The Czech Republic offers an interesting mix of advantages for foreign investors. A large share of the population has secondary and tertiary education and notably, a highly qualified, flexible and innovative workforce available at a fraction of the cost of Western economies. The country has a long history of industrial production, a strategic location and a mentality, culture and attitudes similar to those of Western countries.

The Czech Republic is one of the most successful transition economies, and its economy is considered highly developed and open as well as heavily dependent on foreign demand. Its main business partners are EU countries, the destination of 85% of Czech exports (33% of which go to Germany). The main export commodities are machinery, computer technology and transportation vehicles.

The country is popular among foreign investors thanks to its central location (as it is close to major EU markets), developed manufacturing sector (especially automotive), favourable labour costs (recently rising due to a shortage of skilled workers), well-educated and skilled workforce, fair business environment, and easy to secure supply chain.

For future prosperity, it will be crucial for Czech producers to find new export markets outside the EU. The Ministry of Industry and Trade has prepared a new export strategy, in co-operation with local exporters and the general business public. It concluded that a wider stratification of Czech industry will be beneficial to avoid further dependence on the automotive and engineering sectors. Chemical and chemical-technological industries are promising in this respect.

Originally, the Czech Republic attracted foreign direct investments mainly into the engineering sector. New, large greenfield projects in the automotive sector were realised in the northeast and central regions. These investments especially benefited from lower labour costs (compared with Western countries), a strong tradition of engineering, as well as a convenient location in Central Europe.

The Czech Republic desires to become a destination for investments with high added-value, requiring less invested capital. For this reason, the country is focused on negotiating with investors interested in research and development (R&D) and services, to which it can offer an optimal combination of favourable investment factors. Spending on R&D has increased from 0.95% of GDP in 1995 to over 2% of GDP in 2019. Total R&D spending in the Czech Republic has more than doubled over the past ten years.

In 2019, FDI inflow totalled EUR6.743 billion, concentrated in the automotive-components sector, while software, IT and financial services industries were the second-largest beneficiary. The most important investors are Germany, the US, Japan, the UK and Austria. The current top destinations for inward foreign direct investment include the South Moravian region, the Ústecký region, the Central Bohemian region and Prague.

The Czech Republic has approximately 10.7 million inhabitants as of 2020. The majority of inhabitants are ethnically Czech. National minorities include Ukrainians, Slovaks, Vietnamese, Russians, Poles, Germans, among others. The official language is Czech, which is spoken by 96% of the population.

A working week consists of a maximum of 40 working hours, with certain exceptions.

The Czech Republic currently has 13 statutory public holidays.

Generally speaking, the business hours for most services and offices are from 8/9 am to 17/18pm on Monday through to Friday.

The Czech Government approved the proposed National Recovery Plan for nearly CZK200 billion, agreed contingent on further easement of the 2019 novel coronavirus disease (COVID-19) control measures. Once the crisis triggered by the pandemic has subsided, the Czech economy will be revived and substantially modernised, with the help of the National Recovery Plan. Through the National Recovery Plan, the Czech Republic will absorb funding from the newly established EU fund, the Recovery and Resilience Facility. The Plan, together with the state budget contribution, will provide nearly CZK200 billion to invigorate the Czech economy through investment. Funds will be directed towards greener modes of transport, healthcare, high-speed internet networks as well as constructing new pre-school childcare facilities.

As the country aims to be a destination for investments with high added-value, requiring less invested capital, it is focused on negotiating with investors interested in R&D and services. To such investors it can offer an optimal combination of favourable investment factors.

In October 2021, parliamentary elections were held in the Czech Republic. For the first time since the Velvet revolution in 1989 the Communist party was not elected in to the Czech Parliament. Two coalition groups of the current opposition parties (SPOLU and Piráti a Starostové) have gained a majority in parliament and are negotiating the formation of a government. The current ruling movement ANO is moving into opposition. No changes are expected that would substantially affect the current investment outlook.

As of 1 January 2021, Act No 33/2020 Coll. came into force. It made significant changes to the Business Corporations Act (Act No 90/2012 Coll.), mainly with regard to limited liability companies and joint stock companies (for example, affecting regulations on the establishment of limited liability companies and on the monistic structure in joint stock companies). The amendment also clarifies some uncertainties in commercial law that arose on the effectiveness of the Business Corporations Act.

The Act No 37/2021 on Register of Ultimate Beneficial Owners goes into effect from 1 June 2021. It will provide a new definition of "Ultimate Beneficial Owner" (UBO), along with several other minor changes. Business corporations that registered their UBO in the register under the legislation that was in effect before 1 June 2021, must review the information listed in the UBO Register and update it in accordance with the new definition of UBO under the AML Act. Companies that have not fulfilled the obligation to register their UBO under the old legislation must do so without delay in accordance with the AML Act, before it goes into effect.

The Czech Republic is one of the most open economies in the world and is a desired investment location for foreign investors who significantly contribute towards the development of Czech companies. An attractive investment environment needs effective defensive tools in place against harmful investors, who may endanger the country's security or public order and disrupt the health of the economy. As a result, many European countries have implemented or strengthened their national systems to screen selected investments on national security grounds. In addition, they are participating in the European co-operation and information exchange mechanism, established in October 2020 in accordance with the FDI Screening Regulation ((EU) 2019/452). The Czech Republic implements its national screening mechanism under Act No. 34/2021 Coll., on Screening of Foreign Investments, effective from 1 May 2021. The law applies to foreign investors with UBOs from non-EU countries, in particular those whose investment represents a 10% or higher share in a Czech company active in a sector that is important for the security, public, or internal order of the Czech Republic. Investors into businesses active in the production of military materials, selected dual-use goods, or in critical or critical information infrastructure will have to ask for consent from the Ministry of Industry and Trade before the investment is completed. Moreover, other national security–relevant investments that have not been scrutinised and do not affect one of the sensitive sectors could be subject to ex post facto screening retroactively up to five years from the date of completion of the investment.

The Czech Parliament recently passed a new Building Act, which should speed up the building permitting procedure, digitalise the related permitting procedure and restructure the permitting office to make it more efficient. The new Building Act will come into force as of 1 July 2023.

The Czech Republic has a statute-based civil law system. Although case law is not binding, decisions of the appeals courts can affect how laws are interpreted. The Czech Republic is a member of the EU and a signatory to a number of international treaties that supersede national legislation.

Generally, there are no laws that would discriminate against foreign investors apart from laws governing specific acts and a new Act on Screening of Foreign Direct Investments (FDI Act) effective from 1 May 2021. The FDI Act was adopted in accordance with the FDI Screening Regulation ((EU) 2019/452). It introduces screening mechanisms for third-country investments that are likely to affect the security interests of the Czech Republic. The FDI Act sets out several sensitive sectors where FDI will always be subject to a mandatory screening, for example, production and research and development of military equipment or operation of any element of any critical infrastructure. The Act also enables foreign investors to submit a request for a consultation with the Ministry of Industry and Trade in order to prevent a retroactive ban on the investment because a security threat is discovered later.

Third-country investments that have not been screened and that do not affect one of the sectors classified as sensitive under the FDI Act can still be reviewed retroactively for security and violation of the internal or public order of the Czech Republic, up to five years from the date of completion of the investment.

If the screening of the foreign investment results in the finding of a security risk, the investor will then enter into negotiations with the Ministry of Industry and Trade in order to set conditions for the investment so as not to threaten the security and strategic interests of the Czech Republic. Security objections can be raised not only by certain governmental bodies of the Czech Republic but also by other EU member states or the European Commission.

Prohibition of the FDI can be in the form of a restriction or ban on the voting and other equity rights of the foreign investor, or a requirement that the investor divest by a given deadline.

The FDI Act is in line with recent developments in other European countries and in the US that aim to protect national (or European, as the case may be) interests, including security of the infrastructure, safety of people and independence of various industry sectors. Existing or contemplated investments may need to be internally reviewed and appropriate steps undertaken.

Foreign shareholders can legally hold a majority interest in Czech companies.

Under the FDI Act a foreign shareholder (or investor) is any person who

Transactions will be subject to screening if the foreign investor

There are no general restrictions on foreign investments. However, certain limitations or registration requirements apply to some sectors, including, for example, banking or trading in military equipment. In addition, foreign entities must register their official branches in the Czech Commercial Register. In some cases, investors have to contact respective ministries. This applies to setting up a company active in the national defence, nuclear energy or healthcare sectors.

The Czech Republic is a member of the EU Customs Union, which applies a uniform trade relations regime to third countries that is binding on all EU member states. The EU closely monitors compliance with international trade rules and, in cases of violations, takes measures to protect its interests, for example, through embargos and bans on investments.

A list of sanctions imposed by the EU is accessible via https://sanctionsmap.eu/#/https://sanctionsmap.eu/#/.

There are no substantial restrictions imposed on persons operating on the foreign exchange market. The only exceptions are reporting duties in relation to financial operations, and certain requirements on currency exchange activities. In addition, special restrictions can be adopted in a state of emergency.

The Czech National Bank (CNB) grants permission for the performance currency exchange activities on request of the person or entity intending to carry out the activities. Currency exchange officers that obtain this permission are registered in the Currency Exchange Officers Register, maintained by the CNB, which also oversees administration of the foreign exchange market and regulates exchange activities.

Recently there was also a change in anti-money laundering legislation, effective from 1 June 2021. Every legal entity is obliged to register its Ultimate Beneficial Owner (UBO) under newly revised conditions. Every natural person who can obtain, either directly or indirectly, at least a 25% share of earnings, or who has a significant share of the voting rights or controls or otherwise exercises a decisive influence on the company will have to be registered as a UBO in a public register.

The new legislation brings forth certain limitations (such as administrative fines or a ban on profit distribution, limitation of execution of shareholders' rights) and related potential harm that could result from failing to register duly and timely.

The Czech Republic offers various investment incentives, for example, full or partial corporate income tax relief, financial support for the creation of new jobs and for training/retraining of employees, as well as transfers of public land for discounted prices.

The provision of investment incentives to foreign investors began in 1998 and culminated in 2002 with the adoption of the Act on Investment Incentives. Investment incentives were initially directed towards the manufacturing industry.

Under amendments to Act no. 72/2000 Coll. on investment incentives, from 2019 several new general conditions went into effect to support investment projects, including creating projects with "higher added-value". This condition applies to projects developed in the manufacturing industry and relating to centres for strategic services (Governmental regulation no. 221/2019 Coll., on the implementation of several provisions of the Act on Investment Incentives). The meaning of "higher added-value" varies from project to project. For example, data centre projects (which are considered strategic services) are deemed to be of higher added-value if they store, sort and administer data using the centre's computer systems, and these services are provided in at least three countries.

Nowadays, there are three main supported sectors, manufacturing, technology centres, and business support services centres. The eligibility criteria vary for each type of investment incentive.

The current forms of investment incentives are:

State aid is provided up to the maximum amount stipulated in the Regional Development Strategy of the Czech Republic 2021+. The maximum amount of state aid that can be provided, (with certain exceptions) is 25% of total eligible costs for large enterprises, 35% for medium-sized companies and 45% for small companies. State aid is understood to be tax incentives, job creation grants, transfers of land at favourable prices, property tax exemptions and cash grants for capital investment. Training and retraining grants are not counted towards the maximum state aid intensity, as this aid is provided as extra cash.

Project funding can also be found through programmes at ministries or regional councils of cohesion financed by the EU or the Czech Republic (for example, the infrastructure development programme at the Ministry of Industry and Trade to support business and innovation, efficient energy management, information and communication technology (ICT) development, as well as the programme of the Ministry of Labour to support employment and requalification).

The most common business vehicles are the private limited liability company (LLC) (společnost s ručením omezeným) and joint stock company (JSC) (akciová společnost). An LLC is a very popular legal form for small and mediumsized businesses because it requires a lower minimum capital investment and fewer corporate governance requirements than a JSC.

The Czech trust fund (svěřenský fond) functions similarly to trusts of Western EU countries.

Foreign companies typically establish a subsidiary in the Czech Republic in the form of an LLC or a JSC. Foreign companies that do not want to establish a separate legal entity in the Czech Republic may consider doing business through a branch (odštěpný závod zahraniční osoby).

Both an LLC and a JSC must be registered in the Commercial Register, which is maintained by the regional courts. Before registering an LLC, a memorandum of association or foundation deed must be executed as a notarial deed. The company comes into existence (is incorporated) on registration in the Commercial Register. To carry out business activities a company must obtain the relevant trade licence for the activities it intends to undertake, or some other form of business authorisation. In general, it takes few weeks to create a company and get it ready for conducting business. It is also possible and quicker to buy a ready-made company.

A company's name must be unique, distinctive and not misleading. Furthermore, a company's name must include an indication of the company's form (for example, all LLC's must include in its name the words "společnost s ručením omezeným" or an abbreviation "spol. s r.o." or "s.r.o.").

Information about registrations in the Commercial Register is available at www.justice.cz.

The following documents, among others, must be filed with the Commercial Register's Collection of Deeds:

The filing process itself is free of charge. The information filed is publicly available. Failure to comply can result in civil, administrative or criminal liability.

Companies must also register their beneficial owners in the Register of Beneficial Owners. Since mid-2021 some information from the register is accessible to the public (notably name, month and year of birth, nationality and country of residence of each beneficial owner). The register as a whole is also accessible to selected authorities.

The minimum required share capital is as follows:

There is no maximum share capital.

Non-cash consideration for shares is permitted. However, consideration in the form of performance of work or services is not permitted. Apart from a few exceptions, non-cash contributions must be formally assessed by an independent expert.

Restrictions on Rights Attaching to Shares. The memorandum of association, or foundation deed of a LLC can provide for different types of shareholdings and different capital contributions to be attached to the shareholdings. A JSC can issue ordinary shares, shares with attached priority dividend rights, limited voting rights or other specific rights. Shares or shareholdings of the same type must be accorded the same rights.

Automatic Rights Attaching to Shares. Shareholders have the right to:

The scope of legal rights can be adjusted by the articles of association, foundation deed or by a memorandum of association.

An LLC must have at least one managing director.

A JSC must have one of the following:

Management rights can be restricted by the corporate documents of the company or decisions of the general meeting. Restrictions are not effective on third parties, so any breach only gives rise to managers' liability. There are no specific restrictions on foreign managers or their place of residence.

Directors and board members must:

Directors/board members can be personally liable for:

Directors cannot limit liability by an agreement with the company. Any such arrangement is null and void.

A parent company is only liable for the debts of its LLC subsidiary up to the amount of its subscribed but unpaid capital contribution as recorded in the Commercial Register. The parent company can be liable for exercising control over the subsidiary if the control was found to be detrimental. A parent company can also be liable for criminal offences.

(Act No. 418/2011 Coll., on the Criminal Liability of Legal Entities and Proceedings Against Them.)

The main environmental regulations that a business must take into account in the Czech Republic are the following:

Protection of Air. Generally speaking, protection of air ensures that the air is not polluted above the stated level. The operators of stationary sources (excepting operators of small stationary sources) must, among other obligations, comply with emission limits. They are also obliged to pay pollution fees. Special treatment applies to smog situations, and regulatory measures may be announced, meaning that the production or operation of stationary (or mobile) sources is reduced for a specified length of time.

Protection of Water. Surface and underground water is subject to legal protections. Use of water for other than personal use is regulated by the water authority. Wastewater may only be discharged into surface and underground water with permission and for a fee. Certain hazardous substances cannot be discharged at all. Rivers are also protected, for example, it is forbidden to change their course.

Protection of Climate. The climate is also subject to legal protection (regulated by international, European and national laws), especially due to climate change and the impact and results connected therewith, for example, the massive increase in atmospheric concentrations of greenhouse gases (emissions). The EU ETS scheme is one of those efforts to reduce emissions. It is regulated by Act No. 383/2012 Coll., on the conditions of greenhouse gas emissions allowance trading, as amended. Another tool for improving the environment and reducing greenhouse gases is promoting the use of energy from renewable sources (for example, energy from biomass, water, wind, solar and geothermal).

Soil Protection. All land is subject to protection, although the form and intensity varies. Agricultural land, which represents more than 50% of the area of the Czech Republic, is protected through the Agricultural Land Fund. Use of agricultural land for anything other than agricultural purposes is possible only with the consent of the competent authority and for a fee. Additionally, forest lands (which accounts for more than 30% of the land in the Czech Republic) are protected similarly to agricultural land.

Waste Management Regulation. Regulation of waste management is threefold, constituted by the waste management plan of the Czech Republic, the waste management plan of each district and finally the waste management plan of each waste producer. Generally, the most important obligation is to prevent waste generation. Where waste generation cannot be prevented, the waste producer is obliged to use and/or dispose of waste in a way that does not endanger human health and the environment. On 1 January 2021, a new regulation on waste management went into legal force, Act No. 541/2020 Coll., on waste and its implementing legal regulations (Waste Act). The main legislation further specifying the New Waste Act is Decree No. 8/2021 Coll., on the waste catalogue and assessment of waste properties (effective from 27 January 2021). The main changes are as follows:

The main law regulating employment relationships in the Czech Republic is the Labour Code (Act No. 262/2006 Coll., as amended). It regulates in detail most aspects of employing employees, for example:

Some specific aspects are also regulated by separate acts, for example collective bargaining (Act No. 2/1991 Coll., as amended) and the employment of handicapped employees or agency (temporary) employees (Act. No. 435/2004 Coll.).

The above laws also apply to foreign employees if employed under Czech law (this is a common approach if the foreign national has been hired by a local Czech company). In addition, the laws should apply to employees posted abroad (that is, to work on a temporary basis). Finally, mandatory rules stemming from these laws (that is most rules that protect employees) should apply even if the parties have chosen a foreign law, but the employee habitually works in the Czech Republic.

Employees (workers performing dependent work) must sign a written employment contract in which the following elements must be agreed:

In addition, employment contracts typically stipulate the employee's other conditions related to work and remuneration. This includes, in particular, employment contract clauses dealing with:

These terms can also be set out unilaterally by the employer in its internal policies.

Many terms are implied in the employment contract, mainly by the Labour Code. These include, for example:

In addition, collective agreements (both company-level collective agreements and higher-level collective agreements, if declared binding on a relevant sector) also apply to individual employment relationships. Collective agreements usually provide employees with higher and/or additional entitlements.

In addition to employment contracts, the Labour Code recognises more flexible agreements for "limited-extent work" (of up to 20 hours a week on average). Unlike standard employees, employees working on the basis of these specific agreements can be dismissed, without reason and without severance.

The principles of free movement of labour apply to all EEA citizens and employees from Switzerland working in the Czech Republic, and their relatives. Employees from these countries do not require any permits, provided they have a travel document or an identity card.

Citizens from a third country (that is, non-EU citizens) without permanent residency in the Czech Republic must obtain an employee card. Some exemptions apply, which can significantly shorten the application process. An employee card is a permit for long-term stay in the Czech Republic where the purpose of the foreign national's stay (longer than three months) is employment. An employee card therefore combines/covers both work and residency permits (there is only one decision/proceeding). A foreign national who has an employee card is entitled to:

An employee card is issued for the duration of the employment relationship but not for more than two years, with an option to repeatedly extend its validity.

The deadline for deciding on an application for an employee card is 60 days (or 90 days in especially complicated cases). However, the whole process, which starts with a mandatory labour-market test, generally takes up to five months.

Employees of large JSCs with more than 500 employees are entitled to appoint one-third of the supervisory board's members. Employees in smaller JSCs (and employees in all LLCs) do not have this right.

All employees (employees of all companies and other legal entities) are entitled to be consulted in respect of:

If a trade union is established, the employer must consult with it on every individual notice of termination and/or summary dismissal.

The concept of at-will employment is not recognised in the Czech Republic.

Employees are protected against termination because employers can serve a notice of termination only on the following grounds:

However, employees may terminate their employment at any time and for any reason (without the need for a specific reason).

Statutory Minimum Notice. A statutory notice period is two months, which starts on the first day of the next calendar month following delivery of a written notice to the other party. This notice period may be prolonged by agreement.

In extraordinary situations (for example, for theft, embezzlement, alcohol abuse, physical assault and other cases of gross misconduct), an employer can dismiss an employee with immediate effect (summary dismissal).

Severance Payment. Employees who are made redundant (including those made redundant because the employer or part of it shuts down or relocates), are entitled to a severance payment of up to three monthly average salaries, depending on the length of service. If an employee is dismissed for work-related health reasons, they are entitled to a severance payment of 12 average monthly salaries.

Grounds for Unfair Dismissal. Termination for any other ground (if challenged in court) is considered unfair/unjustified and therefore invalid. The same applies to termination if an employer fails to meet any (even formal) requirements set by the Labour Code, for example, if notice for a breach of work discipline is delivered after the end of mandatory deadline or if the notice is not properly delivered.

Remedies. Employees are entitled to their full salary for the entire duration of the court proceedings (there is no cap). Moreover, they are entitled to reinstatement if they succeed in court.

There are additional protective regulations, for example, redundancies cannot be made during "protective periods", for example, during sickness or pregnancy.

Redundancies and mass terminations are regulated by the Labour Code.

In individual redundancies, employees are entitled to their salary during the two-month notice period in addition to severance pay (see Question 16).

The regulation of mass terminations is based on the Collective Redundancies Directive (98/59/EC). The relevant provisions apply only where a certain number of employees are dismissed within a period of 30 days. This number varies depending on the size of the employer's undertaking:

At least 30 days before notices are given to individual employees, employee representatives (that is, the works council and/or trade union) must be informed about the planned mass layoffs and consulted about them. If there are no employee representatives, all affected employees must be consulted directly. In addition, the employer must also inform the relevant Labour Office (public authority) about the planned mass layoff 30 days before delivery of the first notice of termination. However, neither employee representatives nor the Labour Office can refuse the layoffs.

The scope of taxation depends on the tax residency status of the individual. Czech tax residents are taxed on their worldwide income, while Czech tax non-residents are taxed on their Czech source income only.

Unless an applicable double-tax treaty (see Question 27) provides otherwise, the following individuals are considered to be Czech tax residents:

The taxable period for all individuals is a calendar year.

The Czech Republic does not have any other methods to determine tax residency.

Tax-resident employees must pay the following:

For personal income tax and social security/health insurance contributions non tax–resident foreign employees (if they are subject to the Czech mandatory social security and public health insurance systems) are liable to pay personal income tax on their Czech source income at the same progressive tax rates as tax-resident employees.

Both tax resident and non-tax–resident individuals are obliged to file on their own behalf an annual personal income tax return if they received employment income concurrently from more than one employer, or if they earned various types of income exceeding CZK 6,000 other than:

Employer contributions to social security are 24.8% of the employee's gross taxable employment income, up to a cap of 48 times the average salary (CZK1,867,728 in 2022). The employer's health insurance contributions amount to 9% of the employee's gross pay. There is no cap.

Tax resident companies are those situated in the Czech Republic or managed and controlled from a place within the Czech Republic. (Their place of effective management is in the Czech Republic.)

The place of effective management is any place where key management and commercial decisions that are necessary for the conduct of the entity's business as a whole are made.

Tax-resident business vehicles are taxed on their worldwide income, unless they are expressly tax-exempt. Relief is normally granted to foreign-source income under double-tax treaties (see Question 27).

Non tax–resident businesses are liable for corporate income tax on Czech source income as defined in Act No. 586/1992 Coll., on Income Taxes, as amended and subject to the provisions of any applicable double-tax treaty. Typically, non tax–resident businesses having a permanent establishment in the Czech Republic are liable for corporate income tax on profits attributable to the permanent establishment. Depending on the circumstances, the income of non tax–resident businesses may be liable to file a corporate tax return by the statutory deadlines.

The main taxes that potentially apply to a tax-resident business vehicle include the following:

Withholding tax is generally levied at 15% on dividends. Double-tax treaties and EU directives can reduce (or eliminate) this.

Under the Czech implementation of the Amended Parent-Subsidiary Directive (2003/123/EC) dividends paid by Czech tax-resident subsidiaries to their parent companies (as defined in the directive) located in other EU/EEA member states are exempt from both withholding taxes (on payment) and corporate income tax (on receipt) if the parent company holds at least 10% of the distributing subsidiary for an uninterrupted period of at least 12 months (although this condition can also be fulfilled subsequently).

Dividends received by Czech-resident parent companies from foreign subsidiary companies that are tax resident in other EU member states are exempt from tax under the Czech implementation of the Amended Parent-Subsidiary Directive. Dividends from subsidiaries outside the EU are taxed at 15%, except where the subsidiary meets certain criteria, including:

Interest on foreign loans (and some other debt instruments) paid by a Czech tax-resident company (or by a Czech branch of a company incorporated in another EU member state) abroad is subject to 15% withholding tax. This can generally be reduced or eliminated through an applicable double-tax treaty, or exempted under the Interest and Royalties Directive (2003/49/EC), which has been incorporated into the Income Taxes Act.

IP Royalties paid by a Czech tax-resident company (or by a Czech branch of a company incorporated in another EU member state) abroad are subject to 15% withholding tax, which can generally be reduced or eliminated by an applicable double-tax treaty, or exempted under the Interest and Royalties Directive, which has been incorporated into the Income Taxes Act.

It is possible to exempt both royalties and interest income paid to EU/EEA tax residents from Czech tax residents (that is, pay no withholding tax) under the Interest and Royalties Directive, subject to certain conditions:

Dividends, interest and IP royalties paid to tax residents in offshore locations that have not concluded a double-tax treaty or agreement on exchange of information on income tax matters with the Czech Republic are subject to a final withholding tax of 35%.

When an entity has loans from related entities (Czech or foreign), there are debt-to-equity ratios over which the interest and similar expenses paid cannot be deducted for corporate tax purposes. Interest paid on credits and loans, where the creditor is a related person to the debtor, is not recognised as a tax-deductible expense if the debt-to-equity ratio exceeds 6:1 in the course of a taxable period for the recipient of credits and loans if this recipient is a bank or insurance company, or 4:1 for other recipients.

Interest paid on profit participating loans is not tax-deductible.

Also, there is an additional rule limiting the deduction of interest on related as well as unrelated debt financing. The limit is 30% of the tax-adjusted EBITDA of the debtor and applies to debt financing expenses in excess of CZK80 million per annum. There are a number of exceptions to the application of these limitations which mainly apply to financial institutions.

A foreign subsidiary's profits do not need to be imputed to a parent company that is a tax resident, unless the foreign subsidiary qualifies as a "controlled foreign corporation". If so, the local controlling company's Czech corporate income tax base is increased by its share in the Czech-tax base-adjusted profits. Generally, a company qualifies as a "controlled foreign corporation" if it does not carry substantial business activity, that is it mainly generated passive income and pays foreign tax that amounts to less than one-half of the tax that would be due by a similar Czech entity generating similar income and expenses. Control exists if the Czech company controls directly or indirectly (including through associated persons) 50% or more in the registered capital, voting rights or the shares in profits of the foreign corporation.

However, companies managed and controlled from the Czech Republic are considered to be Czech tax residents (see Question 20).

If related parties agree on a transfer price that is different from that which would be agreed in an independent business relationship, the tax authority can amend the tax base by looking at the arm's-length value of the transaction. To avoid this, the reasons for the different pricing must be satisfactorily proved to the tax authority by means of a transfer pricing analysis or an expert's valuation statement.

Customs Duties. Imports into the Czech Republic from non-EU locations are subject to customs duties determined by EU tariff schedules. There are no customs duties on exports.

VAT. Exports of goods to a taxable person inside or outside the EU are exempt from Czech VAT (see Question 21). Imports of goods from outside the EU are subject to Czech VAT. Imports from another EU member state will also be subject to VAT if they are made by a Czech taxable person. There are exceptions to these general VAT rules.

Excise Tax. See Question 21. The customs procedure is treated separately from the excise duty procedure. If goods are placed in any customs duty regime, they cannot also be under an excise duty suspension procedure.

The Czech Republic has concluded double-tax treaties with about 90 countries including the majority of EU member states, China, Japan, Canada and the US.

Competition rules in the Czech Republic are primarily governed by Act No. 143/2001 Coll., Act on the Protection of Competition, as amended (Competition Act), which regulates protection of competition in the market for products and services. It aims to protect competition from being eliminated, restricted or otherwise distorted by:

The Competition Act also applies to any actions abroad by a company that results or may result in a distortion of competition in the Czech Republic. On the other hand, it does not apply to restrictive agreements or abuse of the dominant position of an undertaking when such effects take place solely in a foreign market, unless an international treaty binding in the Czech Republic provides otherwise.

Section 3 of the Competition Act prohibits agreements between undertakings, decisions by associations of undertakings as well as concerted practices (jointly referred to as agreements) that are intended to distort competition. This especially includes agreements on:

One or more undertakings are deemed to jointly have a dominant position in the relevant market if their market power enables them to behave, to a significant extent, independently of other undertakings or consumers (section 10, Competition Act). Undertakings, acting alone or in concert with others, are deemed not to be in a dominant position so long as their share of the relevant market is not more than 40%, unless other reasons prove the contrary.

Having a dominant position is not unlawful, but abusing that position (to the detriment of other undertakings or consumers) is prohibited. Abuse of a dominant position could, in particular, include:

The Office for the Protection of Competition (Competition Office) is the central authority of the Czech state administration that oversees compliance with competition rules in the Czech Republic. It has ex officio powers to initiate proceedings concerning prohibited agreements and abuse of dominant position.

The Competition Office has broad powers to investigate possible abuses, and all undertakings are obliged to submit to such investigation, providing any requested information and documents. It is further entitled, subject to certain limitations and conditions, to enter a business or other related premises.

The Competition Office is entitled (after a preliminary investigation and in some specific cases) not to initiate proceedings if it finds that they are not in the public interest due to the minimal adverse effect on competition.

Before issuing a decision, the Competition Office issues a statement of objections which includes information about the case along with a legal assessment, primary evidence and the amount of the fine it intends to impose. After it issues the statement of objections it must enable parties to become acquainted with the basis of the decision and provide a reasonable deadline (at least 15 days) for them to propose additional evidence.

It is possible to appeal decisions of the Competition Office. The Chairman of the Competition Office decides on the appeal.

Instead of issuing a decision, the Competition Office can also decide to halt the proceedings if participants have jointly proposed commitments towards restoring effective competition, provided that:

In addition to administrative proceedings, criminal proceedings can be initiated against an individual who enters into a prohibited agreement with a competitor. If found guilty, the individual can be punished by a prison sentence of up to eight years (depending on the severity and method of the offence), punishment by disqualification, or forfeiture of items. (section 248 (2), Act 40/2009 Coll., the Criminal Act).

Separately, Act No. 262/2017 Coll., on Competition Damages (Competition Damages Act) regulates in particular the:

Under the Competition Damages Act, damages cannot be reduced or mitigated by a judge, using their discretionary powers (under the Civil Code). Compensation in full means actual loss, loss of profit and payment of interest. The Competition Damages Act only applies to prohibited agreements between competitors and abuse of a dominant position. It does not regulate other types of infringement of competition law.

A concentration between undertakings arises:

Under Czech law, only a permanent change in the nature of the control over an undertaking (on a lasting basis) is deemed to result in the formation of a concentration. A temporary acquisition of control is expressly excluded from notification obligations of the Competition Act if such temporary acquisition is by either:

When a concentration between undertakings occurs, a duty to have the transaction approved by the Competition Office can arise if either of the following turnover thresholds are met (provided that the given concentration does not have an EU dimension):

To determine whether (aggregate) net turnover thresholds have been exceeded, the net turnovers generated by the following persons must be combined:

The term net turnover means the net (exclusive of any taxes and rebates) sales (amounts derived from the sale of products and provision of services) from ordinary activities of all members of the respective group of undertakings concerned, irrespective of the sector in which the turnover is achieved (however, intra-group sales should be deducted from the overall figures). A specific list of items to be used for calculating the turnover of banks, credit and other financial institutions is set out by the Competition Act (see below).

In general, the turnovers need to be attributed to the place where the customer is located.

Concentration approval proceedings are initiated by filing a notification. There is no time limit within which the filing must be made. However, the Competition Act stipulates a standstill obligation. It means that, as a general rule, the undertaking(s) cannot implement the rights and obligations arising out of the concentration until the concentration has been cleared by the Competition Office. For breaching the standstill obligation, a fine of up to CZK10 million, or 10% of the net turnover achieved by the undertaking(s) in the last accounting period, can be imposed.

When deciding whether to clear a concentration, the Competition Office assesses in particular the:

The Competition Office cannot approve a concentration if it will result in a substantial distortion of competition on the relevant market, particularly because it would result in (or strengthen) the dominant position of one or more of the undertakings concerned. If the joint market share of all undertakings in the concentration is not more than 25%, it is presumed that their concentration will not result in a substantial distortion of competition.

The Competition Office may stipulate in its decision additional conditions and restrictions in order to maintain effective competition.

Specific rules for calculating net turnover in credit institutions and insurance companies apply. As regards banks, credit and other financial institutions (except for insurance companies), the net turnover is deemed to mean the sum of income items, in particular income from interest securities and asset shares, fees and commissions and profits from financial operations.

As regards insurance companies, the net turnover is deemed to mean the sum of insurance premiums prescribed under all concluded insurance contracts.

No specific rules of procedure apply to specific industries.

For concentrations in the financial sector approval of the Czech National Bank is necessary.

Czech legislation sets out criminal liability for both natural persons (Act. no 40/2009 Coll., Criminal Code), and legal persons (Act. no. 418/2011 Coll., on Criminal Liability of Legal Persons). The crime of bribery is defined as constituting either of the following:

As a practical effect, many companies have gift and hospitality policies including the following:

Under the Code of Conduct related to public servants, civil servants and public officials are forbidden from doing the following:

Definition and Legal Requirements. Patents can be granted for new technical inventions that are the result of inventive activity and capable of industrial application, unless expressly excluded from protection.

Registration. Patents must be registered with the Industrial Property Office (IP Office). Its website (www.upv.cz) provides guidance on the application procedure. An application for a European patent can be made either at the IP Office or through the European Patent Office. Guidance on how to make an application can be found at www.epo.org. In addition, applications for international registration of patents through the Patent Co-operation Treaty (PCT), with the possibility of patent protection in almost 150 countries worldwide, can be made at the IP Office. If the registrant is a Czech national residing in the Czech Republic, the international registration fee is lowered by 90%.

Enforcement and Remedies. The patent owner, a licensee or any professional organisation for the protection of rights that is entitled to represent its owners, can file an action against a violator. A violator can be ordered to:

Protection is also provided under criminal laws.

Length of Protection. National protection lasts for 20 years from the date of application. Annual maintenance fees start at CZK1,000 for the first year up to CZK24,000 for the last year.

Definition and Legal Requirements. The recent transposition of the Directive (EU) 2015/2436 to approximate the laws of the member states relating to trade marks (New Trade Marks Directive) brought several changes to trade mark law, including that graphic representation of the trade mark is no longer required. Instead, to qualify as a trade mark, a mark must be capable of distinguishing the goods or services of one undertaking from those of other undertakings and of being represented on the register in a way that enables the respective authorities and the public to determine the clear and precise subject matter of the protection afforded to its proprietor.

Protection. Trade marks must be registered with the IP Office. Its website (www.upv.cz) provides guidance on the application procedure. An application for an international trade mark through the Madrid system or an EU trade mark can be submitted at the IP Office or through international authorities, for example, the EU Intellectual Property Office (EUIPO) (previously the Office for Harmonisation in the Internal Market (OHIM)). Well-known trade marks (within the meaning of the World Trade Organisation provisions) are also protected. Unregistered trade marks can be protected through the concept of prior trade mark use, similarly to the common law tort of passing off. Additional protection can be sought under unfair competition regulations.

Enforcement and Remedies. This is the same as for patents (see above, Question 31).

Length of Protection and Renewability. National protection lasts for ten years from the date of application and is renewable every ten years. The renewal fee is CZK2,500 for an individual trade mark and CZK5,000 for a collective trade mark.

Definition. A design is the appearance of all or part of a product resulting from certain features of the product or its ornamentation. A design is capable of protection if it is new and distinct.

Registration. Designs must be registered with the IP Office. Its website (www.upv.cz) provides guidance on the application procedure. A design can also be registered as EU-wide as a Registered Community Design (RCD).

Enforcement and Remedies. This is the same as for patents (see above, Patents).

Length of protection and renewability. National protection lasts for five years from the date of application and is renewable every five years up to a maximum of 25 years. The renewal fee starts at CZK3,000 for the first renewal and rises every renewal period by this amount.

Definition and Legal Requirements. Unregistered designs are not specifically regulated.

Enforcement and Remedies. In certain cases, unregistered designs can be protected by trade mark law, specifically through the concept of prior use, in a similar way to "passing off" in common law. Additional protection is available under unfair competition regulations.

Length of Protection. Not applicable.

Definition and Legal Requirements. All literary, artistic and scientific works that are the unique results of their authors' creative activity and are expressed in an objectively perceptible form are protected by copyright. Computer programs, photographs and databases are also protected.

Protection. Protection applies automatically following the first publication of the work.

Enforcement and Remedies. This is the same as for patents (see above, Patents).

Length of Protection and Renewability. Protection lasts for the author's life plus 70 years after their year of death.

Other IP rights protected by law include rights relating to:

In line with relevant EU legislation, in particular the Self-employed Agents Directive (86/653/EEC), the Civil Code regulates commercial agency agreements, which must be entered into in writing. An agent seeks potential customers interested in contracting with the principal and can be authorised to make contracts with those potential customers on behalf of the principal. The principal must pay a commission to the agent. Commercial agency can either be exclusive or non-exclusive. Unless agreed otherwise, the agency applies to the territory of the Czech Republic or a territory of the country of the registered location of the agent. In certain cases, termination of the agency entitles the agent to additional remuneration.

The Civil Code regulates five different mandate-type contracts:

Certain provisions regulating mandates can also apply to commercial agency.

Czech private law has no specific regulations on distribution, although public law regulation applies to the distribution of certain financial and insurance services and distribution of regulated goods, for example, medicines and gas. Competition regulations are usually relevant to distribution (see Question 28 and Question 29).

There are no specific laws relating to franchising. However, the Civil Code regulates licence contracts, including industrial property licence contracts. Competition regulations are usually relevant (see Question 28 and Question 29).

Advertising is generally regulated by the Advertising Act, which restricts certain types of advertising (for example, disparaging or subliminal advertising) and advertising in certain industries (for example, medicines, tobacco and alcohol). Several other restrictions also apply to advertising in print media, radio and TV. False advertising can also be regarded as unlawful unfair competition or commercial practice. Major advertising agencies are also members of the Council for Advertising and are bound by its code of ethics. The Arbitration Committee can recommend withdrawal of the advertising if it violates the code of ethics.

There are no regulations specific to PR agencies apart from the general advertising regulations described above.

The Civil Code regulates commercial contracts concluded at a distance between suppliers and consumers. There are specific provisions regulating distance selling in financial services.

Electronic signatures are regulated by the Electronic Identification Regulation ((EU) 910/2014) and the two pieces of Czech legislation associated with it, Act No. 297/2016 Coll. as amended on Trust-Creating Services in Electronic Transactions and Act No. 250/2017 Coll. on Electronic Identification.

The provision of services by electronic means and the promotion of commercial communications are regulated by Act No. 480/2004 Coll. as amended, on Certain Services in Information Society.

Consumer disputes are regulated by Act No. 634/1992 Coll., as amended, on the Protection of Consumers, which also implements provisions of the ADR Directive (2013/11/EU).

There are no specific Czech laws at present regulating the framework of legal conduct of online platforms in their business dealings with traders who use the platform to market or sell to consumers or other businesses. General provisions of Czech competition law must therefore be applied and have been applied by traders when they proceed against suspected unfair practices of online platforms and/or abuse of their dominant position on the market.

Act No. 40/1995 Coll., on Advertising regulates advertising in general, by prohibiting certain unfair advertising practices. An advertisement cannot be deceptive, discriminatory, against morality, nor can it use elements of fear or violence or diminish human dignity. A special regulation on advertising applies to the advertising of certain products, for example, alcohol, tobacco, gambling, pharmaceuticals and medical devices.

The regulation provides for some specifics of digital advertising (for example, emails, see below). Nevertheless, digital advertising must foremost follow general rules on advertising, and other regulations, such as those on consumer protection, may also apply.

To give an example in relation to influencer marketing, influencers must make it clear that their content is sponsored, and undeclared advertising of products is considered an unfair business practice. Furthermore, influencers should consider their target audience, since advertising cannot, among other things, exploit the trust of children towards third persons (that is, in relation to their idols/influencers).

Direct marketing is permissible provided that the consumer granted consent to such action (that is, the consumer can voluntarily sign up to receiving commercial communication, typically in connection with the purchase of a product). However, the consumer must always (that is, in every single email or message) have a clear and simple option, free of charge, to unsubscribe from any such marketing. Any direct marketing must be clearly and unambiguously marked as a commercial communication and disclose its sender.

In general, sales promotions must follow rules for advertising and protection of consumers, otherwise they may be considered unfair commercial practices. To give an example, an offer that would promote a product but is not available for purchase (at all or due to deliberate minimum stock, that is, bait-and-switch advertising) is prohibited.

Consumer competitions are permissible, but their definition allows only for a limited scope of such activities. The competition must be directly related to a product or service promoted. The prize (cash or non-monetary) must be paid out to a winner selected by random selection. And the consumer may enter the competition only through participation in a marketing event or based on previous purchase of a product or service of the promoter.

As in other EU member states, most aspects of personal data protection are currently regulated by the General Data Protection Regulation ((EU) 2016/679) (GDPR). Act no. 110/2019 Coll., on personal data processing aims to fill in the gaps EU decision-makers left to the discretion of the member states, for example, the conditions for data processing when exercising freedom of speech, conducting scientific and historical research, processing for statistical purposes and data processing for the defence and security of the country. In addition, the act also regulates personal data processing in criminal proceedings.

The Czech Republic is a party to the Strasbourg Convention for the Protection of Individuals with Regard to Automatic Processing of Personal Data 1981 (Strasbourg Data Processing Convention).

See above Data Protection Laws.

The legal framework for product liability in the Czech Republic is in line with relevant EU legislation, in particular the Directive 99/34/EC on liability for defective products (Product Liability Directive) which has been implemented into the Civil Code.

Liability applies to manufacturers and importers of defective products, is objective and covers damage to life, health and property damage, except for the product itself, and property predominantly used for business purposes. Property damage caused by a defective product is only covered if the damage exceeds EUR500.

The manufacturer or importer can also be exempted from liability for damage caused by a defective product, for example, if it can reasonably be assumed that the defect did not exist at the time the product was placed on the market or the defect occurred later. The right of the injured party to claim compensation for damage caused by a defective product is time-barred after three years from the date the injured person learned or, with regard to the circumstances, could have learned of the damage, the defect and the identity of the manufacturer or importer. The right to compensation under the law expires ten years after the date of the manufacturer's introduction of the defective product that caused the damage.

Main Activities. The Office for the Protection of Competition (Úřad pro ochranu hospodářské soutěže) (Competition Office) is the central authority of the Czech state administration that:

Main Activities. The Ministry of the Environment of the Czech Republic together with competent regional authorities regulate environmental issues. The scope of their main activities depends on the specifics of each administrative proceedings (for example, EIA, building/zoning proceedings and IPPC).

Main Activities. The Czech National Bank (CNB) supervises the banking sector, the capital market, the insurance industry, pension funds, credit unions, currency exchange offices, payment system providers and e-money institutions and providers and intermediaries of consumer credit. The CNB adopts rules safeguarding the stability of the banking sector, the capital market, the insurance industry and the pension scheme industry. It systematically regulates, supervises and, where appropriate, issues penalties for non-compliance with these rules. In addition, the CNB has certain other responsibilities, including activities related to money laundering and compliance with the rules on takeover.

Main Activities. The Office for Personal Data Protection supervises observance of the legal obligations laid down for the processing of personal data. It maintains the register of notified data processing operations, deals with initiatives and complaints from citizens concerning breaches of law, and provides consultancy in personal data protection.

Main Activities. The Industrial Property Office operates an automated system for trade mark procedures and a search system using random criteria and carries out a formal examination of the application, to determine whether the application includes all the necessary requirements as stipulated by law, and subsequently it conducts a substantive examination to determine whether the trade mark being applied for is eligible for registration.

Certain types of foreign investment are subject to the rules on public procurement procedure in the Czech Republic. Act No. 134/2016 Coll., on public procurement procedure (Public Procurement Act), effective from 1 October 2016, was adopted in April 2016 and regulates the public procurement procedure in the Czech Republic. The Civil Code regulates other cases not specifically regulated by the Public Procurement Act.

Public procurement procedure under Czech law involves the process of selecting the most eligible candidate for the delivery of a particular subject of performance being requested, that is, the specific process for entering into an agreement.

In the Czech Republic the public procurement procedure is quite a strict process in which even a minor mistake can result in the applicant being disqualified. However, despite a certain rigidity, the contracting authority should always comply with the principles of effectiveness, economy and efficiency (also resulting from EU legislation) and to achieve the purpose of the Public Procurement Act, that is, to select the most suitable bid. For this reason, it is possible for a supplier to rectify certain failures when submitting a bid, to a certain extent. However, it is left to the discretion of the contracting authority whether the supplier will be allowed to rectify or clarify any ambiguities in the bid. It also depends on legislation, which may, in certain cases, exclude this possibility (most frequently in the case of inconsistencies/ambiguities in the tender (bid) price).

Restrictions on entering the Czech Republic have been put in place, especially with regards to more lethal or faster spreading variants of the virus. Current information can be found at www.mzv.cz/jnp/en/index.html (under the section "Entry & Residence)".

In response to the COVID-19 outbreak in the Czech Republic, a number of institutions are involved in prominent initiatives and support programmes. They include the following: