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Business environment

Content

  1. Business environment in the CR
  2. Legal forms of business entities
  3. Economic subjects according to regional division
  4. Economic subjects according to prevailing activity
  5. 20 most significant companies in the Czech Republic in terms of income in 2008

Business environment in the CR

In the 1990s, the organizational structure of the economy and legal alterations gradually changed in the Czech Republic. The business environment is currently fully stable and comparable to the ordinary level in other EU countries.

The business activities of large companies (legal entities) and trading (physical entities) are developing very well. Individual types of legal entities are similar in many EU countries; only national modification of conditions for their functioning differs. However, they are also similar to those in many other EU countries. A trading certificate is needed for business enterprises as a physical entity; the establishment of a legal entity is more complicated and governed by legal regulations.

The tax system in the Czech Republic is also similar to tax systems in other EU countries. In the 1990s, the area of accountancy was amended so that it fulfills ordinary regulations effective within the EU. Among the most important steps is the conclusion of an agreement for the avoidance of double taxation with most EU countries. The tax system in the Czech Republic is divided into direct and indirect taxes. Both items are almost identical.

Main direct taxes are:

  • income tax of physical entities;
  • income tax of legal entities;
  • property tax;
  • property-transfer tax;
  • inheritance and gift tax;
  • road tax.

Most important indirect taxes are:

  • value-added tax (VAT);
  • custom duties;
  • consumer tax.

Consumer tax and value-added tax (VAT) are harmonized with the same type of taxes in other EU countries. Exported goods and most taxable performance in the CR are subject to VAT. For 2010, a 20% VAT rate has been determined; the decreased VAT rate is 10%. Most goods and services fall within the basic rate. Consumer taxes are collected mainly from alcohol, mineral oils, wine, beer and tobacco products.

Among the basic elements in terms of investor decision-making about investing in business activities in the CR are:

  • favorable position in the middle of Europe;
  • investment protection;
  • good infrastructure;
  • good adjustment of investment incentives from the government;
  • equality of foreign and domestic business entities.

The Czech Republic welcomes investments mainly in its traditional industrial areas; the Czech population is very well educated regarding foreign languages, and tuition at universities is of a high-quality level. Among the most supported sectors are the automotive industry, engineering, electrical engineering and electronics, medical technology, IT and SW development.

The stability of the Czech economy is evidenced mainly by an active balance regarding foreign business and domestic currency strengthening. The quality of Czech production constantly increases, and it is able to compete with the advanced markets of Western Europe. In the Czech Republic, foreign business is developed, which has a positive influence on the competitiveness of Czech companies and decreasing unemployment.

Legal forms of business enterprise in the Czech Republic are divided into two groups:

  • entrepreneurs – physical entities;
  • entrepreneurs – legal entities.

Types of legal forms of enterprising are specified by corresponding legal regulations – Commercial Code (Enactment No. 513/1991 Coll.) and Trading Act (Enactment No. 455/1991 Coll.) – it focuses on entrepreneurs performing their activities based on a trading certificate.

Each legal form of enterprising has its pros and cons. A potential entrepreneur has to think about the business aim and choose the corresponding legal form. The most common legal forms of enterprising in the Czech Republic are limited-liability companies and joint-stock companies.

Entrepreneur – physical entity

Based on the trading certificate represented in the form of an extract from the trade register, a physical entity can perform:

  • notifiable trade – further divided into industrial, unqualified and free trade;
  • concession trade.

A physical entity carries out business at own expense and full responsibility. A physical entity guarantees all its obligations that can arise from business activity with its total property.

Physical entity – entrepreneur – is the simplest form of enterprising. It is defined in the Trading Act and can be established when the following basic conditions are fulfilled:

  • age exceeding 18 years;
  • ability to perform legal acts;
  • criminal correctness;
  • absence of tax debts arising from enterprising and absence of debts regarding payments of social and health insurance.

In some cases, entrepreneurship is subject to qualifications or other eligibilities; this is determined by the corresponding legal regulations.

Physical entities can associate. In such a case, a specific entity is formed – an association of entrepreneurs. Such an association issues invoices under one name; otherwise, they are associated but mostly independent entities.

Entrepreneur – general partnership

General partnership

An association of several physical entities acting under one name. A general partnership is an association of min. two business entities carrying out business under the same name. The partnership is a legal entity and is registered in the Commercial Register. Partners guarantee obligations of the company together and without difference with their entire property. A physical or legal entity can become a partner. A general partnership is established by the execution and signing of a partnership agreement and originates on the date of its registration in the Commercial Register.

Its business name has to include specification “veřejná obchodní společnost (general partnership).” This addition can be replaced with the abbreviation “veř. obch. spol.” or “v.o.s.” If the name of a company contains name of at least one of the partners, addition “a spol. (and co.)” can be used.

The magnitude of a partner’s contribution is not determined. Partners guarantee obligations of the company with their entire property. Partners are obliged to settle their contribution within the term determined in the partnership agreement, without unnecessary delay after establishment of the company or after origination of their participation in the company.

A general partnership can be established by every partner in the framework of specific agreements made among all partners. If, in the partnership agreement, one or more partners are entrusted with partial or full business management of the company, the remaining partners lose such an entitlement in the corresponding extent. During management of the company, the entrusted partner is obliged to observe the policies agreed with other partners. The entrusted partner is obliged to observe the decisions of partners made by a majority of votes. If not determined otherwise by the partnership agreement, each partner has one vote.

Limited partnership

The limited partnership is a legal entity – a combination of a personal company and a company with limited liability. It is defined in § 93 – 104 in the Commercial Code; in classification of the Commercial Code, it is understood as a special form of general partnership, and thus the same amendments apply.

The limited partnership is established by a partnership agreement, by at least two founders, in writing with officially authenticated signatures. Founders can be physical and legal entities. The partnership agreement determines:

  • division of profit;
  • division of rights.

If owners don’t reach an agreement regarding the division of profit, profits are automatically divided in proportion to deposited contributions.

The limited partnership originates on the date of its registration in the Commercial Register. The limited partnership has to include an addition specifying its legal form “komanditní společnost (limited partnership)” or abbreviations “kom. spol.” or “k.s.”

There are two types of partners differing by their rights and obligations:

  • Limited partners – pay their contributions (at least 5,000 CZK; §97a Commercial Code), and they guarantee obligations of the company up to the magnitude of unpaid contributions. They do not interfere in the management of the company; they can only control its economy.
  • Active partners – their position is similar to the position of partners in a general
    partnership. They guarantee with entirely personal property, they are the statutory authority of the company, and they manage the company. The company dissolves after the death of an active partner.

A limited partnership must be established by at least two partners; one of them must be a limited partner and the other an active partner.

Limited-liability company

A legal entity that guarantees its obligations with a particular subscribed amount. The limited-liability company can be established by at least one partner, max. 50 partners. The condition is to deposit a contribution into the company – basic capital in the magnitude determined by law (200,000 CZK). Partners guarantee obligations of the company only in the magnitude of unpaid contributions; if all contributions are paid, the partners guarantee no obligations. Each partner must deposit basic capital in the magnitude of min. 20,000 CZK (see §108 and §109, Enactment No. 513/1991 – Commercial Code).

This form of legal entity is prevalent in the Czech Republic. Contributions can be monetary or non-monetary. The company must create a reserve fund. Among the authorities of the company is the general assembly (supreme authority). The statutory authority is the executive heads that jointly manage the company. A supervisory board can be also designated.

A limited-liability company must be specified with the abbreviation “s.r.o.” or “spol. s r.o.”

Joint-stock company

The form of a capital company where basic capital must be present. Basic capital is divided between particular quantities of shares with a determined nominal value. The share is a value bill; rights and obligations of shareholders to participate in the management, profit and termination of the company and its liquidation balance are related to the number of shares.

The company can be established by one legal entity, or two or more physical entities. Unless a higher magnitude is determined by special regulation (e.g. for banks), the basic capital of the company has to amount to at least 20 million CZK (with a public offering of shares). The basic capital of the company established without a public offering has to amount to at least 2 million CZK. The authorities of this type of company are a general assembly, board of directors and a supervisory board.

  • General assembly – the supreme authority of the company; all subscribers of shares can attend under specific conditions. The general assembly makes decisions about establishment of the company, approves articles of the company and votes and outvotes members of the board of directors.
  • Board of directors – statutory authority of the company – governs its activities and acts on behalf of the company. It ensures management of the company, keeping of accountancy records and submits financial statements and proposal for division of profit for approval to the general assembly. It has at least three members (N/A if there is only one shareholder). The board of directors is managed by a chairman.
  • Supervisory board – supervises achievements of the board of directors and realization of business activities. Its members have access to all documents regarding the activity of the company, control accounting records and if the business activity of the company is in accordance with legal regulations, articles and instructions of the general assembly. There are at least three members, and the number of members must be divisible by three.

Cooperative society

Cooperative societies are associations of physical and legal entities. They guarantee with their membership interest and act mainly as legal entities. The cooperative society is managed by a board of directors; the supreme authority is the general meeting. The statutory authority of a cooperative society is the board of directors, represented by a chairman or deputy chairman. The cooperative society originates on the date of its registration in the Commercial Register and dissolves on the date of its deletion from the Commercial Register.

The Czech legal system determines that a cooperative society is an association of an unlimited number of persons established for the purpose of enterprising or providing economical, social, housing or other needs of its members. This also means a cooperative society cannot be established for charitable purposes in favor of its non-members.

The business name of the cooperative society must contain the specification “cooperative society.” The cooperative society must be formed by at least five persons or two legal entities. For breach of its obligations, the cooperative society is responsible with its whole property. Members do not guarantee obligations of the cooperative society.

Foundations, nonprofit organizations, etc.

These are special types of business subjects defined by special enactments. They mostly fulfill social and humanitarian functions.

Nonprofit organizations are organizations that are not established with the aim of making and dividing profit. They are established mainly for the purpose of assistance. Their activities are voluntary, and they help those who need it. They do not charge money for their services; on the contrary, they use the available money to help others. Any eventual profit is used for the operation of the institution and the improvement of activities. In no case can the profit be divided between the founders or employees of organization.

Nonprofit organizations are exempt from various types of taxes.

Economic subjects according to regional division

Number of units in the register of economic subjects according to regional division and selected legal forms

Regional division Total thereof selected legal forms
private entrepreneurs trading companies Coop. soc. public comp.
abs. % total thereof reg. in the BR total thereof Ltd. thereof JSC
Capital city Prague 484 999 18,63 280 170 3 924 123 801 113 401 10 400 6 171 116
Central Bohemian region 301 252 11,57 228 153 2 202 27 210 25 793 1 417 1 049 39
South Bohemian region 154 709 5,94 116 605 742 13 558 12 775 783 715 14
Plzeň region 141 046 5,42 100 118 832 12 847 12 163 684 506 13
Karlovy Vary region 81 563 3,13 57 937 621 8 141 7 845 296 154 18
Ústí nad Labem region 177 506 6,82 130 750 1 711 16 287 15 409 878 492 35
Liberec region 116 381 4,47 90 143 871 10 075 9 581 494 419 20
Hradec Králové region 132 983 5,11 102 868 789 11 186 10 394 792 591 28
Pardubice region 111 898 4,30 85 424 756 9 100 8 517 583 457 18
Vysočina region 103 321 3,97 78 810 459 7 309 6 864 445 557 7
South Moravian region 281 460 10,81 203 504 1 936 38 523 35 735 2 788 1 999 59
Olomouc region 136 783 5,25 107 411 527 10 771 10 005 766 607 16
Zlín region 136 321 5,24 106 811 672 13 050 12 244 806 305 14
Moravian-Silesian region 243 542 9,35 187 073 1 168 22 920 20 908 2 012 1 578 26
TOTAL 2 603 764 100,00 1 875 777 17 210 324 778 301 634 23 144 15 600 423

Situation on: 30.9.2009
Source: Czech Statistical Office

Economic subjects according to prevailing activity

Number of units in the register of economic subjects according to prevailing activity and selected legal forms

Regional division Total thereof selected legal forms
private entrepreneurs trading companies Coop. soc. public comp.
abs. % total thereof reg. in BR total thereof Ltd. thereof JSC
A Agriculture, forestry and fishery 144 516 5,55 125 002 198 5 631 862 4 642 1 544 27
B Mining and extraction 618 0,02 175 8 341 64 272 4 6
C Manufacturing industry 303 274 11,65 257 318 1 987 35 219 2 792 31 365 673 65
D Production and distribution of electricity, gas, heat and conditioned air 2 149 0,08 236 9 675 162 506 6 10
E Water supply; activities related to waste waters, waste and sanitation 10 219 0,39 7 646 33 1 871 234 1 592 22 11
F Building industry 309 783 11,90 256 402 2 797 25 659 1 134 23 405 961 30
G Wholesale and retail sale; repair and maintenance of motor vehicles 663 576 25,49 501 493 7 739 114 080 4 640 106 712 612 43
H Transport and storage 72 978 2,80 64 452 782 7 438 351 6 893 54 10
I Accommodation, boarding and catering 130 218 5,00 115 891 378 12 795 425 12 037 65 23
J Information and communication 53 394 2,05 42 075 203 10 247 677 9 346 52 6
K Financial and insurance industry 57 007 2,19 3 851 13 1 887 735 1 120 88 0
L Real estate activities 135 428 5,20 24 661 345 50 569 7 021 43 120 10 794 45
M Professional, scientific and technical activities 319 132 12,26 253 913 1 252 39 122 2 844 35 120 411 113
N Administrative and support service activities 49 177 1,89 34 923 950 7 804 402 7 058 191 14
O Public administration and defense, compulsory social security 15 474 0,59 507 1 16 5 11 0 1
P Education 40 476 1,55 27 236 125 2 486 63 2 330 17 0
Q Health and social activities 32 379 1,24 3 765 24 2 204 156 1 997 14 4
R Arts, entertainment and recreation 58 226 2,24 26 486 89 3 419 460 2 838 25 4
S Other activities 168 177 6,46 97 078 156 1 913 56 1 790 33 11
T Activities of households as employees; undifferentiated goods and services producing activities of households for own use 1 0,00 1 0 0 0 0 0 0
U Activities of extraterritorial organizations and authorities 138 0,01 0 0 0 0 0 0 0
Miscellaneous 37 424 1,44 32 666 121 1 402 61 1 335 34 0
Total 2 603 764 100 1 875 777 17 210 324 778 23 144 293 489 15 600 423

Situation on: 30.9.2009
Source: Czech Statistical Office

20 most significant companies in the Czech Republic in terms of income in 2008

Rank Company Income in 2008 (thous. CZK) Income in 2007 (thous. CZK)
1 ŠKODA AUTO a.s. 200 182 000 221 967 000
2 ČEZ, a. s. 181 638 000 174 562 760
3 RWE Transgas, a.s. 108 531 500 78 562 187
4 AGROFERT HOLDING, a.s. 101 364 829 83 384 801
5 UNIPETROL, a.s. 98 143 951 88 778 515
6 FOXCONN CZ s.r.o. 89 866 266 89 526 078
7 MORAVIA STEEL a.s. 65 239 080 61 956 067
8 Telefónica O2 Czech Republic, a.s. 64 709 000 63 196 000
9 ČEPRO, a.s. 54 032 257 43 430 466
10 Panasonic AVC Networks Czech, s.r.o. 50 867 797 46 157 839
11 Shell Czech Republic a.s. 50 298 338 33 845 018
12 OKD, a.s. 50 007 176 38 577 665
13 Agip Česká republika, s.r.o. 49 143 505 28 386 938
14 Toyota Peugeot Citroën Automobile Czech, s.r.o. 49 110 345 51 284 232
15 ArcelorMittal Ostrava a.s. 48 555 973 48 581 506
16 SIEMENS Group ČR 45 088 382 70 682 962
17 MAKRO Cash & Carry ČR s.r.o. 39 700 000 39 300 000
18 AHOLD Czech Republic, a.s. 39 580 784 38 331 134
19 Skanska CS a.s. 37 607 153 35 904 551
20 TŘINECKÉ ŽELEZÁRNY, a. s. 37 084 851 35 546 658

Source: Inquiry of association CZECH TOP 100



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