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Company Formation

Incorporation in Czech Republic follows this 8-stage process:

• Check that the company name is not already in use. This can be done on the Ministry of Justice's website, and only takes a day.

• Obtain criminal register extracts from the Municipal Office, Czech Post Office or the Czech Chamber of Commerce. This takes a day and costs approximately 1150 CZK.

• Notarise the articles of association, which takes a day and costs a minimum fee of approximately 4000 CZK, with a maximum fee of approximately 120,000 CZK.

• Obtain confirmation from the administrator of the company's capital contribution, as well as the confirmation from the bank that the capital contribution is held in the company's bank account for registered capital. This takes 2 days.

• Register at the Commercial Registry of the Regional Commercial Court; a process that takes 7 days, and costs approximately 5000 CZK.

• Register with the Tax Office. This takes 1 day.

• Register, within 8 days of when the first employee begins work, with social security. This takes one day.

• Register for health insurance. This must also be done within 8 days, and the process takes one day.

The Commercial Code provides for the creation of several different types of business entities. Foreign investors most frequently establish limited-liability companies and branches of foreign entities. Joint-stock companies are also used, particularly for foreign investment into a former state enterprise. Banks, insurance companies and other financial institutions, including investment companies, security brokers, etc., must be established as either joint-stock companies or branches. Joint-stock companies can trade shares on the Prague Stock Exchange if their shares are accepted for trading under Prague Stock Exchange rules. Co-operatives and sole proprietorships are generally of little relevance to foreign investors.

Before the company can start to employ people, it is required to register with the social insurance office, and thereafter with the health insurance office, depending upon which health insurance company the employee is registered with.

Everyone working in the Czech Republic is usually obliged to pay Czech social insurance contributions, whilst health insurance is only obligatory for foreigners (both EU and non-EU nationals) that have a permanent residency or are employed by a Czech employer. From 2007 directors have the option not to pay social security costs if (s)he is paid a small salary, otherwise (s)he is obliged to pay tax, social and health insurance contributions in the same way as an employee if he has a contract governed by Czech labour law.

Employer's social and health insurance contributions amount to 35% of the gross salary and employee's contributions amount to 12.5%.

Other changes from 2007 - the employer must pay sickness leave for the employees for the first two weeks, thereafter payable by the Social Security Office. The employer's social insurance contributions will be lowered to 24.1% (from the current 26%). Small companies (up to 25 employees) can choose to continue to pay the 26% social insurance, in which case the sickness pay would be split equally between the employer and Social Security Office.

Offshore Companies

By choosing to incorporate an offshore company, business owners and  investors can set-up a business outside the jurisdiction of its operations. Offshore companies are traditionally, but not exclusively, incorporated for lower fees and taxes. Business owners must abide the regulations of the offshore jurisdiction, and must not trade within the jurisdiction.

The benefits are vast. As aforesaid, reduced tax and fees are often big factors when considering offshore incorporation. A company may also choose and offshore location to:

• Simplify set-up and maintenance - entrepreneurs may find bureaucracy and red tape less of an obstacle in offshore jurisdictions
  
• Assume anonymity - the names of owners and directors are not for public record, and references to the company may only be made in its registered agent
  
• Ensure legal protection - for instance, some jurisdictions favour corporate governance, meaning a company is only liable to offshore laws as opposed to those in its areas of operation
  
• Protect assets - business owners may opt to arrange their assets and transactions in such a way that protects them from liability
  

Characteristics of an offshore company:

• Memorandum and Articles of Association
  
• Certificate of Incorporation
  
• Registered Office/Agent
  
• Shareholders / Members
  
• Directors / Managers
  
• Company secretary
  
• Statutory Register
  
• Bookkeeping
  

Traditional locations for offshore incorporation are tax havens, such as the British Virgin Islands, Panama and Monaco. Other favoured areas include India, the Bahamas, Dubai, the Cayman Islands, Cyprus, Seychelles, Marshall islands, Delaware, Turks & Caicos Islands, Hong Kong, Jersey, Guernsey and the Isle of Man.

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