Practical guide for Ukrainian businesses entering the Czech market

Incentive plans for Ukrainian businesses in the Czech Republic

At the moment, the Czech government has not announced any preferential rules for companies relocating from Ukraine.

Nevertheless, the Czech Republic offers so called investment incentives program for investors in the area of technology centres, business support centres and the manufacturing industry. The investment incentives are provided by the Czech state and approved by the Czech government in co-operation with relevant ministries. Investment incentives are provided primarily in the form of tax relief and in specific cases also through subsidies for job creation and training of new employees.

Relocating a business from Ukraine to the Czech Republic

The Czech law does not enable the transfers of companies from non-EU countries. The only option that we could recommend would be to set up a subsidiary in the Czech Republic pursuant to the Czech law. Please bear in mind that Ukrainian documents necessary for the establishment of the subsidiary would need to be in the form of verified copies and with a verified translation into Czech language.

Company formation in the Czech Republic

When it comes to company formation and the ideal company type, we would recommend the limited liability company. The incorporation process is relatively simple with low minimum registered capital (CZK 1), while it can be also established as a one-member company (shareholder and managing director are the same person). An LLC is liable for the breach of its obligations with all its assets, while the shareholders guarantee for the breach of obligations of the LLC only up to their committed but unpaid contributions to the registered capital registered with the Commercial Register. The incorporation time varies between 2 to 3 weeks from delivery of complete documents.

We would also like to mention than entrepreneurs do not necessarily need to establish a company but may perform trade business if they obtain a trade licence.

Registrations required to run a business in the Czech Republic

The entrepreneur is obliged to:

• Register the establishment of the company in the Commercial Register
• Obtain the necessary business licenses
• Register for tax purposes (corporate income tax, VAT and other taxes)
• Register for social security

Requirements on foreign investors in the Czech Republic

Investors from EU members states are facing no limitations and they are granted a free movement of capital. They can also invest through a limited liability company which would be established in the Czech Republic pursuant to the Czech law. However, it is necessary to comply with the anti-money laundering regulation.

Investors from non-EU countries, i.e. third countries (where Ukraine belongs) are governed by the law n. 34/2021 Coll., the Foreign Investment Screening Act. For investments falling under the category “most sensitive” (e.g. the development or production of dual-use items) the foreign investor needs the investment to be first approved by the Czech authorities. In cases when the foreign investment could endanger the Czech Republic, the authorities may verify it ex officio. We will gladly provide you with more details if needed.

Sanctions

If a natural person commits a misdemeanour by performing trade business without a trade licence, the fine for unauthorized trading ranges from CZK 500,000 to CZK 1,000,000.

If a legal person commits a misdemeanour by performing trade business without a trade licence, the fine for unauthorized trading ranges from CZK 500,000 to CZK 1,000,000.

For the illegal establishment of a company, the Czech courts will terminate its existence and declare it as invalid.

Key taxes for businesses in the Czech Republic

Corporate income tax

• Standard CIT: 19% of the tax base

Value-added tax

• Standard VAT: 21%
• Reduced VAT:
  • 15% for selected types of goods: food, non-alcoholic beverage, plants, special healthcare products, pharmaceutical products
  • 10% for selected types of goods and services: infant nutrition, drugs and vaccines, books, water and sewer rates, public transportation, hotel accommodation, catering, entry to cultural and sport events, minor repairs, hairdressing services

Personal taxation of employees relocated from Ukraine to the Czech Republic

Personal income tax rate

• 15% applied on gross salary up to the annual income of 48x the average salary (i.e. CZK 1,867,728.00 – approximately EUR 75,000).
• 23% applied on tax base exceeding CZK 1,867,728.00 (approx. EUR 75,000)

Contributions paid by the employer

• 33.8%

Contributions paid by the employee

• 11%

Czech legislative measures in relation to Ukraine

The Chamber of deputies as well as the Senate approved the draft of bills regarding granting residence, access to health services, access to the labour market, social security and education for the citizens of Ukraine.

Furthermore, the Czech Government adopted several measures regarding Ukrainian refugees:

• enabling application for a special visa allowing residence in the Czech Republic
• enabling easier access to the Czech Labour market: from the effectivity of the new legislation (see above) the refugees will have free entry to the Czech labour market if they are holders of the special visa
• enabling application for immediate emergency assistance: application available at www.mpsv.cz, providing help for refugees who are under the age of 18 and without parent or guardian
• grant of humanitarian aid in the amount of CZK 5,000 (shall be part of the new legislation as stated above)
• financial contribution for Czech households that accommodate Ukrainian refugees in the amount of CZK 3,000 to 9,000 per accommodated person per month (shall be part of the new legislation as stated above)
• temporary emergency shelter: provided by municipalities in objects such as cultural/sports halls and tent camps whilst providing financial compensation for this to municipalities and districts (shall be part of the new legislation as stated above)

Need help with entering the Czech market? Book us for a free consultancy!

We have years of experience in supporting businesses to grow in the Czech Republic. Benefit from our free 1-hour long market entry consultancy that includes:

• Brief analysis of your needs based on the information provided
• Country-specific aspects that may be important to your investment
• Basics of local tax, accounting and legal rules in the Czech Republic