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Branch In The Czech Republic: Process, Criteria & Benefits

Setting up a branch in the Czech Republic can be highly advantageous for business as it allows companies to operate in the country without the need for a separate legal entity, thus reducing administrative and regulatory burdens.

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Branch in the Czech Republic in 2023

Are you aware that the Czech Republic is one of the most attractive investment destinations in Central and Eastern Europe?

The Czech Republic, located in the heart of Europe, is one of the most dynamic economies in the region, attracting businesses from all over the world.

branch in the czech republic

With its strategic location and favourable tax system, the Czech Republic offers an ideal environment for companies looking to expand their operations in Central Europe. 

One of the most popular ways for foreign companies to enter the Czech market is by establishing a branch office.

A branch office in the Czech Republic is a business form that is not a separate legal entity and is part of a foreign parent company. 

Setting up a branch in the Czech Republic can be highly advantageous for business as it allows companies to operate in the country without the need for a separate legal entity, thus reducing administrative and regulatory burdens.

However, establishing a branch office in the Czech Republic requires compliance with local legal and regulatory requirements, as well as careful planning and execution. 

In this article, we will guide you through the process of establishing a branch office in the Czech Republic, from the legal and regulatory requirements to the benefits of doing business.

So, are you prepared to dig into the globe of Czech Republic business? Let’s dive in!

Benefits of Opening a Branch in the Czech Republic

benefits of opening a branch in the czech republic

Opening a branch in the Czech Republic can propose numerous advantages for companies.

A few of the advantages are listed below:

  • Favourable Tax System: The Czech Republic has a relatively low corporate income tax rate of 19%, which is one of the lowest rates in the EU. 
  • Simple Registration Process: Registering a branch in the Czech Republic is a straightforward process that can typically be completed within a few weeks. The registration process involves submitting some basic documentation and paying a registration fee, which is relatively low compared to other EU countries.
  • Solid Legal Framework: The Czech Republic has a strong legal framework that is based on the civil law system. The country has a well-developed legal system that protects the rights of investors, and there are effective mechanisms in place for resolving disputes.
  • Low Labor Costs: The labor costs in the Czech Republic are relatively low corresponded to other EU countries, creating it an appealing destination for companies intending to lessen their working expenses.
  • Access to Research and Development: The Czech Republic has a well-developed research and development sector, with several universities and research institutes that are renowned for their expertise in areas such as engineering, IT, and science. 

Procedure to Establish a Branch in the Czech Republic

The primary processes for launching a branch in the Czech Republic are as follows:

Choose a Legal Form

The first step in founding a branch in the Czech Republic is to choose a legal form. There are two prominent alternatives: a branch or a subsidiary. A branch is an extension of the parent company, while a subsidiary is a separate legal entity. The decision will depend on several factors, including the level of control the parent company wishes to retain over the branch, the liability exposure, and tax implications.

Obtain a Trade License

In the Czech Republic, all businesses are required to have a trade licence before they can operate legally. The trade licence can be obtained from the local trade office, and the process typically takes around two weeks.

Register the Branch

Once the trade licence has been obtained, the branch must be registered with the Czech commercial register. The registration process involves submitting several documents, including a copy of the trade licence, the parent company’s incorporation documents, and details of the branch’s management. The enrollment procedure might take up to 6 weeks.

Obtain a Tax Identification Number

All businesses operating in the Czech Republic must obtain a tax identification number. It could opt via the local tax office, and the process typically takes around two weeks.

Register for Social Security and Health Insurance

The branch will need to register with the Czech social security and health insurance plans. This can be done through the local social security office and typically takes around two weeks.

Open a Bank Account

The branch will need to open a bank account in the Czech Republic to facilitate financial transactions. It could be possible via any of the major banks operating in the country.

Various Documents Required to Establish a Branch in the Czech Republic

The documents required to establish a branch in the Czech Republic are as follows:

  • Extract from the Commercial Register: The parent company must provide an extract from its home country’s commercial register, which confirms its legal existence and ownership structure.
  • Memorandum and Articles of Association: The native firm should be offered duplicate documents of its memorandum & AoA, which sets out the firm’s objects and internal rules.
  • Power of Attorney: A power of attorney should be inscribed and notarized via the parent company’s authorized representative.
  • Lease Agreement: The branch office must have a lease agreement for its premises in the Czech Republic. 
  • Identification Documents: The parent company’s authorized representative and the legal representative in the Czech Republic must provide their identification documents, such as a passport or ID card.
  • Trade Licence: The branch office must obtain a trade license from the Czech trade licensing office.
  • Tax Registration: The branch office must register with the Czech tax authorities for corporate income tax and VAT.
  • Application for Registration: The branch office must apply for registration with the Czech Commercial Register.

Eligibility Criteria to Establish a Branch in the Czech Republic

The eligibility criteria to establish a branch in the Czech Republic are as follows:

  • Legal Existence: The parent company must be a legal entity in its home country and must have a valid commercial registration.
  • Ownership: The parent company must own the branch office and must have full control over its activities in the Czech Republic.
  • Name: The branch office should use the same name as the parent company, followed by the word “pobočka,” which means “branch” in Czech.
  • Registered Office: The branch office must have a registered office in the Czech Republic, which serves as its legal address.
  • Legal Representative: The branch office must appoint a legal representative in the Czech Republic, who will act on its behalf in all matters related to the branch office.
  • Tax Registration: The branch office must register with the Czech tax authorities for corporate income tax and VAT.
  • Compliance: The parent company and the branch office must comply with all relevant Czech laws and regulations.

Do Czech branches opt to comply with any accounting Needs?

Yes, there are accounting requirements that must be met by Czech branches. The Czech Republic has a well-developed accounting system that is based on International Financial Reporting Standards (IFRS) and the Czech Accounting Act. 

The key accounting requirements for Czech branches are as follows:

  • Keep Accurate Accounting Records: Czech branches are required to maintain accurate accounting records, which must be kept in Czech and comply with the Czech Accounting Act.
  • Prepare Financial Statements: Czech branches are expected to create a yearly monetary statement, which must include a balance sheet, earnings, due invoices, and cash flow statement. These financial statements must be prepared in Czech and comply with the Czech Accounting Act.
  • File Annual Tax Returns: Czech branches are required to file annual tax returns with the Czech tax authorities. The tax returns must include details of the branch’s income, expenses, and tax liabilities, and must be filed in compliance with Czech tax law.
  • Comply with Transfer Pricing Regulations: Czech branches that engage in dealings with appropriate firms are subject to transfer pricing regulations. To comply with these regulations, the branch must maintain the right papers supporting the transfer pricing arrangements.
  • Appoint an Auditor: Czech branches that meet certain criteria are required to appoint an auditor to audit their financial statements. The criteria for mandatory audit include the size of the branch’s assets, revenues, and number of employees.

What are the Fundamental Aspects of a Czech Branch Office?

The fundamental aspects of a Czech branch office are as follows:

  • Legal Entity: A branch office isn’t a distinct lawful business structure from the parent company, and it operates as a wing of the native firm in the Czech Republic.
  • Liability: The native firm is completely liable for the obligations and debts of the Czech branch post.
  • Name: The branch office should use the same name as the parent company, followed by the word “pobočka,” which means “branch” in Czech.
  • Registration: The branch office must be registered with the Czech commercial register, which is maintained by the Czech Ministry of Justice.
  • Management: The branch office must have a legal representative in the Czech Republic, who is responsible for managing the affairs of the branch office.
  • Reporting: The branch office must submit annual financial statements to the Czech commercial register, which must be prepared in compliance with Czech accounting standards.
  • Taxation: Czech Republic corporate income tax applies to the branch office’s global earnings.
  • Accounting: The branch office must maintain accurate accounting records in compliance with Czech accounting standards.

Main Taxes for Branches in the Czech Republic

The main taxes for branches in the Czech Republic are as follows:

  • Corporate Income Tax: Businesses with Czech branches are required to pay corporate IT on their global earnings, which is 19%.
  • Value Added Tax (VAT): The common VAT rate in the Czech Republic is 21%, but reduced rates of 10% and 15% apply to certain goods and services. 
  • Social Security Contributions: Czech branches are required to contribute to the Czech social security system on behalf of their employees. 
  • Withholding Tax: Czech branches may be required to withhold tax on certain types of charges made to non-citizens, like bonuses, stakes, and royalties. 
  • Real Estate Tax: Czech branches that own or lease real estate in the Czech Republic are subject to real estate tax.

Cost to Establish a Branch in the Czech Republic

The cost to establish a branch in the Czech Republic may vary depending on several factors, such as the nature of the parent company’s business, the location of the branch office, and the assistance required from local lawyers or business consultants. 

Some of the typical costs associated with establishing a branch in the Czech Republic are:

Legal Fees: The cost of hiring a local lawyer or business consultant to assist with the registration and establishment of the branch office can range from 1,000 EUR to 3,000 EUR, depending on the complexity of the process and the scope of services required.

Trade License: The cost of obtaining a trade license from the Czech Trade Licensing Office can range from 100 EUR to 300 EUR, depending on the type of business activity and the duration of the license.

Commercial Register Fees: The cost of registering the branch office with the Czech Commercial Register is approximately 200 EUR to 400 EUR.

Notary Fees: The cost of notarizing documents, such as the power of attorney and lease agreement, can range from 50 EUR to 150 EUR per document.

Accounting and Tax Compliance: The cost of maintaining accurate accounting records and complying with tax obligations in the Czech Republic will depend on the size and complexity of the branch office’s operations.

Conclusion

Setting up a branch office in the Czech Republic can be a smart move for abroad firms intending to extend their functioning in Europe. Overall, a branch office in the Czech Republic can provide foreign companies with a low-risk entry point into the European market, with the potential for significant growth and expansion.

The process of establishing a branch office is relatively straightforward, with a few key requirements that need to be met. While there are costs associated with establishing a branch office, these are generally lower than those associated with setting up a separate legal entity. 

Additionally, with the right support and guidance from local experts, the process can be streamlined and efficient. That’s why it is advisable to seek the assistance of professional experts from Odint Consultancy to assure that all lawful and tax prerequisites are fulfilled.

FAQ’s

A branch office is part of an abroad firm that is founded in the Czech Republic with its own separate legal identity. It is a popular way for foreign companies to expand their operations in the country without the need for a separate legal entity.

The costs involved in establishing a branch office in the Czech Republic depend on several factors, including the size of the business, the nature of its activities, and the level of legal and consulting support required.

The lawful associative is liable for defining the branch office in lawful and business issues in the Czech Republic. They must hold a registered address in the nation and be capable of speaking actually in Czech.

A branch office in the Czech Republic can engage in any business activity that is authorised by its parent company. However, some activities may require additional permits or licences from local authorities.

Czech branches are required to maintain accounting records following local accounting standards and prepare annual financial statements. They must also comply with reporting obligations, including the submission of tax returns and statistic

Branch offices in the Czech Republic are subject to corporate income tax, value-added tax, and other taxes, depending on the nature of their business activities. However, foreign companies can benefit from the country’s favourable tax regime, including a low corporate income tax rate of 19%.

The timeframe for establishing a branch office in the Czech Republic can vary depending on the complexity of the business and the level of legal and consulting support required. Generally, the process can take between four and eight weeks.

Yes, a branch office in the Czech Republic can hire employees and must comply with local labor laws and regulations.