Czech Company Formation FAQ

Forming a business in order to buy property in the Czech Republic?

For years, forming a Czech company was the only way for foreigners to purchase property in the Czech Republic. The time and expense required for incorporation posed a minor challenge for major international investors and a serious barrier to small-time buyers.

The most common form of entity established for the purpose of owning real-estate is a limited liability company. A limited liability company is known in the Czech Republic as a "společnost s ručením omezením" (s.r.o.).

Since May 1st, 2004, when the Czech Republic joined the European Union, EU citizens are now, under certain circumstances, able to buy real estate property without an s.r.o.

Below are answers to frequently asked questions on which laws apply, respectively, to EU and non-EU citizens:

If I'm a non-EU citizen can I purchase property in my own name?

When it comes to non-EU citizens, there are only two ways in which he or she can buy real estate here. One way is to receive a temporary residency permit, live in the Czech Republic at least eight years, and then apply for a green card. A green card holder has essentially the same rights as a Czech passport holder, except in the area of voting rights. This card can also, in some cases, be acquired by marrying a Czech citizen.

I'm a non-EU citizen. Can I buy property through a company?

The second option is to set up a limited liability company (s.r.o.) - often referred to as an SPV (Special Purpose Vehicle) - and buy the property through this company.

Note, however, that non-EU citizens who don't have a visa permitting them to stay in the Czech Republic for more than 90 days aren't allowed to be the executive director of a Czech s.r.o. Instead, they must appoint a Czech citizen, an EU passport-holder, or someone with a visa permitting them to stay here longer than 90 days to that position.

If you're a non-EU citizen but you do have a long-term visa, you are permitted to be the executive director.

It's possible to obtain a long-term visa on the basis that you've been appointed the executive director of a company, but it can take up to six months to receive this visa. There's also no guarantee that the visa will, in fact, be granted, since the Czech authorities can reject visa applications without giving a reason.

Because time constraints, non-EU citizens usually form an s.r.o. with an executive director who already fulfils the necessary criteria at its head, until they obtain the necessary visa themselves.

There is no other way for a non-EU citizen can purchase property in the Czech Republic other than the two options described above.

What is an 'EU card' and under what circumstances can an EU citizen get one?

EU citizens don't need a visa to stay in the Czech Republic longer than 90 days, so they don't need to apply for a green card. Instead, they can apply for a temporary "EU card," then, after a certain time, apply for a permanent card.

An EU card enables an EU citizen to purchase real estate in the Czech Republic in his or her own name without using an s.r.o. In order to acquire an EU card, an EU citizen must give the foreigners' police a legitimate reason why he or she wants to stay in the Czech Republic. Among those reasons are a period of study, possession of an individual trade license (živnostenský list), holding the position of executive director in a company, employment or various other important reasons.

If you're not employed in the Czech Republic, the cheapest way to stay here is by getting a živnostenský list. To get one, however, it's necessary to show evidence that you have a place to live in the Czech Republic, in the form of a lease agreement. With a živnostenský list, it's then possible to apply for an EU card. From the time that all the relevant documents are submitted, it usually weeks two weeks to get a trade license and a further four-to-six weeks to get an EU card.

EU citizens that hold a živnostenský list have certain responsibilities. First, they have to file an annual tax return, and pay a minimum 10,000 CZK in income tax every year - even if they've earned no income that year.

An EU citizen holding a živnostenský list must also pay Czech health and social insurance amounting to at least around 2,000 CZK per month. Health and social insurance can, however, be deducted from pre-tax profit if the živnostenský list-holder is earning an income.

I'm an EU citizen but I don't qualify for an EU card. What are my options?

One option is to buy property through a Czech limited liability company (s.r.o.), as a non-EU citizen would. One advantage an EU citizen has in this situation, however, is that they are permitted to be the s.r.o.'s executive director. Because of this, an EU citizen can be the sole shareholder and executive director of any s.r.o. that they form, guaranteeing that they have retain control of the company and don't require the participation of a partner.

What kind of timeframe and costs are involved in buying an s.r.o.?

Buying a shelf company, for the purpose of purchasing, holding and possibly letting or selling real estate, will - if all the necessary documentation is available - usually take one-to-two working days. (It's sometimes possible to complete the process within 24 hours.) New company formations take considerably longer.

For this, Companies, for example wouldn't usually charge more than 60,000 CZK (plus 19% VAT). The price includes registration at all necessary institutions and the registration of all changes, bureaucratic measures and other costs related to the standard purchase procedure. Other services charge roughly the same amount but often come with hidden fees. New company formations can be considerably cheaper, but take a longer time to complete.

What responsibilities does a company owner have?

Certain responsibilities come with company ownership, just as they do with holding a trade license.

First, companies have to file an annual income tax return. You can choose to do this yourself, but it's important to bear in mind that the forms are in Czech and that Czech accounting is more complex than most Western accounting methods.

Unlike holders of trade licenses, companies aren't obliged to pay income tax if they haven't received any income. Also, because your company has no employees, there's no need to pay health and social insurance. If you have decided to register your company for VAT, though, it's important to remember to file monthly or quarterly VAT returns.

This article is for information purposes only. Please seek professional advice before making any major decisions.

Information provided by Robert Norlin of Companies CZ.

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