Company formation in brief
The most popular businesses for foreign investors to establish in the Czech Republic are:
Spoločnosť S Ručením Obmezeným (s.r.o.) - a private limited company
Akciová Spoločnosť (a.s.) - an open joint stock company
A private limited company can be established by a sole shareholder (maximum number of shareholders is 50). The minimum company capital is € 1 and is fully paid at the time of registration. One person is entitled to own and operate a company. The company is allowed to issue only registered shares, which cannot be transferred to third parties without obtaining the consent of the shareholders. The place of residence of the director does not affect the place of tax registration of a Czech company, and the procedure for obtaining a tax certificate in this country is very simple. Directors and shareholders can be both individuals and legal entities - residents and non-residents of the Czech Republic.
An open joint stock company can be established by a single shareholder - a legal entity or at least two individuals (the maximum number of shareholders is not limited). The minimum capital of a company is € 80,000 and is fully subscribed by all shareholders at the time of incorporation.
The company is allowed to issue only registered shares and can be freely transferred to third parties. The company is governed by a Board of Directors of at least 6 people.
All Czech companies are incorporated through the notarization of their constituent agreements with subsequent registration in the Commercial Register.
A legal entity is recognized as a tax resident of the Czech Republic if it is registered in the Czech Republic or if its activities are managed and controlled in the Czech Republic. The residence of the directors does not affect the tax residence. Obtaining a tax residence certificate is straightforward. For tax residents, the object of taxation is income derived from sources around the world. For non-residents, the object of taxation is income received from a source in the Czech Republic. Income received by a tax resident from a source abroad is taxed on corporate income in the same manner as income received from a source in the Czech Republic. Branches are taxed in the same manner as subsidiaries. The distribution of dividends between Czech companies is exempt from tax if the parent company has at least 10% participation interest in the authorized capital of the subsidiary for at least 12 consecutive months.
Dividends received by a Czech parent company from a source abroad are exempt from tax if:
1. they were paid to a subsidiary from an EU member state, and the parent company has maintained at least 10% of the share capital of the subsidiary for at least 12 consecutive months; or
2. they were paid to a subsidiary that:
a. is a tax resident of a country that is not a member of the EU, but has a corresponding tax agreement with the Czech Republic;
b. has a legal form comparable to that of a Czech joint stock company or limited liability company;
c. is subject to a local tax similar to the Czech income tax with a rate of at least 12%;
d. complies with the conditions for the exemption of dividends from taxation in accordance with the EU Parent and Subsidiary Directive (12 months, 10% participation interest).
Full or partial exemption from tax on income earned abroad is allowed only if it exists and in accordance with tax treaties. If the relevant tax treaty does not provide for full or partial tax exemption, tax on income earned abroad may be deducted as an expense in the following year, provided that income included in taxable income earned in the Czech Republic is taxed.
If the prices in the transaction between affiliated persons differ from the usual market prices, and the resulting difference has not been reliably confirmed, then market prices are used for tax purposes. In order to determine prices for the internal transfer of property, the prior consent of the tax authorities can be requested.
Thin capitalization rules apply to affiliates, as well as to loans and credits received from persons other than affiliates, if the affiliates are required to provide a directly related loan or loan to a person other than the affiliated person ("back-to- back-financing "). The ratio between credit and borrowed funds and equity capital should not exceed the ratio of 4: 1.
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