14th century, under the rule of the Přemyslid and Luxembourg dynasties.
Following the Battle of Mohács in 1526, the Kingdom of Bohemia was integrated into
the Habsburg monarchy as one of its three principal parts alongside Austria and
Hungary. Bohemia later became the industrial powerhouse of the monarchy and the
core of the Republic of Czechoslovakia which was formed in 1918, following the collapse
of the Austro-Hungarian Empire after World War I.
Following the events of the inter-war and wartime period, including the annexation of
Zaolzie and Czechoslovakia and the liberation of much of the country by the Red Army,
the Communist Party of Czechoslovakia won plurality (38%) in the 1946 elections.
After World War II, the political system in Czechoslovakia was greatly affected by the
introduction of a Soviet-style Communist regime, as it was in the other countries of
Central and Eastern Europe. The system of power was distorted. In effect this imbalance
meant that the three branches of power necessary for democratic development executive, legislative and judicial - were substituted by a unified Communist power. Its
power was based on the constitution and for forty years it ruled all layers of social and
political life throughout the country with the help of oppressive institutions.
DOING BUSINESS IN THE CZECH REPUBLIC | 9
In a 1948 coup d’état, Czechoslovakia became a communist-ruled state. In 1968, the
increasing dissatisfaction culminated in attempts to reform the communist regime.
The events, known as the Prague Spring of 1968, ended with an invasion by the armies
of the Warsaw Pact countries (with the exception of Romania); the troops remained in
the country until the 1989 Velvet Revolution, when the communist regime collapsed.
The Velvet Revolution of 1989 peacefully overthrew a Communist dictatorship and
led to the election of dissident playwright Vaclav Havel as president of a democratic
Czechoslovakia. Wide diversity of political parties were well-established even before
the break-up of Czechoslovakia on December 31, 1992. The constitution of the Czech
Republic, which became valid on the day of the birth of the new state, explicitly defined
civil rights, the relationship between the executive and legislative branches of power,
and the independence of the judiciary.
The Czech Republic separated from Slovakia in the “velvet divorce”, becoming
an independent nation in 1993 and joining the European Union in 2004. The leftist
Czech Social Democratic Party was defeated in the May 2010 elections, and a centerright coalition now governs under Prime Minister Petr Necas. Historically, the Czech
Republic has been among the world’s most industrialized states, and its economy was
significantly affected by the 2009 recession, with declines in both industrial production
and exports within the European Union.
The Czech Republic made economic reforms such as fast privatizations. Annual gross
domestic product (GDP) growth stood at around 6% until the outbreak of the recent
global economic crisis. The country is the first former member of the Comecon to
achieve the status of a developed country according to the World Bank. In addition, The
Czech Republic has the highest human development in Central and Eastern Europe,[11]
ranking as a “Very High Human Development” nation. It is also ranked as the most
democratic and healthy (by infant mortality) country in the region and as the third
most peaceful country in Europe.
Climate
The Czech Republic has a temperate continental climate, with relatively hot summers
and cold, cloudy and snowy winters. Most rain falls during the summer. The temperature
difference between summer and winter is relatively high, due to the landlocked
geographical position.
10 | DOING BUSINESS IN THE CZECH REPUBLIC
Constitutional Institutions
The President
Elected for a term of five years by a joint session of both chambers of Parliament, the
President may serve a maximum of two successive terms in office. The President is
the Supreme Commander of the Armed Forces. Presidential power is limited; the most
important is the right to veto any bill which has already been passed by Parliament,
with the exception of constitutional bills. This power is void in times of constitutional
or other political crises.
Parliament
The Parliament consists of two chambers - the Chamber of Deputies and the Senate.
It passes all bills valid in the territory of the Czech Republic and expresses approval of
important international treaties; i.e. those concerning human rights and basic liberties,
political treaties, and general economic treaties. It decides the most important acts of
state, such as declaring war or approving the deployment of foreign armies on Czech soil.
Chamber of Deputies
The Chamber of Deputies is made up of 200 deputies who are elected for a term of
four years. The President can dissolve the Chamber of Deputies in cases outlined in
the constitution. Political lobbies, ongoing parliamentary commissions and committees
operate in the historical building which houses the Chamber.
Senate
The Senate is made up of 81 senators elected for six-year terms. Every two years onethird of the Senate’s seats come up for re-election. The Senate cannot be dissolved.
Parliamentary Activity
A resolution by a parliamentary chamber is passed by a clear majority of deputies or
senators present. A constitutional bill or an international treaty must be passed by a
60% majority of the total number of deputies and senators present.
The Legislative Process
Bills are sent to the Chamber of Deputies. The right of legislative initiative is possessed
by a deputy, a group of deputies, the Senate, the Cabinet or local or regional cabinet
representatives.
A bill passed by the Chamber of Deputies is sent to the Senate which has the power
to veto it, send it back to the Chamber of Deputies with amendments, or table the bill.
DOING BUSINESS IN THE CZECH REPUBLIC | 11
Elections to the Legislative Bodies
Elections to the Chamber of Deputies and the Senate take place by secret ballot on the
basis of general, equal and direct voting. The Chamber of Deputies is elected on the
basis of proportional representation. Political parties must obtain five percent of the
popular vote in order to gain seats in the chamber. The Senate is elected on the basis of
majority vote. All citizens of the Czech Republic over 18 years of age have the right to
vote for representatives in both chambers of Parliament. Candidates for the Chamber
of Deputies must be over 21 years of age, while candidates for the Senate must be over
40 years of age.
The Government
The Government is the supreme body of executive power. It consists of the Prime
Minister, Deputy Prime Minister and Ministers, and coordinates activities of the
ministries and the central bodies of the state administration and manages the state
administration throughout the territory of the state. The Government has exclusive
legislative initiative in terms of the state budget.
The Supreme Audit Office
The Supreme Audit Office is an independent controlling agency which audits the
management of state property and the implementation of the state budget. It audits
the ways in which the resources of the state budget of the Czech Republic are created
and used.
The Czech National Bank
This is the central state bank of the Czech Republic. Based on law, the main goal of
the bank is to preserve the stability and purchasing power of the currency, and while
pursuing this goal, the bank is not dependent on the cabinet of the Czech Republic. The
president and executives of the bank are appointed by the Head of State.
The Constitutional Court
The Constitutional Court was set up to protect constitutional rights. It consists of 15
judges who are appointed by the President - with the consent of the Senate - for a term
of ten years. In their decisions judges are bound only by constitutional laws, international
treaties, and by a law designating the proceedings of the constitutional court.
The Supreme Court
The Supreme Court is the supreme judicial body in all matters within the jurisdiction
of the courts, except those within the jurisdiction of the constitutional court or the
supreme administrative court. The judges are bound only by law and they are in a
position to decide whether other legal regulations are in accordance with the law.
12 | DOING BUSINESS IN THE CZECH REPUBLIC
Economy
Of the emerging democracies in Central and Eastern Europe, the Czech Republic has
one of the most developed industrialized economies. It is one of the most stable and
prosperous of the post-Communist states of Central and Eastern Europe, and an EU
member state. GDP per capita at purchasing power parity was $24,950 in 2010, which
is 82 % of the EU average.
The principal industries are heavy and general machine-building, iron and steel
production, metalworking, chemical production, electronics, transportation equipment,
textiles, glass, brewing, china, ceramics, and pharmaceuticals. Its main agricultural
products are sugar beet, fodder roots, potatoes, wheat, and hops.
While the conservative inward looking Czech financial system has remained relative
healthy, the small, open, export driven Czech economy remains very sensitive to
changes in the economic performance of its main export markets, especially Germany.
When Western Europe and Germany fell into recession in late 2008, demand for Czech
goods plunged, leading to double digit drops in industrial production and exports.
As a result, real GDP fell by 4.1% in 2009, with most of the decline occurring during
the first quarter. Real GDP, however, has slowly recovered with positive quarter-onquarter growth starting in the second half of 2009 and continuing throughout 2010.
The automotive industry remains the largest single industry and, together with its
suppliers, accounts for as much as 20% of Czech manufacturing. The Czech Republic
produced more than a million cars for the first time in 2010, over 80% of which were
exported. Foreign and domestic businesses alike voice concerns about corruption,
especially in public procurement. Other long term challenges include dealing with a
rapidly aging population, funding an unsustainable pension and health care system,
and diversifying away from manufacturing and toward a more high-tech, servicesbased, knowledge economy.
DOING BUSINESS IN THE CZECH REPUBLIC | 13
Types of Czech Business Companies
Czech Limited Liability Company (Společnost s ručením omezeným)
The Limited Liability Company is the most common form of company in the Czech
Republic. It offers simpler administration than a Joint Stock Company and one person
can be both the sole owner and executive. For a limited liability company to function
it must have a minimum registered capital of 200.000 CZK (Czech Republic Koruna,
currency of the Republic of Czech). It can be founded by at least one natural member,
or legal entity, and a maximum of 50 members. The minimum capital per member has
to reach 2 .000 CZK.
Czech Joint Stock Company (Akciová společnost)
The Joint Stock Company is more suitable for larger businesses and a larger number
of shareholders. This type of company offers certain advantages regarding financing
of a joint stock company due to the higher paid-up capital and stricter management
controls. The minimum required capital is 2.000.000 CZK, and a minimum of 30%
must be paid on registration for monetary contributions and 100% of non-monetary
contributions. The shareholders can be Czech, foreigners, natural or legal entities.
Czech General partnership (Veřejná obchodní společnost)
In a general partnership, more than one party, individuals or legal entities, function
under a trading name. All parties are liable for all of the debts of the partnership to the
extent of their contribution or investment. The partnership functions on the basis of a
previously signed agreement. The purpose is a business at a larger scale.
Czech Limited Partnership (Komanditní společnost)
In a limited partnership one or more partners (individuals or legal entities) liability
is limited to the amount of their paid and unpaid contributions. The amount of the
contributions both paid and unpaid must be recorded in the Commercial Register.
These partners are known as limited partners. One or more partners, individuals
or legal entities, are known as general partners and are liable for the partnerships
obligations with all their assets. The general partners can make management decisions
and have the right to decide the future of the company. The limited partnership also
functions on the basis of a signed agreement.
14 | DOING BUSINESS IN THE CZECH REPUBLIC
Economic Freedom Index
The Czech Republic’s economic freedom score is 70.4, making its economy the 28th
freest in the 2011 Index. Its overall score is 0.6 point better than last year, primarily
reflecting improvements in business and monetary freedom. The Czech Republic is
ranked 14th out of 43 countries in the Europe region, and its overall score is higher
than the regional and global averages.
Strong commitments to economic and structural reforms have helped the Czech
Republic develop a modern and flexible economy. Open to global trade and investment,
the country enjoys high degrees of trade freedom, fiscal freedom, and financial
freedom. The private sector accounts for about 80 percent of GDP and is the main
driver of economic growth. Years of stable and robust economic expansion came to a
stop in 2009 as a result of the global financial and economic downturn, but the Czech
Republic weathered the turmoil relatively well.
Further growth in economic freedom in the Czech Republic will require strengthened
management of public finances, better protection of property rights, and more
effective elimination of corruption. The government is placing a high priority on fiscal
discipline and striving for budgetary balance after years of fiscal deficits.
Business Freedom
Despite improvements, regulatory bottlenecks and lack of transparency remain
burdensome. Licensing and bankruptcy processes are lengthy and costly.
Trade Freedom
The Czech Republic’s trade policy is the same as that of other members of the European
Union. The common EU weighted average tariff rate was 1.2 percent in 2009. However,
the EU has high or escalating tariffs for agricultural and manufacturing products, and
its MFN tariff code is complex. Non-tariff barriers reflected in the EU and Czech policy
include agricultural and manufacturing subsidies, quotas, import restrictions and bans
on some goods and services, market access restrictions in some services sectors, nontransparent and restrictive regulations and standards, and inconsistent regulatory and
customs administration among the EU members. Services market restrictions exceed
EU policy, and non-transparent government procurement and the enforcement of
intellectual property rights remain problematic. Ten points were deducted from the
Czech Republic’s trade freedom score to account for non-tariff barriers.
DOING BUSINESS IN THE CZECH REPUBLIC | 15
Fiscal Freedom
The Czech Republic has relatively low tax rates. The flat income tax rate is 15 percent,
and the top corporate tax rate has been reduced from 20 percent to 19 percent. Other
taxes include a value-added tax (VAT), a real estate transfer tax, and an inheritance tax
on non-family recipients. In the most recent year, overall tax revenue as a percentage of
GDP was 36.2 percent.
Government Spending
The government is critically involved in the economy, particularly in social programs.
In the most recent year, total government expenditures, including consumption and
transfer payments, held steady at 42.9 percent of GDP. The government has sold its
remaining stakes in a telecommunications company and a petrochemicals refiner. The
overall fiscal deficit is 6 percent, and public debt is 60 percent.
Monetary Freedom
Inflation has been low, averaging 2.5 percent between 2007 and 2009. As a participant in
the EU’s Common Agricultural Policy, the government subsidizes agricultural production,
distorting the prices of agricultural products. The Ministry of Finance can fix prices, set
minimum or maximum commercial transaction prices, and establish periods when prices
may not change. Energy, some raw materials, domestic rents, and rail and bus transport
are subject to controls. Maximum prices apply to mail and telecommunications tariffs.
Ten points were deducted from the Czech Republic’s monetary freedom score to account
for measures that distort domestic prices.
Investment Freedom
Legally, foreign and domestic investors are treated identically. The government screens
foreign investment projects in banking, insurance, and defense, where the state is a
partner. Slow legislative and judicial reform, uneven contract enforcement, bureaucracy,
and corruption are obstacles to foreign investment. Most major state-owned companies
have been privatized with foreign participation. There are no restrictions on payments or
current transfers, and residents and non-residents may hold foreign exchange accounts.
Branches or offices of foreign companies may buy local real estate, except for farmland
or woodland.
Financial Freedom
The Czech Republic’s financial sector is one of Central and Eastern Europe’s most advanced.
The state is the controlling shareholder in two banks. Foreign-controlled banks account
for over 80 percent of assets. Insurance companies and pension funds include significant
foreign participation. The supervisory framework is well established. Capital markets
are small and lack transparency, but regulatory bodies have been merged to streamline
oversight. The global financial turmoil’s impact on banking has been relatively modest.
16 | DOING BUSINESS IN THE CZECH REPUBLIC
Property Rights
Property rights are protected by law, and contracts are generally secure. The judiciary
is independent, but decisions vary from court to court. Commercial disputes can take
years to resolve. Company registration is controlled by the courts and can be slow and
complicated. Enforcing judgments and foreclosing security interests in land and personal
property can be difficult.
Freedom from Corruption
Corruption is perceived as significant. The Czech Republic ranks 52nd out of 180 countries
in Transparency International’s Corruption Perceptions Index for 2009. Allegations of
corruption most often involve the court-controlled company registration system and the
police. The Czech Republic has ratified the OECD’s anti-bribery convention, but there
is little or no enforcement. It has signed but not ratified the U.N. Convention Against
Corruption.
Labor Freedom
The labor market is relatively flexible. The non-salary cost of employing a worker can
be high, but the severance payment system is relatively straightforward and not costly.
Table 1 Summary of Doing Business Freedom
Percentage
Change
Business Freedom
69.8
+4.3
Trade Freedom
87.6
+0.1
FIscal Freedom
81
+0.9
Government Spending
44.8
-0.8
Monetary Freedom
80.0
+4.4
Investment Freedom
70.0
no change
Financial Freedom
80.0
no change
Property Rights
65.0
no change
Freedom From Corruption
49.0
-3.0
Labour Freedom
77.0
+0.6
Table 2 Distribution of Global Economic Freedom
100-80
79.9-70
Free
Mostly free
69.9-60
Moderately free
59.9-50
49.9-0
N/A
Mostly unfree
Repressed
not ranked
DOING BUSINESS IN THE CZECH REPUBLIC | 17
Czech Republic’s Ranking in Doing Business 2011
To make the data comparable across economies, the indicators refer to a specific
type of business, generally a local limited liability company operating in the largest
business city. As standard assumptions are used in the data collection, comparisons
and benchmarks are valid across economies. The data not only highlight the extent
of obstacles to doing business; they also help identify the source of those obstacles,
supporting policymakers in designing reform.
The data set covers 183 economies: 46 in Sub-Saharan Africa, 32 in Latin America
and the Caribbean, 25 in Eastern Europe and Central Asia, 24 in East Asia and Pacific,
18 in the Middle East and North Africa and 8 in South Asia, as well as 30 OECD highincome economies.
The Czech Republic - Compared to global good practice economy as well as selected
economies:
The Czech Republic is ranked 63 out of 183 economies in Ease of Doing Business.
Table 3 The Czech Republic’s Ease of Doing Business ranking
Ease of doing business
63
Starting a business
130
Dealing with construction permits
76
Registering Property
47
Getting credit
46
Protecting investors
93
Paying taxes
128
Trading across borders
62
Enforcing contracts
78
Closing a business
32
18 | DOING BUSINESS IN THE CZECH REPUBLIC
Table 4 The Czech Republic’s Ease of Doing Business
Starting a business
Dealing with construction permits
Registering property
Getting credit
Protecting investors
Paying Taxes
Trading across borders
Enforcing contracts
Closing a business
Bangkok city skyline
Procedures (number)
9
Time (days)
20
Cost (% of income per capita)
9.3
Paid-in min. capital (% of income per capita)
30.9
Procedures (number)
36
Time (days)
150
Cost (% of income per capita)
40649
Procedures (number)
4
Time (days)
43
Cost (% of property value)
3.0
Strength of legal rights index (0-10)
6
Depth of credit information index (1-6)
5
Public registry coverage (% of adults) 4.9
4.9
Private bureau coverage (% of adults) 73.2
73.2
Extent of disclosure index
2
Extent of director liability index (0-10)
5
Ease of shareholder suits index (0-10)
8
Strength of investor protection index (0-10)
5.0
Payments (number per year)
12
Time (hours per year)
557
Profit tax (%)
40640
Labour tax and contributions (%)
38.4
Other taxes (%)
3.0
Total tax rate (% tax rate)
48.8
Documents to export (number)
4
Time to export (days)
17
Cost to export (US$ per container)
1060
Documents to import (number)
7
Time to import (days)
20
Cost to import (US$ per container)
11653
Enforcing contracts procedures (number)
27
Time (days)
611
Cost (% of claim)
33.0
Recovery rate (cents on the dollar)
55.9
Time (years)
40577
Cost (% of estate)
17
Starting a Business
A number of studies have shown that among the benefits of streamlining the
process to start a business have been greater firm satisfaction and savings and
more registered business, financial resources and job opportunities. Economies with
higher entry cost are associated with a larger informal sector and a smaller number
of legally registered firms.
The Czech Republic’s accession to the EU in 2004 put the regulation of business
activities in line with European standards and EU legislation. Setting up a business
in the Czech Republic has thus become much easier and more transparent not only
for subjects domiciled in any member state of the EU but also for subjects domiciled
outside the EU.
Any business activity in the Czech Republic is generally subject to the issuance of
a trade license (regulated by the Trade Licensing Act) or another specific permit
(regulated by a number of specific acts), depending on the type of business activity.
Czech law generally provides that a foreign legal entity may undertake business
activities in the Czech Republic under the same conditions and to the same extent
as Czech entities. Under the Czech Trade Licensing Act, a legal entity with its seat
in another EU member state can temporarily provide its services within the territory
of the Czech Republic based on the trade licenses issued in such member state. If
this legal entity’s activities become more regular and meet the legal definition of a
business activity (i.e. continuous business activity carried out independently, at its
own responsibility and aimed at generating a profit), it should either apply for the
respective trade licenses or other permits in the Czech Republic and subsequently
register its branch in the Czech Commercial Register or set up a subsidiary company
in the Czech Republic.
Dealing with construction permits
Complying with building regulations in developing economies can be so costly in time
and money that many builders opt out. Builders may pay bribes to pass inspections
or simply build illegally. Therefore, entrepreneurs tend to move to grey economy
where they operate with less concern for safety, leaving everyone worse off.
Registering Property
Ensuring formal property rights is fundamental. Effective administration of land is
part of that. If formal property transfer is too costly or complicated, formal titles
might go informal again.
20 | DOING
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Getting Credit
The depth of credit information index measures rules and practices affecting the
coverage, scope and accessibility of credit information available through either a
public credit registry or a private credit bureau. Credit information system mitigates
the information asymmetry in lending and enables lenders to view a borrower’s
financial history, providing them with valuable information to consider when
assessing risk. Credit information system benefits borrowers as well, allowing good
borrowers to establish a reputable credit history which will enable them to access
credit more easily. The Legal Rights Index measures the degree to which collateral
and bankruptcy laws protect the rights of borrowers and lenders and thus facilitate
lending. Sound collateral lase will enable businesses to use their assets, especially
movable property, as security to generate capital while having strong creditor’s
rights has been associated with higher ratios of private sector credit to GDP.
Protecting Investors
Stronger investor protections matter for the ability of companies to raise the capital
needed to grow, innovate, diversify and complete. This is all the more crucial in times
of financial crisis when entrepreneurs must navigate through defiant environments
to finance their activities.
Paying Taxes
Taxes are essential to provide public amenities, infrastructure and services which are
crucial for a properly functioning economy. Data shows that economies where it is
more difficult and costly to pay taxes have larger shares of informal sector activity.
Trading Across Borders
Making trade between countries easier is increasingly important for business in
today’s globalized world. Excessive document requirements, burdensome customs
procedures, inefficient port operations and inadequate infrastructure all lead to
extra costs and delays for exporters and importers, stifling trade potential. Trade
facilitation tools such as electronic data interchange systems, risk-based inspections,
and single windows help improve an economy’s trading environment and boost firms’
international competitiveness.
DOING BUSINESS IN THE CZECH REPUBLIC | 21
Enforcing Contracts
Well-functioning courts help businesses expand their network and markets. Where
contract enforcement is efficient, firms have greater access to credit and are more
likely to engage with new borrowers or customers. Data measures the efficiency
of the judicial system in resolving a commercial sale dispute before local courts.
Following the step-by-step evolution of a standardized case study, data relating
to the time, cost and procedural complexity of resolving a commercial lawsuit are
collected through study of the codes of civil procedure and other court regulations,
as well as through survey completed by local litigation lawyers.
Closing a Business
A robust bankruptcy system functions as a filter, ensuring the survival of economically
efficient companies and reallocating the resources of inefficient ones. Fast and cheap
insolvency proceedings result in businesses’ speedy return to normal operation and
increase returns to creditors. By improving the expectations of creditors and debtors
about the outcome of insolvency proceedings, well-functioning insolvency systems
can facilitate access to finance, save more viable businesses, and thereby improve
growth and sustainability in the economy overall.
The Czech Republic made it easier to deal with insolvency by introducing further
legal amendments to restrict setoffs in insolvency cases and suspending for some
insolvent debtors the obligation to file for bankruptcy.
Changes to business regulation
The Czech Republic simplified its labor tax processes and reduced employer
contribution rates for social security. The Czech Republic made it easier to deal with
insolvency by introducing further regulations.
22 | DOING BUSINESS IN THE CZECH REPUBLIC
City of Telč, in central south
Czech Republic, is a UNESCO
World Heritage siteč
DOING BUSINESS IN THE CZECH REPUBLIC | 23
4
Taxation
Czech income tax rate for individuals is a flat rate of 15%. Corporate tax is 19%.
Pension and investment funds pay a 5% corporate tax. The rate of corporate tax has
been reduced constantly to encourage economic activity. For instance, the rate of
corporate tax was 45% in 1992.
For residents the world-wide income is taxable, for non-residents only the Czechsource income is included in the tax base. The tax base is the accounting result
adjusted in compliance with the special provision of the Income Taxes Act.
Among the examples of non-deductible costs there are entertainment costs,
remuneration paid to the board members, shortages and damages. Set-off of losses
can only be carried forward for five years and cannot be carried back.
Incentives
Incentives like training and job-creation grants are available in the manufacturing
industry. However, these depend on utilization of the EU funds by local bodies
and they are often subject to changes. In order to be eligible for these incentives
you have to, for example, establish, expand or modernize the production, and be
environmental friendly. There is also a special tax allowance for entities performing
research & development.
Group relief
No tax consolidation is available.
Participation exemption
Participation exemption of capital gains and dividends is applicable on condition that
10% of the shares in a subsidiary are held for at least 12 months.
Anti-avoidance rules
There are no specific CFC rules in the Czech Republic. Only very general rules
regulate the issue of anti-avoidance in international tax. In principal, general abuse
of law and substance-over-form rules are in place.
24 | DOING BUSINESS IN THE CZECH REPUBLIC
Taxation of Individuals
An individual pays the tax on income either as a wage earner or as a self-employed
person. The income tax of an individual who meets the criteria of a “permanent
resident” of the Czech Republic is calculated from the income earned in the Czech
Republic and abroad. A foreign resident who is employed in the Czech Republic pays
the tax only on income earned in the Czech Republic.
An employer is obliged to deduct, on monthly basis, tax advances from employees’
salaries. A self-employed person must prepay taxes that will be offset on making an
annual tax return. The advances are calculated on the basis of the previous year’s
tax liability. In the case of a new business, the advances are calculated on the basis of
estimates made by the taxpayer.
Reporting Dates
The tax year in the Czech Republic is the calendar year ending on 31 December. If a
taxpayer’s income is derived solely from a salary, he or she is not obliged to file the
annual tax return. In all other cases, the tax return has to be submitted by 31 March
(3 months after the end of the tax year).
If a taxpayer is represented by an authorized Czech tax advisor, he or she may apply
to submit the return by 30 June. A delay in submitting an annual return will entail
fines, in most cases, of 10% of the tax payable. Fines are imposed even after the tax
has been prepaid.
Value Added Tax
The supply of goods and rendering services carried out in the Czech Republic,
import of goods and intra-community acquisitions of goods in the Czech Republic
are subject to the VAT.
Table 5 Tax rates
Rates
Normal
20%
Reduced
14%
DOING BUSINESS IN THE CZECH REPUBLIC | 25
Corporate Tax
•
Corporate tax in the Czech Republic has been 19% since 2010
•
Tax of 15% is imposed on dividends paid by Czech corporations
•
Dividend paid between 2 Czech companies is exempt from the tax, depending on
the conditions
•
Income from the interest is deemed to be a part of your income and as such is
taxed at 19%.
Capital Gains
•
In general, capital gains in the Czech Republic are taxed as an income of
companies and individuals
•
If a company owning 10% or more of the shares receives the capital gains from the
sale of these shares, it is entitled to participation exemption under certain terms
•
For an individual, a gain from the sale of the main private dwelling held for at least
2 years is tax exempt. Or, when not used as the main residence, if held for more
than 5 years.
Tax Losses
In the Czech Republic losses can be carried forward for 5 years. There is no carryback
of losses.
Consolidated Accounts
Any company which qualifies as a controlling entity as defined by the Czech accounting
law is obliged to compile group consolidated financial statements. This has to be carried
out in compliance with the Czech GAAP consolidation rules.
However, any accounting consolidation is disregarded for the tax purposes.
Thin Capitalization
Financial expenses related to the loans from related parties are not tax deductible if the
ratio of a related-party loan to equity exceeds 4:1.
Tax is deducted at source from the following payments to non-residents:
Table 6 Withholding taxes
Interest
-15%
Dividends
-15%
Royalties
-15%
26 | DOING BUSINESS IN THE CZECH REPUBLIC
DOING BUSINESS IN THE CZECH REPUBLIC | 27
The Dancing House, Prague
5
Labor Law in Czech Republic
Legal framework for labor and employment issues is mainly provided for by the Labor
Code. Furthermore, there are several Collective Agreements entered between the
employers and employees’ representatives that provide specific rules for some sectors
of economy.
Having entered the EU, the Czech Republic was obliged to incorporate a series of
Euro¬pean Directives with regard to labor relations, which apply generally through¬out
the EU.
Employment contract
Types of contract
The labour law identifies various types of employment contract, including the following:
•
Permanent contracts
•
Employment contracts subject to a term
•
Part-time employment contracts
•
Agency contracts (i.e. temporary contracts).
Trial Period
The length of the trial period must be stipulated in writing, which varies accord¬ing to
the type of contract. For permanent contracts the trial period is three months.
Termination of employment contracts
Employment contracts can be terminated as follows:
•
Expiration of a particular term or on the completion of a particular task (for fixed
or uncertain term contracts)
•
Revocation by mutual agreement
•
Dismissal (with a just cause, cancelation of the labor position, collective dis¬missal
or dismissal based on the lack of adaptation of the employee to new technologies)
•
Rescission by the employee with a just cause
•
Termination with a pre-notice period.
28 | DOING BUSINESS IN THE CZECH REPUBLIC
Giant Buddha in Grand
Palace, Bangkok
Working Hours
Except from specific cases and sectors of economy, the working hours shall not
exceed 40 hours per week. The employees cannot work more than 5 consecutive
hours, hav¬ing the right to a rest period of not less than one hour after that period.
Overtime is limited to a certain number of hours per year but this limit may vary
depending on the particular collec¬tive agreement. Such agreements also provide
for some specific rules related to working shifts, night work, etc.
The law allows flexible working time under specific conditions and shall not exceede
certain limits.
Holidays and Absences
Holidays
Employees are entitled to 20 working days of holidays per year. An employee, at
the beginning of the contract, is entitled to 2 days per each month worked and can
only take holiday after 3 months of the employment. The employer is entitled to
stipulate the holiday dates, however, the period of holidays is usually a matter mutual
agreement.
Public holidays
Legally there are 11 national public holidays. Public holidays are not movable and are
not changed in order to minimize mid-week interruptions.
Absences
Labor law lists a series of circumstances that can justify absences from work. In
case of a sickness, the employee shall receive a wage compensation for the first
21 calendar days, i.e. 15 working days, however, the first three days are not paid.
From 22nd calendar day onwards, the employee shall receive the sickness insurance
benefits from the CSSA (Czech Social Security Administration). The amounts of the
wage compensation provided by the employer or the sickness insurance benefit
provided by the CSSA are capped by three limits.
DOING BUSINESS IN THE CZECH REPUBLIC | 29
6
Accounting
Accounting regulations and standards
System and scope of accounting legislation in the Czech Republic
The basic rules and regulations are set out in Act No. 563/1991 Coll., on Accounting, as
amended (the “Accounting Act”). The Accounting Act refers to:
•
Decrees of the Ministry of Finance of the Czech Republic (“MF CR”) issued for each
type of organization (banks and financial institutions, private enterprises, insurance
companies, state-funded organizations, foundations, not-for-profit organizations,
and political parties); and
•
Czech accounting standards prepared and promulgated by the MF CR, which
describe in detail the accounting procedures for each type of organization (see
previous point).
The Accounting Act also defines the basic requirements for preparing and publishing
annual reports and the conditions that trigger the need for a mandatory statutory audit
of financial statements. Companies whose securities are traded publicly are subject to
stricter rules for publication of financial information, especially information that must
be included within annual reports and the obligation to present financial information
on an ongoing basis to the Czech National Bank, which acts as the common regulator
of the financial markets. Yet more extensive requirements on these organizations are
stipulated by the Act on Undertaking on the Capital Markets.
The main body regulating accounting and audit is still the state but developments in this
area are shared by a number of professional organizations: Chamber of Auditors of the
Czech Republic, Union of Accountants, and, in particular, the all-encompassing National
Accounting Council. The latter first and foremost comments on bills and interpretations of
accounting regulations. Although the interpretations of the National Accounting Council
are not a component of accounting legislation and subsequently are not binding, their
influence on practice has been growing.
Obligatory application of IFRS for issuers of public securities
A company whose securities are traded on regulated public markets in the EU Member
States has to compile and present both financial statements and consolidated financial
statements prepared in accordance with International Financial Reporting Standards
(IFRS) as adopted by the European Union instead of financial statements prepared
according to Czech regulations. All other private enterprises in the Czech Republic
can use IFRS directly instead of Czech accounting regulations when compiling their
consolidated financial statements.
30 | DOING BUSINESS IN THE CZECH REPUBLIC
The obligation described above to present financial statements in accordance with
IFRS has no effect on the current corporate income tax liability. As tax laws are based
on bookkeeping done in accordance with Czech regulations, companies who report in
accordance with IFRS must also maintain accounting records sufficient to enable them
to ascertain their business result in accordance with Czech accounting regulations. In
practice, adjustment of the accounting records kept according to IFRS with the accounting
records kept according to Czech accounting regulations is done outside the accounting
system, with the reconciliation of the business results and equity being performed
subsequently. If technically feasible, it is possible to do bookkeeping according to both
IFRS and Czech accounting regulations in the accounting system directly.
Voluntary application of IFRS
The companies whose securities are temporarily NOT traded on regulated public markets
in the EU Member States can either continue doing the bookkeeping according to IFRS and
report financial statements according to IFRS (assuming meeting requirements stated in
the Accounting Act) or do the bookkeeping within the Czech accounting regulations.
The companies presuming preparation of consolidated financial statements (or
consolidation package) in accordance with IFRS as consolidating, respectively
consolidated, company can either do the bookkeeping according to IFRS or do the
bookkeeping within the Czech accounting regulations.
As stated in the preceding article, tax laws are based on bookkeeping done in accordance
with Czech regulations. Companies who report in accordance with IFRS must also
maintain accounting records sufficient to enable them to ascertain their business result
in accordance with Czech accounting regulations.
The main differences between financial reporting according to Czech accounting
regulations and IFRS
Financial reporting requirements stem from the fourth and seventh directives of
the European Union (EU). Some important terms and principles are taken from IFRS
(International Financial Reporting Standards), the most important being the priority that
facts be portrayed truly and accurately. Other basic principles – such as the accruals
principle, the principle of due care, and the principle of going concern – are also in
accordance with internationally recognized financial reporting principles. This applies in
particular to banks, financial institutions, and private enterprises. The accounting rules
valid for other types of organization are closer to valid tax regulations and the needs
of the state. Despite the fact that Czech accounting principles and IFRS are becoming
closer, the financial reporting and accounting system in the Czech Republic is still
influenced strongly by tax regulations.
DOING BUSINESS IN THE CZECH REPUBLIC | 31
Despite the efforts to harmonize accounting regulations with IFRS in the past couple
of years, there exist areas of significant difference between IFRS and Czech financial
reporting. Such areas include, for example, financial leasing. Other areas where Czech
regulations differ from IFRS are, for example, provisions, reporting of extraordinary
items, accounting for revenues including long-term contracts (it is prohibited to use the
percentage of completion method to account for revenues) and accounting for business
combinations. Czech regulations also require the information in the financial statements
to be significantly more succinct than those required by IFRS.
Publication and disclosure obligations
Each year, all subjects must submit electronically their approved financial statements
to the commercial register maintained at the pertinent court. Subjects whose financial
statements have to be audited by statutory auditors also have the obligation to present
annual reports. These must include the audited financial statements as well as the
auditor’s report and information about previous and anticipated economic and business
developments. Companies controlled by other entities must also include in their annual
reports and a report on relationships with related parties in accordance with Section 66a
of the Commercial Code. This report must also be reviewed by the company’s auditor.
Issuers of public securities are also obliged to disclose on an ongoing basis semi-annual
reports to the Czech National Bank. The reports must contain the balance sheet and
profit and loss account and some other financial information. These reports do not have
to be audited however.
You can obtain more details and relevant information regarding Accounting and Financial
Reporting in the Czech Republic on the link bellow:
http://www.cfe-eutax.org/taxation/accounting/czech-republic
Common differences between IFRS and CZ Accounting Standards
You can obtain more details and relevant information regarding the common differences
between IFRS and CZ Accounting Standards on the link bellow:
http://www.pwc.com/cz/en/ucetnictvi/ifrs-publikace/PwC_IFRS_CZGAAP_SimDif_
ENG_09_ele.pdf
32 | DOING BUSINESS IN THE CZECH REPUBLIC
7
Intellectual Property
Intellectual property law covers all legal property rights over original creations such as
commercial and artistic products. Protection is granted to both tangible and intangible
works (i.e. musical, literary and artistic works, ideas, discoveries and inventions, words,
phrases, symbols and designs).
Industrial property rights
Copyrights, trademarks, patents and industrial designs are the most common forms of
intellectual property protection.
Industrial property rights cover:
•
Technical products (inventions and utility models)
•
Industrial design items (industrial models, including designs)
•
Identification rights (designations of origin and trade marks)
•
Other types of works, such as improved integrated circuits (semiconductor
topographies), new animal breeds and farming methods.
According to industrial property law, inventions that fulfill certain conditions may be
granted patents.
A utility model is a new, industrially-useful technical solution which goes beyond the
bounds of mere professional know-how. For items with a lower level of inventiveness or
less economic importance, a simpler quicker and less costly form of protection than a
patent may be chosen for the invention.
The topography of semiconductor products is a series of fixed or coded interrelated
patterns representing a three-dimensional permanent arrangement of layers.
An “industrial model” is understood to mean the appearance of a product or the parts
thereof (marks of lines, outlines, colors, shape and the materials or decorations used).
A registered trade mark is a distinctive sign or indicator that allows people to distinguish
your products or services from the others already present on the market. It can be a
name, a logo, the shape of a product or its cover.
A “designation of origin” is understood to mean the name of an area or location identifying
goods typical of such a location because of their quality or special characteristics.
DOING BUSINESS IN THE CZECH REPUBLIC | 33
The geographical indication is the name of an area that identifies goods coming from
that area. Your product is entitled to geographical indication protection if it has a
specific quality, reputation or other characteristic linking it to a specific geographical
area where it has to be produced, processed and prepared.
The types of property rights resulting from a creative activity are:
•
Industrial rights (right to inventions, utility models, industrial models, etc.)
•
Copyright.
For the types of ownership rights arising from non-creative activities there is mainly
the right of the producer of a sound recording over the use of the recording and to
assign to a third party by contract an entitlement to exercise this right.
The different types of identification rights are:
•
Trade mark
•
Designation of origin
•
Geographical indication.
Rights to the protection of personality include the protection of your private life,
reputation, human dignity and privacy.
Copyright
Copyright grants to the creator of an original piece of work exclusive rights to his or
her work for a certain period. It is not necessary to register pieces of work in order to
be entitled to protection. This intellectual property right is, in fact, automatic.
Property rights last, unless otherwise stipulated, for the period of the author’s life
and for 70 years after his or her death.
Copyright includes:
•
Personality rights of the author - the personal interests of the author and his or her
connection to the work
•
Property rights of the author - the asset value of the work.
34 | DOING BUSINESS IN THE CZECH REPUBLIC
The Act on Copyright and Rights Related to Copyright is the main law covering
this issue. For copyright protection to arise for a computer program in the Czech
Republic, no actual registration is necessary, as all computer programs are subject
to informal protection. Databases are also protected under copyright law regardless
of what form they take. Advertising is regarded under the Copyright Act as a work
of art and is protected in the same way. However, the Act does not protect actual
suggestions before they have been put into effect and nor does it protect ideas,
processes or methods. Design is the legally protected form of industrial models (see
above). As to the multimedia, the producer of an audiovisual recording has exclusive
property rights to use the audiovisual recording and to assign to another by contract
an entitlement to exercise this right. Industrial drawings are the legally protected
form of utility models (see above). Works of cartography (maps) are regarded under
the Copyright Act as collective works, since individual contributions cannot be used
independently. The Copyright Act also covers literary works and other scientific and
artistic works, as well as television broadcasts.
Commercial strategies
Commercial strategies may be commercially confidential and therefore included among
industrial property rights. Related concepts include know-how and confidential information.
Intellectual protection bodies
The Industrial Property Office collects all applications for intellectual property rights
and decides on their eligibility. It keeps records of all products covered by industrial
property rights. The list of the products is published in the Official Gazette and in its
public registers.
Protecting intellectual rights abroad
The Czech Republic is a member of the World Intellectual Property Organization
(WIPO) and the European Patent Organisation, (EPO) and it is a participating state in
the Agreement on Trade-Related Aspects of Intellectual Property Rights (the TRIPS
agreement) administered by the World Trade Organization.
Combating counterfeiting and piracy
At the Ministry of Industry and Trade an inter-ministerial commission for combating
illegal actions in violation of intellectual property rights has been set up, the aim of which
is to help increase protection and respect for intellectual property rights in the Czech
Republic. The government of the Czech Republic has drawn up an Action Plan against
Piracy and Counterfeiting.
DOING BUSINESS IN THE CZECH REPUBLIC | 35
8
Contact details
RSM TACOMA is a leading Czech advisory firm providing services in respect of
mergers & acquisitions, corporate finance, valuation, tax, trust services, audit,
management consulting, accounting, and payroll. RSM TACOMA has been active in
the Czech market since 1993, and in 2011 joined RSM International, the sixth largest
global independent consulting network. For more information, visit our website at
www.rsm-tacoma.cz.
RSM TACOMA
Amazon Court
Karolinská 661/4
186 00 Prague
Czech Republic
T +420 226 219 000
E [email protected]
W www.rsm-tacoma.cz
RSM International
11 Old Jewry
London
EC2R 8DU
T +(0)20 7601 1080
F +(0)20 7601 1090
W www.rsmi.com
36 | DOING BUSINESS IN THE CZECH REPUBLIC
Charles Bridge with Prague Castle
in the background
Charles
DOING BUSINESS IN THE CZECH REPUBLIC | 37
9
About RSM International
38 | DOING BUSINESS IN THE CZECH REPUBLIC
Notes
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Notes
40 | DOING BUSINESS IN THE CZECH REPUBLIC
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48 | DOING BUSINESS IN THE CZECH REPUBLIC
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Contacts
For the member firms of RSM International in Thailand:
RSM Advisory (Thailand) Limited
Mr Gareth Hughes – Managing Director
Mr Mark Butters – Business Services Director
RSM Audit Services (Thailand) Limited
Mr Prawit Wipusirikup – Audit Principal
Mr Surachai Damnoenwong – Audit Principal
RSM Recruitment (Thailand) Limited
Mr Mike Holloway – Director
26th Floor, Sathorn City Tower
175 South Sathorn Road
Thungmahamek, Sathorn
Bangkok 10120
Thailand
T: +66 (0) 2670 9002-6
F: +66 (0) 2670 9027-8
E: [email protected]
W: www.rsmthailand.com
50 | DOING BUSINESS IN THE CZECH REPUBLIC
Damnoen Saduak floating
market, near Bangkok
RSM International Executive Office
11 Old Jewry
London
EC2R 8DU
United Kingdom
T: +44 (0)20 7601 1080
F: +44 (0)20 7601 1090
E: [email protected]
www.rsmi.com
RSM is the brand used by a network of independent accounting and advisory firms each of which practices in its own right. The network
is not itself a separate legal entity of any description in any jurisdiction.
The network is administered by RSM International Limited, a company registered in England and Wales (company number 4040598)
whose registered office is at 11 Old Jewry, London EC2R 8DU.
The brand and trademark RSM and other intellectual property rights used by members of the network are owned by RSM International
Association, an association governed by article 60 et seq of the Civil Code of Switzerland whose seat is in Zug.
© RSM International Association, 2012