Kocián Šolc Balaštík > Prague, Czech Republic > Firm Profile

Kocián Šolc Balaštík > Firm Profile

Firm overview: For over three decades, KŠB, a four-time recipient of the prestigious Chambers Europe Award for Excellence, has been an acclaimed market leader, creating innovative and groundbreaking legal solutions for its clients involving new legislation and legal and business concepts. A proudly independent Czech law firm, KŠB is globally interconnected through long-term relationships with other leading independent law firms, with whom it frequently works on cross-border transactions. Its mission is to strategically guide its global and domestic clients in attaining and exceeding their business objectives in the Czech Republic. Delivering commercially driven and sector specific advice, the firm is not just ready for the future, but actively facilitating it in the evolving 21st century business world for the benefit of its clients, whose success is the firm’s greatest satisfaction.

Main areas of practice
M&A: A market leader in M&A and a recognised pioneer in using new legal concepts and transaction structures, KŠB advises on legal and tax structuring, asset and share deals, and corporate restructuring. It also provides highly focused and experienced legal and tax due diligence. Recently, KŠB advised Sandberg Capital (Solitea Group, Webglobe, Titans Freelancers) on numerous acquisitions of IT companies and Aramark on the acquisition of Sodexo. Other recent M&A transactions include work for Mattoni 1873, Infinite Computer Solutions, J&T Banka, Škoda Transportation, Inner Mongolia Mengtai, Jamf Software, MSX International, and YIT Stavo.

Corporate: KKŠB advises on establishing all types of companies, including Societas Europaea. Its services include company incorporation, facilitating board and general meetings as well as relationships between management bodies, making changes to companies’ financial structures, arranging financial assistance and implementing mergers, divisions, and transformations of various company and partnership structures (including cross-border). One of KŠB’s most high-profile cases was advising O2 Czech Republic on a globally exceptional voluntary unbundling and CETIN on a whitewash procedure for the largest financial assistance ever granted in the Czech Republic. Recently, the firm advised Solitea Group on one of the biggest intragroup mergers in the CEE region.

Banking and finance: KŠB advises on financial transactions as well as on banking and finance regulations and financial services disputes. It provides legal services to lenders, arrangers, security agents and borrowers on senior, subordinated as well as mezzanine and bridge financing. KŠB is highly rated for its regulatory expertise (it has been advising the Czech National Bank for more than 25 years), and is also covering new ground in FinTech. Its clients include Česká spořitelna (Erste group), Raiffeisenbank, CSOB (KBC group), National Development Bank of the Czech Republic, ING Bank, Unicreditbank, mBank, Generali, and J&T Banka. KŠB’s corporate clients in finance include members of the important entrepreneurs’ group in the CEE region, such as O2 Czech Republic, Mattoni 1873, Solitea, and Arete.

Securities and capital markets: KŠB advises issuers, shareholders and leading domestic as well as foreign investment banks and funds in the entire spectrum of securities and capital market deals. The focus of KŠB’s practice is mainly in the area of public and private issues of debt securities and investment fund structures. The most notable clients here are O2 Czech Republic, J&T Group, Arete Investment Group, Rockaway Group, and Ontex. KŠB also focuses on pioneering innovative solutions, such as the crowdfunding platform Fundlift, issuance of additional Tier 1 instruments for J&T Group, transformation of 3M FUND MSI to SICAV, and a side-pocket structure for Redside investment Group.

Competition: KŠB assesses potential anticompetitive agreements and alleged abuse of dominance. It also represents clients before the Czech and European Competition Authorities and the courts in all competition matters, including merger clearance procedures and leniency or settlement procedures. It was awarded the European Competition Case of the Year 2015 for its victory at the ECHR in which it represented DELTA PEKARNY regarding unlawful dawn raids in the Czech Republic. KŠB has recently been representing clients (such as Asiana and Leo Express Global) in private competition enforcement matters. Other competition clients include Mattoni 1873, Agrofert, the Czech National Bank, and Skanska.

Litigation and arbitration: Repeatedly recognised as one of the best practices in the Czech Republic, KŠB represents clients in civil and administrative courts and arbitration panels in all kinds of legal disputes, in particular relating to contracts, damages compensation, corporate matters, including invalidity of general meeting resolutions, employment law, unfair competition and infringement of intellectual property rights. Recently, KŠB has been representing O2 Czech Republic, Skanska, Leo Express Global, PPF Group, Czech National Theatre, Czech Television and Czech Radio, among others.

Energy (including mining): KŠB is best known in the energy sector for its expertise and success in the planning, development, implementation and operation of large-scale power and heat generation developments. KŠB represents clients in negotiations with administrative offices and advises on energy regulation. Its clients include Teplárna Kladno, Carthamus, Green Gas DPB, Asental Land, Lovochemie, ENERGY Ústí nad Labem, and ČEZ.

Real estate: KŠB advises leading CEE developers in logistics, retail and residential sectors, fast-growing investment funds focusing on industrial properties, and real estate project financiers. Recently, KŠB represented J&T Banka in the acquisition of its new headquarters in Prague and ARETE Invest on the disposal of its logistics park portfolio to Cromwell. Its clients also include ČEZ, J&T Real Estate, MS-INVEST, Passerinvest Group, VGP Group, and YIT Stavo.

Aviation: KŠB is prized for its unique expertise in aviation, including aircraft financing, regulatory issues and claims handling. Its clients include ABS Jets, BBAM Aircraft Leasing, Cirrus Aircraft, easyJet, Macquarie Aviation, Prague Airport, and XL Insurance. KŠB also advises the EU Agency for the Space Programme (EUSPA) on issues linked with the deployment of the EGNOS, which provides augmentation to the standard GPS and Galileo signal.

TMT/IP/IT: KŠB advises and assists in connection with telecommunications law (regulatory matters), including advice on tenders and licensing for operators of electronic communications networks and electronic telecommunications service providers. KŠB also has a full-service intellectual property practice, with experienced lawyers in all areas of intellectual property law, including IT, e-commerce and unfair competition. KŠB advises on compliance matters, including advertising and personal data protection. KŠB’s clients include O2 Czech Republic, CETIN, NTT Czech Republic, Dahua Technology, Daktela, Solitea Group, Deutsche Telekom, and Daimler.

Employment: KŠB advises on standard employment agreements, agreements for managers and top management, including service agreements, work assignments (secondments) and agency employment, as well as on relations with trade union organisations/employee councils and workplace injury-related matters. KŠB’s clients include ČEZ, AGC Automotive Czech, Czech Radioactive Waste Repository Authority, Lidl Česká republika, Mirantis, Akron Brass Holding, and the Czech National Theatre.

Tax: Recognised repeatedly by international and domestic ratings agencies, KŠB’s tax team has enhanced its reputation in the specific areas of taxation of international mergers and acquisitions and other transactions, corporate income tax, VAT and tax proceedings and disputes. KŠB is able to take advantage of mutual synergies, thus bringing undeniable benefits to clients (e.g. Czech Television, Rockaway, and Mattoni 1873).

Lawyer Profiles

Photo	Name	Position	Profile
	Mr Pavel Dejl	Partner	View Profile
	Ms Dagmar Dobecka	Partner	View Profile
	Mr Jan Dědič	Partner	View Profile
	Ms Hana Heroldova	Counsel	View Profile
	Mr Jiri Hornik	Partner	View Profile
	Mr Petr Kasik	Partner	View Profile
	Mr Martin Krejci	Partner	View Profile
	Mr Martin Kubik	Counsel	View Profile
	Mr Jan Lasak	Partner	View Profile
	Ms Helena Navratilova	Partner	View Profile
	Mr Vlastimil Pihera	Partner	View Profile
	Mr Ivo Prusa	Counsel	View Profile
	Mr Vaclav Rovensky	Partner	View Profile
	Mr Tomas Sequens	Partner	View Profile
	Ms Sylvie Sobolova	Partner	View Profile
	Mr Martin Solc	Partner	View Profile
	Mr Drahomir Tomasuk	Partner	View Profile
	Mr Jan Černohouz	Counsel	View Profile

Doing Business In

Czech Republic

A buoyant and positive investment outlook has been evident in the Czech Republic since the start of 2021, with pent up investor demand and strong competition amongst buyers fuelling an upswing in deals as both domestic and international investors looked forward to getting on with a return to business operations post Covid. The Czech economy grew by a record 8.2 percent year on year in the second quarter of 2021, followed by 2.8% in the third quarter of 2021, and there is a strong appetite from foreign investors to identify deal opportunities.

Current investment trends and active sectors of the Czech economy

During the period of the initial Covid-19 restrictions and continuing in 2021 there has been a great deal of investor activity in the IT/technology and real estate sectors. Czech tech entrepreneurs and systems developers have shown great innovation and gained a leading reputation, which are highly sought after by investors. Business information systems in the areas of e-commerce, logistics, data centres, cloud systems, cybersecurity, payments systems, learning and games are all areas which have seen strong activity with sustained potential for growth. The pandemic accelerated digitalisation in all sectors of the economy, and the excellence of the Czech tech sector – as well as the motivation of companies not to fall behind in adopting digital solutions – makes it likely that the tech sector will continue to be a key driver of M&A activity.

A strong trend in the last couple of years, despite the Covid era, has been a rising trend in the share of investments with high value added, i.e., investments focused on technology and R&D in strategic sectors. CzechInvest notes that in 2018 only 20% of the investment projects it arranged fulfilled the high value-added criteria, while in 2020 this jumped to 2/3 of investment projects.

There is currently a generational handover occurring on the commercial landscape in the Czech Republic as family firms are being handed over after 25 – 30  years of development or, where there are no successors, then the family firms are being sold. This tier of investment is predominantly medium-sized enterprises and is keenly sought after by investors seeking high quality, established companies.

Strategic reasons that make the Czech Republic attractive for investors:

• Central location

The Czech Republic is conveniently located at the geographical centre of Europe.

• EU Membership since 1 May 2004

The Czech Republic has been a magnet for large volumes of foreign investment since the country’s Velvet Revolution in 1989. The Czech Republic became a member of the European Union as of 1 May 2004 and in the lead up to EU accession Czech laws were harmonized with EU law.

• Access to EU markets

The Czech Republic’s EU membership allows for the free movement of capital, goods, people and services within all EU member states. Located geographically within the heart of Europe, the Czech Republic is also very conveniently located from a logistical point of view for access of goods to other EU markets.

• Economic and Political Stability

From the time of the Velvet Revolution and fall of Communism in 1989, the Czech Republic has been acclaimed by investors for both its political and economic stability, which was particularly demonstrated by its quick recovery from the international financial crisis of 2008/2009. Economic commentators expect a similar strong recovery from the Covid-era economic downturn, and growth rates and a strong bounce back in transaction levels already support this.

• Favourable labour costs

The Czech Republic still enjoys lower labour costs than “Western” or longer-established EU members; thus, investors and employers benefit from the same skill level at a lower cost.

• Skilled workforce

The Czech Republic has a highly skilled workforce, particularly in technology and engineering. Educational and literacy levels are high. Companies report few difficulties in recruiting skilled and unskilled workers, particularly in industrial areas where unemployment is highest. Nevertheless, the total unemployment rate in the Czech Republic has been amongst the lowest in Europe for many years. In July 2021 it was 3.7%, despite the destabilizing effects of the Covid pandemic on business for periods in 2020, and by October 2021 the unemployment rate eased to 3.4%.

• Non-discrimination of foreign vs. domestic investors

Foreign and domestic companies are treated identically in all areas under Czech law. At present, review of foreign investment projects applies to certain cases in the banking and defence sectors. Foreign legal entities may acquire real estate in the Czech Republic without any restrictions and under the same conditions as Czech legal entities.

• Popular as an FDI destination

The Czech Republic is one of the most successful CEE countries in terms of attracting foreign direct investment. According to the Czech National Bank, a total of more than EUR 130 billion worth of FDI has been recorded since 1993. The Czech Republic hosts almost 100,000 foreign companies of all sizes. Famous multinational companies such as ABB, Continental, Ford, Nestlé, IBM, DHL, Astra Zeneca, Rockwell, Procter & Gamble, Renault, Siemens, Tyco, Honeywell, Amazon and Volkswagen have significant subsidiaries in the Czech Republic.

• Competitive advantage

According to the 2019 Global Competitiveness Report published by the World Economic Forum, the Czech Republic ranks 32^nd among 141 world economies in terms of competitiveness, placing it at the top of the CEE countries in competitiveness.

The Czech Republic is characterised as a mature host country for FDI with low inflation, modest interest rates, a relatively stable and fully convertible currency (CZK – Czech koruna), and a good rate of economic growth providing favourable conditions for investors. The Czech Republic was the first CEE country to be admitted into the OECD and is a member of NATO, the WTO, the IMF and the EBRD.

• Investment protection

The Czech Republic is a member of the Multilateral Investment Guarantee Agency (MIGA), an international organisation for investment protection, which is part of the World Bank-IMF group. The country has signed a number of bilateral investment treaties which support and protect foreign investments, for example with the United States, the United Kingdom, Canada, Israel, Australia and China.

• Avoidance of double taxation

The Czech Republic has treaties to prevent double taxation on dividends, interest and royalties with many countries, including all EU countries, the United States, Japan, Australia, Canada and numerous others.

• Possibility of Investor Visa for non-EU nationals

One of the categories of visa available in the Czech Republic is the so-called Czech “investor visa” (for third country nationals, i.e. non-EU citizens). The main conditions for granting an investor visa are (i) creation of at least 20 full-time jobs (for EU-citizens), and (ii) investment of at least CZK 75,000,000 (approximately EUR 2,850,000 or USD 3,250,000), whereby the whole amount does not have to be invested in cash; up to 60% of this amount can be provided through assets (tangible or intangible), e.g. machinery, real property, know-how etc.

• Repatriation of profits

There are no restrictions on distribution and repatriation of profits by Czech subsidiaries to their foreign corporate parents aside from the need to pay withholding tax and, for joint-stock and limited liability companies, the need to maintain a mandatory reserve fund, which is a requirement that applies to all Czech companies.

Foreign Exchange and Regulatory Aspects of Foreign Investment

The currency of the Czech Republic is the Czech koruna. Although eventual adoption of the Euro is expected, there is currently no specific timetable for its adoption. There are no foreign exchange controls or restrictions; currency is freely exchangeable pursuant to Act No. 219/1995, Coll., the Foreign Exchange Act, as amended, and several implementation decrees of the Czech National Bank.

Foreign Investment Screening Act

Since 1 May 2021, a new Foreign Investment Screening Act has been in force, which was introduced as a result of the EU Foreign Investment Screening Regulation that entered into effect in April 2019. The Czech Act introduces a level of vigorous screening for non-EU investments in the Czech Republic, overseen by the Ministry of Industry and Trade. The scope of investments or activities triggering review under FDI rules is considerably broad, and foreign investors will need to stay vigilant to maintain compliance as even activities such as nominating new company directors may trigger FDI rules. The FDI rules require very particular assessment by all non-EU investors, as in fact there is no simple financial threshold or any sector of the economy that can be 100% untouched by the rules.

The FDI rules apply not only to standard “third country” non-EU countries but will apply also to include Switzerland and members of the European Economic Area, such as Lichtenstein and Norway, as well as post-Brexit United Kingdom. FDI clearance now needs to be considered, where applicable, as an additional condition for a transaction’s effectiveness.  Accordingly, transaction negotiations will need to reflect the timeline obligations for FDI clearance, in a parallel fashion to the manner in which competition authority clearance is already factored into timelines.

Choice of business entity

Foreign investors will generally choose either a limited liability company (s.r.o.) or a joint- stock company (a.s.) as their Czech corporate entity investment vehicle, although a branch office of the foreign company is also sometimes used.

An s.r.o. is a very popular legal form for small and medium-sized businesses in the Czech Republic, because it requires a lower minimum capital investment and fewer corporate governance requirements than an a.s. A Czech joint-stock company’s minimum amount of registered capital is CZK 2,000,000, while a limited liability company’s minimum amount is CZK 1 (however, every shareholder has a minimum contribution obligation of CZK 1).

Neither a limited liability nor a joint-stock company is required to keep a reserve fund to cover losses.

No registered capital is required to establish a Czech branch office. It should be noted that a branch office does not have legal capacity on its own under Czech law; its authorization and capability to act is based on the legal capacity of its founder under the respective foreign law of the founder.

Foundation and registration of an s.r.o. and a.s.

Both an s.r.o. and a.s. are founded by concluding a founding document, which can also be concluded based on a power of attorney. There are no restrictions on who the founder can be (e.g. foreigners can also be founders). The founding document needs to be notarized by a Czech notary, and any changes made to the founding document during the existence of the company must be notarized as well.

Both an s.r.o. and a.s. are created as legal entities upon their registration in the Commercial Register. The Commercial Register contains the most relevant information about the company, its shareholders (which does not apply to an a.s., except for when the a.s. has a sole shareholder) and the members of the company’s bodies. The founding document as well as other relevant documents (e.g. company financial statements) must be filed in the Collection of Documents of the Commercial Register. The Commercial Register, including the Collection of Documents, is accessible to the public at www.justice.cz.

Ownership Interest/Shares/Bonds

s.r.o. (limited liability company)

A limited liability company does not issue shares; its participants acquire an ownership interest or a participation interest. The founding documents may, however, allow for the company to issue so-called “ownership/participation interest certificates” to participants, which have the same function as shares in an a.s. The founding documents of an s.r.o. may also allow for the existence of various types of ownership interest (e.g. such as a fixed share in profit or with special rights/duties attached or without voting right etc.).

a.s. (joint-stock company)

A joint-stock company issues shares to its shareholders, which may be either registered shares or bearer shares. Registered shares are either issued as certified shares or they can be maintained as book entry (computer entry) securities at the Central Securities Depositary or immobilized (physically deposited). Bearer shares may only be in the form of book entry securities or immobilized shares. A joint-stock company may also issue preference shares (non-voting unless otherwise stated in the founding documents), and other types of shares (e.g. with special rights attached or without a share in profit etc.) or shares with or without a nominal value.

The shares of a joint-stock company may have separately transferable rights, thereby for example, rights to distribution of profits, preferential subscription rights, and rights to a share in a liquidation surplus may be transferred separately from the share.

A joint-stock company may issue convertible bonds and preference bonds.

Company and Shareholder Liability

As far as a company’s liability is concerned, both a Czech joint-stock company and limited liability company are liable with their entire property for a breach of obligations. However, during the existence of the company the shareholders of a joint-stock company are not liable for breaches of the company’s obligations at all. Members of a limited liability company are jointly and severally liable for the company’s obligations up to all members’ unpaid contributions to the registered capital. A branch office is not liable for a breach of its obligations, as it is the parent company that is fully liable.

Management and corporate structure

An s.r.o. must have at least one executive and also the general meeting (of all shareholders) as its obligatory bodies (a supervisory board is only voluntary). The general meeting must take place once a year.

An a.s. must have, alongside the general meeting, one of the following structures:

• Board of directors and supervisory board (two-tier structure).
• Management board and statutory director until 31 December 2020, and only management board as of 1 January 2021 (one-tier structure).

For an a.s., the Corporations Act makes it possible to choose between a one-tier and two-tier corporate governance model. The one-tier model is based on the management board appointed by the general meeting, in which the powers of both the board of directors and of the supervisory board are vested. Until 31 December 2020, the general meeting was allowed to appoint also a second body: a statutory director. However as of 1 January 2021, a one-tier a.s. can no longer create the function of a statutory director and the single permitted body of a one-tier a.s. will be the management board, appointed by the general meeting, unless the company’s articles of association stipulate that the right to appoint and revoke the management board is a right connected with the share. All management board members will be entitled to act on the company’s behalf towards third parties.

In the case of a two-tier structure in an a.s. which has more than 500 employees, 1/3 of the members of the supervisory board must be elected by the employees.

A Czech branch office must have a branch office head who is entitled to act on behalf of the parent company for the branch office.

Investment incentives in the Czech Republic

The Czech Republic offers a variety of investment incentives. The most prevalent in recent years have been incentives for investments in the manufacturing industry, but the range of eligible projects now include business support services, which cover shared service centres, software development centres, high-tech repair centres and data centres. As incentives are considered state aid, they are granted in full compliance with EU state aid regulations.

Incentives are provided under the Investment Incentives Act, and consist of:

• income tax relief for up to ten years for a new company established for an investment project and partial tax relief for up to ten years for an existing company which will be expanding an investment project;
• cash grant for up to 20% of the capital investment in certain strategic projects; and
• employment subsidies in the form of grants for job creation and training with respect to technology centres (available only in regions with high unemployment rates)

Register of Beneficial Ownership

In 2018, compulsory registration of companies’ beneficial owners into the Register of Beneficial Owners was introduced. The Register is not public and the information in it is only accessible to selected public authorities.

Management restrictions

Management rights, i.e. the right to act on the company’s behalf, can be restricted by the company’s corporate documents or decisions of the general meeting. However, it is possible that the manner of acting on behalf of the company is, for example, determined in such a way that certain executives are entitled to act solely in relation to some matters and, for other matters, two executives must act jointly – if this is registered in the Commercial Register, then it will be effective in respect of third parties. This also applies in respect of a multi member board of directors in an a.s. Restrictions are not effective on third parties, so any breach only gives rise to managers’ liability. There are no specific restrictions on foreign managers.

Directors’ and officers’ liability

Directors and board members must, in particular:

• act with the duty of care of a prudent business manager;
• act in the best interests of the company; and
• keep the shareholders informed about matters related to the company.

Directors/board members may be personally liable for:

• damage caused to the company resulting from a violation of their duties (which also applies in the event of the company’s insolvency); and
• administrative or criminal offences.

A director’s liability cannot be limited by agreement with the company; any such arrangement is null and void.

Taxes on corporate income and gains

Corporate income tax

Tax resident enterprises are subject to tax on their worldwide income. An enterprise is considered to be a tax resident enterprise if it is incorporated in the Czech Republic or if its management is located here. Czech non-resident enterprises are taxed on their income sourced in the Czech Republic only and such taxation may be limited by a respective tax treaty. The standard corporate income tax rate in the Czech Republic is 19%.

Administration

Companies may select the calendar year or a fiscal year as their tax year. Tax declarations must be filed within four months after the end of the tax year. Companies that are subject to a statutory audit or are using a certified tax advisor to prepare and submit the declaration are automatically granted a two-month extension.

Capital gains

Capital gains realised by a Czech or another EU parent company on the transfer of shares in a subsidiary established in the Czech Republic or another EU country are exempt from tax if the parent company maintains a holding of at least 10% of the subsidiary for an uninterrupted period of at least 12 consecutive months. Capital gains realised by a Czech or EU parent company on the transfer of shares in a subsidiary in a contracting country (which is a third country that has entered into a tax treaty with the Czech Republic) are also exempt from tax if the following conditions are met:

• The subsidiary has a legal form comparable to a Czech joint-stock company, a limited liability company, or a cooperative.
• The parent company has held an ownership interest of at least 10% in the subsidiary for at least 12 consecutive months (this condition may be fulfilled subsequent to the date of the transfer).
• The subsidiary is liable to a tax similar to corporate income tax at a rate of at least 12% in the tax period in which the parent company accounts for the respective capital gain and in the preceding tax period.

If any of the following circumstances exists the tax exemption does not apply:

• The parent company or the subsidiary is exempt from corporate income tax or similar tax applicable in its jurisdiction.
• The parent company or the subsidiary may opt for an exemption from corporate income tax or similar tax applicable in its jurisdiction.
• The parent company or the subsidiary is subject to zero corporate income tax or similar tax applicable in its jurisdiction.

Other realized capital gains are included with other taxable income and taxed at the regular corporate income tax rate.

Dividends

Generally, dividends are subject to a final withholding tax at a rate of 15%. The tax rate is increased to 35% for dividends paid to Czech tax non-residents from countries outside the EU and European Economic Area that have not entered into a double tax treaty with the Czech Republic or a bilateral or multilateral tax information exchange agreement that is binding on both the Czech Republic and the respective foreign country. However, dividends paid by Czech companies to parent companies that are located in EU countries are exempt from withholding tax based on the EU Parent-Subsidiary Directive, i.e. if the parent company maintains a holding of at least 10% of the distributing company for an uninterrupted period of at least one year. Dividend distributions between two Czech companies are exempt from tax under similar conditions.

Interest and royalties

Interest and royalties sourced in the Czech Republic are generally subject to withholding tax in the Czech Republic at a tax rate of 15%. However, the exemption applies if the recipient is a foreign corporation that is eligible for the benefits arising from the EU Interest-Royalty Directive. Moreover, recipients who are tax residents of countries with which the Czech Republic concluded a double tax treaty may usually benefit from a lower tax rate provided that they are actual beneficial owners of received interests or royalties.

In the absence of income tax treaties and also in the event that a person does not qualify for treaty benefits that would be otherwise available, the withholding tax rate is 35% of the gross interest or royalty income.

Personal income tax

The income that is subject to taxation in the Czech Republic is all income for tax residents and all Czech-source income for tax non-residents. Personal income tax is paid by employees, self-employed individuals and other individuals realizing annual income higher than CZK 15,000 which is not exempt from tax and not subject to a withholding tax. The personal income tax rate is 15% for annual income lower than 48 times the amount of the average wage in total (e.g. CZK 1 701 168 for the year 2021) and 23% for the income exceeding this threshold. The tax rates are applied on both active and most of the passive income.

Individuals who received income exempt from personal income tax where such income was higher than CZK 5 million in an individual case are required to notify the tax authority of such fact. Failure to announce such tax-exempt income is penalized.

Value-added tax (VAT)

VAT is levied on all taxable supplies (goods and services), acquisitions of goods from other EU member states and imports of goods. The standard rate applicable to most goods and services is 21%.

The reduced rate applicable to specified goods and services (for example, to food and beverages, plants) amounts to 15%. A second reduced rate of 10% is applicable in particular to accommodation services, books, pharmaceuticals and baby food.

Real estate tax

Real estate located in the Czech Republic is subject to real estate tax, which applies on a yearly basis. Real estate transfer tax has been abolished as of December 2019.

Social security and health insurance contributions

Income from employment and self-employment activities is subject to social security and health insurance contributions. In the case of employees, it consists of the amounts paid by the employee and the employer. The amounts are calculated from the employee’s gross wage. The person responsible for transferring the contributions to the respective Czech institution is the employer. Self-employed persons pay the advances for social security and health insurance themselves to the relevant institution on a monthly basis.

Employees
Social security insurance
Employer 24.8%
Employee 6.5%
(maximum assessment base is CZK 1,672,080 in 2020)

Health insurance
Employer 9%
Employee 4.5%
(no maximum assessment base applies.)

Self-employers
Social security 29.2%
Health insurance 13.5%

Covid-19 update November 2021 – As Covid-19 infection rates again increased rapidly across Europe and also in the Czech Republic, in late November the Czech government introduced certain restrictions to stem infection rates. The new restrictions include a maximum attendance of 1,000 people at culture and sports events, and a 10 p.m. curfew for restaurants and bars. However, the government restrictions have not proceeded to a lockdown like in neighbouring Austria and Slovakia.

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