How can foreign nationals carry out business activities in the Czech Republic, what are the options, conditions and obligations for running a business in the Czech Republic? Principles and basic definitions of terms for business in the Czech Republic from the foreigners’ point of view.
Business in the Czech Republic is now much easier for foreigners than before, thanks to the membership of the European Union. If a foreigner wants open a business in the Czech Republic it is important to consider whether such foreigner comes from an EU Member State or Norway, Iceland, Switzerland or Liechtenstein. These foreigners are subject to almost the same conditions as Czech citizens. If the foreigner comes from a country other than the EU or the above-mentioned countries the conditions are slightly different.
Who is considered a foreign national?
A natural person with permanent residence outside of the Czech Republic or a legal entity having its registered office outside of the Czech Republic. These persons are therefore subject to the same conditions for conducting business in the Czech Republic as Czech nationals (unless a separate law provides otherwise).
Businesses of foreign nationals pursuant to the Trade Licensing Act
Foreigners from EU Member States and associated countries (Norway, Liechtenstein, Iceland and Switzerland) may carry out a trade in the Czech Republic to the same extent and under the same conditions as a Czech national.
To establish a trade a natural person must comply with the general terms and conditions for carrying out a trade. They include minimum age of 18 years, clear criminal record and capacity to enter into legal acts. A trade can be notified at any trade licensing authority in the Czech Republic.
Sections 2 and 3 of the Trade Licensing Act define the activities for which a foreign national must obtain trade license. These activities are not always trades. A trade is a continuous activity carried out independently, under a person’s own name and liability, with a view to make profit, under the conditions laid down by the Trade Licensing Act. Activities such as free-lance professions, e.g., attorneys, authorized experts, physicians, dentists, lease of (residential and non-residential) property do not constitute a trade.
The activity of leasing property, apartments and non-residential areas does not require a trade license and therefore is often used by foreign nationals as the official line of business because it will speed up registration in the companies register (establishment of a company). A foreign national does not have to wait for the trade license to be issued and may start a business in the Czech Republic sooner. Later they can obtain a license which they need for their activities.
After the fulfillment of all conditions laid down by the Trade Licensing Act the relevant authority will issue the trade license.
Both Czech and foreign nationals must comply with the conditions laid down by the Trade Licensing Act when carrying out an activity. One of the most important ones is the obligation to identify the establishment in which the place of business is registered visibly with the commercial name, company name or the individual’s name.
Establishment of a legal entity – foreign national’s ownership interest in a Czech legal entity
Foreign nationals have the option to establish a Czech legal entity, participate in the establishment of a Czech legal entity, be a member in an established company, or be a partner in a Czech company.
Various types of these ownership interests of foreign nationals are not considered a business of a foreign national because the business activity itself is carried out by the Czech legal entity which carries out its business activity under its own name and liability.
Foreign nationals have the same rights and obligations as Czech nationals also in the different types of ownership interests of foreign nationals and establishment of Czech legal entities. These are the same rules which apply to the activity which manifests the signs of a foreign national’s business activity in the Czech Republic.
There is no limit as to the amount of the ownership interests of the foreign national. A foreign national may own also 100 % of a Czech legal entity.
A foreign national must be capable of entering into legal acts in order to have ownership interest in a Czech legal entity.
Legal capacity of natural persons: legal capacity is governed by the laws of the country of the foreign national. The person must have capacity to enter into legal acts according to Czech laws in order to establish a Czech legal entity.
Legal capacity of legal entities: to have ownership interest in a Czech legal entity the foreign entity must be capable of having rights and obligations. Its so-called personal status will be assessed, as stated above, according to the laws of the country under which the foreign legal entity was established. The business status will be recognized in the Czech Republic based on the legal capacity of the foreign legal entity under foreign laws if the entity has such status also in the foreign country.
Establishment of an affiliate branch of a company in the Czech Republic
One of the possible forms of business of foreign nationals in the Czech Republic is establishment of an affiliate branch of a company. An affiliate branch of a company can be opened in the Czech Republic by all foreign nationals who have their company in the foreign country.
The affiliate branch of a company is a relatively stable body without legal personality, has a comprehensive internal organization, is attached to the company in terms of accounting, and is used to carry out business activities of the foreign entity in the Czech Republic
The foreign entity must file an application for registration of the affiliate branch in the companies register and then it can start business in the Czech Republic. The authorization to carry out business starts on the date of registration of the affiliate branch in the companies register.
What is required for the application for registration of the affiliate branch?
• Extract from the companies register or trade register
• Decision of its statutory body to establish the affiliate branch
• Decision to appoint the director/manager of the company’s affiliate branch who will act on behalf of the affiliate branch.
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