The Legal System

The Czech Republic is a unitary parliamentary republic with a legal system rooted in continental European civil law traditions. The government is divided into executive, legislative, and judicial branches, ensuring a system of checks and balances.

The Czech legal framework emphasizes the application of codified statutes over case law, which is not binding as it is in common law jurisdictions. Judges and legal practitioners prioritize statutory law, followed by legal scholarship, commentary, and case precedents when interpreting legal matters.

The Civil Code (Občanský zákoník) of the Czech Republic, which came into effect on January 1, 2014, serves as the foundation for private law, regulating contracts, property, family, and inheritance law. It integrates modern legal trends and ensures continuity from previous legal codes.

Foreign Investment in the Czech Republic

The Czech Republic is known for its favorable investment climate, with a stable economy and strategic location in Central Europe. The government generally encourages foreign investment, providing equal treatment to domestic and foreign investors under the law.

Required Registration

Foreign entities must register with the Czech Commercial Register to conduct business. This process involves submitting various documents, such as the company’s articles of association, proof of capital, and identification of the company’s representatives. The registration typically takes a few weeks and is overseen by the Ministry of Justice.

Remittance and Repatriation of Profit

Profits earned by foreign investors can be freely transferred out of the Czech Republic, subject to applicable taxes. Dividends paid to foreign shareholders are generally subject to a withholding tax of 15%, though this rate can be reduced or eliminated under double taxation treaties.

Restrictions on Foreign Investment

The Czech Republic imposes minimal restrictions on foreign ownership. However, specific sectors such as defense, energy, and media may have additional regulatory requirements. Foreign investors must also comply with national security review procedures for strategic industries.

Direct Investment

Forming a Subsidiary

Foreign investors can establish a subsidiary in the Czech Republic either as a branch or a new company. Common forms of legal entities include the limited liability company (společnost s ručením omezeným or “s.r.o.”) and the joint-stock company (akciová společnost or “a.s.”). The s.r.o. is particularly popular due to its simplicity and limited liability, requiring a minimum capital of CZK 1.

Types of Legal Entities

In addition to s.r.o. and a.s., investors may consider other business forms such as partnerships and cooperatives. The choice of entity depends on factors such as liability, tax implications, and management structure. The majority of board members or executives must be residents of the Czech Republic, although there are no nationality requirements.

Corporate Taxation

Corporate Residence

Companies registered in the Czech Republic are taxed on their worldwide income. Non-resident companies are taxed only on income sourced within the Czech Republic. The standard corporate tax rate is 19%, which applies uniformly to both domestic and foreign entities.

Foreign Trade

Import and Export

The Czech Republic, as a member of the European Union, benefits from free trade within the EU and participates in EU trade agreements with third countries. Importers and exporters must comply with EU regulations and standards, which include various duties and tariffs depending on the country of origin.

Labor Laws

Employment Regulations

Czech labor law is designed to protect employees, with regulations governing working hours, minimum wages, and employee benefits. The Labor Code (Zákoník práce) outlines the rights and obligations of employers and employees, including provisions for collective bargaining, termination, and working conditions.

Compensation and Benefits

Employees are entitled to various benefits, including a statutory minimum wage, paid vacation, and mandatory social security contributions. Employers must contribute to health insurance, social security, and unemployment insurance.

Termination

Terminating an employment contract requires adherence to specific procedures and justification. Employees are entitled to severance pay based on the duration of their employment, and protections against unfair dismissal are in place.

Intellectual Property

Copyright

Czech copyright law protects literary, artistic, and scientific works for the lifetime of the author plus 70 years. Software, architectural designs, and other creative works are also protected under the Copyright Act.

Trademark

Trademarks must be registered with the Czech Industrial Property Office to receive protection. Registered trademarks are valid for ten years and can be renewed indefinitely, provided they are actively used in commerce.

Patent

Patent protection is granted for inventions that are new, involve an inventive step, and are capable of industrial application. Patents are valid for 20 years from the filing date, with the Czech Republic adhering to international agreements such as the Patent Cooperation Treaty (PCT).

Regulatory Agencies

The Czech Republic has several regulatory bodies overseeing various sectors, including the Czech National Bank (Česká národní banka) for financial institutions and the Czech Trade Inspection Authority (Česká obchodní inspekce) for consumer protection. These agencies ensure compliance with national and EU regulations.

Litigation and Alternative Dispute Resolution

Litigation

The Czech judicial system provides a framework for resolving disputes, with civil litigation typically involving a first instance court, an appeal court, and the Supreme Court. Mediation and arbitration are encouraged as alternative dispute resolution methods to reduce the burden on courts.

Arbitration

Arbitration is a common method for resolving commercial disputes, governed by the Act on Arbitration Proceedings and Enforcement of Arbitration Awards. The Czech Republic is a party to the New York Convention, facilitating the recognition and enforcement of foreign arbitral awards.

Anti-Corruption Law and Compliance

The Czech Republic has robust anti-corruption laws, with criminal liability for bribery, fraud, and other corrupt practices. The country is a member of international anti-corruption conventions and has established institutions like the National Anti-Corruption Office to enforce these laws and promote transparency in business practices.

In conclusion, the Czech Republic offers a conducive environment for foreign investment, characterized by a stable legal system, favorable tax rates, and robust protection of intellectual property. While there are regulatory requirements to navigate, the country’s strategic location and integration with the EU make it an attractive destination for international business.