So, are you all set to launch yourself on the journey of transforming that business idea into reality? If yes, then you need to prepare yourself for the feats, and adventures and not to miss, the challenges and an overwhelming number of procedures and formalities that you are about to delve into. Nonetheless, in the end, it’s all worth it!
Thinking of the Czech Republic to locate your dream venture? Well, great! The country has become one of the most fortuitous and promising destinations for establishing businesses and ventures. The country enjoys immense global economic power and has one of the highest living standards in the world. The Czech Republic was ranked at 41st position among 190 countries in the Ease of Doing Business index. Starting a business in the country isn’t too demanding a process. However, you need to become acquainted with the regulations and obligations involved.
Here is an ultimate guide to help you understand what the process of starting a business in the Czech Republic looks like. Starting from understanding the business registration process in the Czech Republic to knowing the duties of an employer and how conducive the environment is for starting a business in the Czech Republic. Let’s dig in!
When setting up a business in the Czech Republic, you first need to conceive a marketable business idea, followed by doing in-depth market research on it, and finally, preparing an elaborate and convincing business plan. After you are done with this part, you would now need to procure a business license for which you can submit your application to Czech Point (Trade Office). Within the next five days at most, the Trade Licensing Office will enlist your application in the Trade Register and thus, confirm your business’s registration. As a next step, you need to register the company in the Commercial Register as well to make it officially recognized and completely legit. Within the next 15 days of registering the company in the Commercial Register, you need to register a company with the Tax Authority. And there you are!
In the sections that follow, we will walk you through the process of how to start a business in the Czech Republic in further detail. Read on!
Process of setting up a business in the Czech Republic
To ground a business in the Czech Republic is an appealing thought to many. Thanks to the strategic location of the country in Europe, its solid economy, immense talent pool, remarkably stable infrastructure, etc., renders it brimming with opportunities for startups. Now, here is a thorough guide to help you establish your venture in this rising European Powerhouse. You will understand what it takes and what formalities and criteria you need to fulfill to set up a venture in the Czech Republic. Get going!
- Prepare an elaborate and solid business plan: You can’t ignore this step at any cost. As you confirm your decision to convert your idea into a venture, you should set yourself to prepare a convincing business plan. Through the process, you will engage in detailed market research, product/ service demand and supply in the market, your budget, vision, mission, and so forth. Furthermore, it is required to attract investors into your venture, as they ask for a business plan to grasp the potential of your idea. Thus, creating a business plan should be the first thing to do.
- Choose a business structure: Now, before getting your business registered in official registers in the Czech Republic, you need to select a legal structure for it. The country officially recognizes the business structures mentioned below:
- Joint Stock Company (a.s.): In this company type, stocks can be traded freely without having registered the company in the Commercial Register of the Czech Republic. This feature renders AS an attractive option to consider in case you are thinking of making your venture a publicly-traded entity. To establish a Joint Stock Company, the minimum share capital of CZK 2 million is needed, where a minimum of 30% of this amount has to be paid while incorporating the company.
- General Commercial Partnership (v.o.s.): Here, two sides trade under a mutual name and are equally liable and obliged towards the company, up to the number of individual contributions of the parties involved. Furthermore, A company is liable for the property it possesses, and partners are liable for all the property they possess.
- Limited Liability Company (s.r.o): SRO is the most common type of legal structure of business in the Czech Republic. As in other nations, SRO partners have the liability to hold on to the company’s obligation up to the amount they contributed to the business initially. The minimum share capital in the Czech Republic to start a business is CZK 200000.
- Limited Partnership (k.s.): This is a business structure type where all the partners are responsible for the company’s obligations up to the amount of paid or unpaid contribution as revealed in the Commercial Register.
- Branch Office: Typically, Branch Office isn’t a business but rather represents your foreign company in the country. To get listed as a Branch Office, you will need to register it in the Commercial Register and go through strict and intense regulations and restrictions. Furthermore, a company has to nominate an office that either must have a long-term Czech residency permit or is a Czech citizen.
- Joint Venture: To get a business listed as a joint venture, a company must have two partners, and one of them has to be a Czech resident.
- Acquire your business license: To operate and establish your business legally, you will need a business license. This document can be procured by turning in the application to the Czech Point or Trade Office. This authority plays as a contact point between public administration and businesses in the Czech Republic.
- Register your business: After submitting the application to the Trade office, your application will be entered into the Trade Register within the next five days. Thereafter, you will receive registration confirmation. At this point yet, you won’t be able to trade with authority as registration in Commercial Register is needed. Once that step is done, your business and cooperatives gain all the rights and obligations associated with their being legit people associated with the company.
- Get the business registered in Commercial Register: To get your business registered in Commercial Register, you need to submit an application in the registration court, which is typically the regional court where you are establishing your business. At this step, you will be charged a CZK 6000 administrative fee if you are registering a company for the first time in the Commercial register. However, Joint Stock Companies will have to deposit CZK 12,000 while associations are charged CZK 1000 as an administrative fee.
- Registration for taxes: Within 15 days of getting your business enlisted in the Commercial Register, you will need to get cataloged with the Tax Authority. In the Czech Republic, companies need to pay two or three taxes, typically, Corporate Tax, Road Tax, and Value Added Tax.
Hiring Employees in the Czech Republic
After fulfilling all your obligations and confronting the red tape in establishing your venture as a legal entity, you will need to hire people. This doesn’t seem as simple either. You need to be familiar with legal obligations and rules when before, during, and after recruiting employees. The responsibilities of an employer and employee are clarified comprehensively in the Employment and Labor laws of a country. With an experienced HR consultant like Zimyo by your side, all these procedures will certainly be taken care of. Here are the things you need to know as a responsible employer in the Czech Republic. Read on!
- Trial Period/Probation Period: An employment contract in the Czech Republic can specify a probationary period. An employer or employee can terminate employment during this period without mentioning the grounds. However, the employer can terminate the contract during the first 14 calendar days of a trial period if an employee is temporarily unfit to work.
A probationary period cannot exceed:
- 3 continuous months starting from the date of an employment contract.
- 6 continuous months starting from the date of contract when the employee works for a managerial position.
The establishment of the trial period is governed by certain limitations, which are as follows:
- The trial period cannot be agreed upon later than the date of the job’s commencement or from the date when the role was appointed to a managerial employee.
- The trial period, which has been already agreed upon, cannot be extended later. Nonetheless, it may be extended on the grounds of all-day hindrances to work, because of which employees couldn’t work during the probation period.
- Leave and Holidays: As per the Labor Code, employees have the entitlement to receive annual holidays. For public sector employees, the holiday limit is set to a minimum of five weeks annually, while the minimum period for other employees is 4 weeks annually. The employer must state when the employee can take holidays so they may be granted leave without impediments. Both the employee and employer must notify the other party by writing at least 14 days prior to taking leave. In the Czech Republic, there are 12 public holidays, where 7 are bank holidays, and the remaining 5 are other crucial days such as Christmas, Easter Monday, etc.
A disability leave for less than 1 year comes under standard sickness leave. However, long-term leave due to disability is supervised by social security laws, and the individual may get the status of invalid.
- Maternity Leave: A female employee is entitled to receive 28 weeks of paid leave for childbirth and to look after the newborn. In case of multiple births, she must be allowed 37 weeks of leave from work. Maternity leave shouldn’t be less than 14 weeks and can neither be terminated nor interrupted before exhausting 6 weeks from childbirth.
The entitlement to monetary assistance is based on the insurance participation of the employee at the start of maternity leave. If a woman starts her maternity leave during the protection period after leaving work will enjoy the benefits of insurance. The protection period for women whose insurance expired during pregnancy is 180 calendar days starting from the date of the insurance termination.
- Termination of Services: An employee may give notice to the employer, which may or may not state the grounds of termination of services. However, an employer can terminate the employee with notice solely on the grounds mentioned below:
- If the employer or his/ her part is being dissolved.
- If the employer or his/ her part is being relocated.
- If employee’s services become redundant, or significant changes in the tasks happen, technical equipment changes, organizational alterations, or if the employer is reducing personnel to raise efficiency in work.
- If an employee cannot perform an existing job role due to occupational disease, infectious disease, or accident at work.
- Suppose an employee cannot satisfy the expectations of the role and bears unsatisfactory work outcomes. Employees must be given notice when terminated on these grounds.
- If an employee commits a serious breach of his/ her duties.
- Pension: For a person to exercise the entitlement to an old-age pension, they must reach the retirement age. However, a person can apply for an early old-age pension under the following conditions:
- In case the insured individual is younger than 63 years old, they can become entitled to an old-age pension from the day where retirement age is three years away.
- In case the retirement age of the insured person is a minimum of 63 years, they become entitled to receive a pension as they turn 60.
If an insured person does not have the right to an old-age pension, they will receive an old-age pension under Section 29(2) of the Pension Insurance Act, given that their accrued insurance period is at least:
- If the accumulated insurance period is 15 years and they turn 65 years in age before 2010.
- If the accumulated insurance period is 16 years, and the individual is a minimum of 5 years older than the retirement age clarified under Pension Insurance Act, etc.
- Work Hour Norms: A standard working week in the Czech Republic for employees is:
- 37.5 hours per week for those working in coal mining fields, at mining places for geological prospecting, and in industrial minerals and ores mining.
- 37.5 hours per week with a continuous work routine and three shifts.
- 38.75 hours per week with a two-shift work routine.
A typical working week cannot go beyond the span of 48 hours, including overtime. Overtime is allowed only in limited and specific conditions and is regulated by Labor Code laws and corporate mutual agreements. Overtime work must not surpass 8 hours in a week and 150 hours in a year. Only with the agreement of an employee can the employer solicit overtime beyond the limit set here.
How easy is it to conduct business in the Czech Republic?
Having a great business idea is not enough to establish a venture. The rules and regulations of a country play a tremendous role in starting a business. The Doing Business measures diverse critical aspects of the business regulatory environment and furnishes quantitative indicators on obligations and rules for starting a venture. For instance, it measures indicators like registering property, managing construction permits, getting credit, trading across different nations, protecting minority investors, resolving insolvency, and so forth. These individual sub-indices are then studied to confer an overall Ease of Doing Business (EODB) rank to an economy. The Czech Republic, according to the Doing Business Report 2020, came at 41st position while scoring 76.3 out of 100 among 190 countries. Read on to understand Doing Business indicators in the context of the Czech Republic.
- Starting a Business: The Doing Business measures the time, cost, minimum paid-in capital, and a number of procedures that are involved in setting up a limited liability firm. The Czech Republic got 134th rank among 190 countries and scored 82.1 out of 100. In 2008, the country lowered the time needed to launch a business by adapting and executing improvements in the registration process of a business.
- Managing Permits: Managing Permits is another Doing Business indicator, which looks at the number of procedures, formalities, time, and cost involved in constructing a warehouse. Furthermore, it also calculates the efficiency of quality control mechanisms and safety mechanisms that govern construction permitting systems. The Czech Republic got 157th rank among 190 countries while scoring 56.2 out of 100. In 2010, the country reduced the time involved in internal processing for registering a new business, thereby streamlining the whole process.
- Getting Electricity: Since electricity is an indispensable need for starting and operating an existing business, it makes a potential the Doing Business indicator. Doing business evaluates the cost, number of procedures, and formalities, and time it takes to get electricity connection for new businesses. Furthermore, it also measures the strength and reliability of electricity supply and transparency in tariffs. The Czech Republic got 11th position among 190 countries and scored 95.6 out of 100. The country designated personnel exclusively to manage incoming electricity connection applications, thereby expediting the process.
- Getting Credit: Ventures need credit to expand their territory, meet overheads efficiently, recruit new staff, etc. Thus, Doing business regards Getting Credits as an indicator wherein it probes into the time, cost, formalities, and procedures involved in getting credit. On top of that, it also assesses the efficiency and competency of credit reporting systems and movable collateral laws. The Czech Republic got 11th position among 190 countries and scored 95.6 out of 100. In 2009, the country reduced the rights of creditors during reorganization processes, thus, securing the transaction framework further.
- Managing Payroll: To manage payments and income-related aspects in an organization or business, one needs to incorporate an efficient payroll management system. This is where experienced HR consultants at Zimyo come to your aid as they would not only facilitate the company by helping with time payments of staff and employees but also abiding by tax-related laws.
- Paying Taxes: Paying Taxes is a Doing Business indicator where time, cost, procedures, the contribution rate for a company to abide by tax rules, and gross tax distribution are investigated. Moreover, it also estimates the post-tax-filing procedures. The Czech Republic got 53rd rank among 190 countries and scored 81.4 out of 100. In 2009, the country reduced corporate income taxes, thereby making the process of paying taxes less costly.
- Enforcing Contracts: Doing business, to gauge the strength of Enforcing Contracts, looks into the cost, time, and procedures involved in settling a business-related or commercial dispute. Furthermore, it also evaluates the insolvency framework and regulations that oversee the court proceedings in this regard. Czech republic bagged 103rd rank among 190 countries and scored 56.4 out of 100. In 2014, the country expedited the proceedings for enforcement and execution of judgments, thus, rendering the process simpler and smoother.
- Resolving Insolvency: To estimate this indicator, the Doing Business assesses the outcome, cost, procedures, and time involved in settling a business insolvency case. On top of that, recovery rate and efficiency, quality, and strength of insolvency are also evaluated. The Czech Republic got 16th rank among 190 countries and scored 80.1 out of 100. In 2011, the country introduced legal amendments to limit setoffs in commercial insolvency cases and allow certain insolvent debtors the obligation to file for bankruptcy.
The Czech Republic was labeled as one of the most thriving economies in the EU by The Guardian. The economy of the country principally relies on industries like tech engineering, steel production, electronics, transportation equipment, aerospace industry, advanced materials, and pharmaceuticals. Furthermore, due to its strategic location, the country tremendously facilitates cross-border trade. In all, the Czech Republic offers incredible opportunities for new businesses and startups.
Zimyo is a leading HR and Payroll management services provider in the Czech Republic with multiple years of experience. The company helps businesses hire the best talent and takes care of the financial requirements of employees, such as advances or credit for a hassle-free work experience.