Holding Structures and Beneficial Ownership in the Czech Republic: Compliance Checklist

Foreign companies establishing holding structures in the Czech Republic face a sophisticated regulatory landscape where transparency, anti-money laundering compliance, and beneficial ownership disclosure intersect with favourable tax treatment and EU-aligned corporate governance. This article provides specific answers to the compliance challenges that international investors, CEOs, and legal departments encounter when setting up or maintaining Czech holding companies.

Why Czech Holding Structures Attract International Investors

The Czech Republic has emerged as a leading holding jurisdiction within the European Union, offering foreign investors a stable legal framework combined with strategic tax advantages. As a law firm based in Prague, European Union, ARROWS represents foreign clients who leverage Czech holding structures to optimize their Central European operations while maintaining full compliance with both local and EU regulations.​

Czech holding companies benefit from the Parent-Subsidiary Directive participation exemption, meaning dividends received from qualifying subsidiaries are exempt from corporate income tax. For foreign investors with Czech operations generating profits, repatriating dividends through a properly structured Czech holding can eliminate withholding taxes entirely, provided the 10% shareholding threshold is maintained for at least 12 months. 

The Czech Republic's network of over 90 double taxation treaties further enhances the attractiveness of Czech holding structures for international investors.​

What appears straightforward on paper becomes considerably more complex in practice. Czech holding compliance involves navigating intersecting obligations under corporate law, beneficial ownership registration, transfer pricing documentation, anti-money laundering regulations, and increasingly stringent substance requirements. Even experienced corporate lawyers often underestimate the procedural intricacies that can delay transactions, trigger regulatory scrutiny, or result in penalties reaching CZK 500,000 or more.​

As ARROWS International operates in 90 countries globally and supports over 150 joint-stock companies and 250 limited liability companies, our daily practice confirms that successful holding structures require not just initial setup, but ongoing compliance management that anticipates regulatory changes and prevents costly mistakes.

Risks and Penalties	How ARROWS Helps (office@arws.cz)
Beneficial owner not registered or incorrectly identified – fines up to CZK 500,000, voting rights suspended, dividend distribution blocked.​	Beneficial ownership identification and registration – We analyze complex ownership chains, identify all material and replacement UBOs, and handle the complete registration process.
Incorrect corporate structure selection causing tax inefficiencies or compliance burdens.​	Holding structure design and optimization – We evaluate your investment objectives, exit strategy, and tax profile to recommend the optimal legal form (s.r.o., a.s., or branch structure).
Transfer pricing documentation missing during tax audit – adjustments and penalties up to CZK 1.5 million.​	Transfer pricing documentation preparation – We prepare arm's length analyses, functional risk assessments, and maintain compliant TP documentation in Czech language.
AML compliance failures – fines up to CZK 10 million, account freezing, license revocation.​	AML policy implementation and contact person appointment – We develop internal AML procedures, appoint qualified contact persons, and ensure ongoing compliance with Financial Analytical Office requirements.
Permanent establishment inadvertently created through employee activities or home office arrangements.​	Cross-border tax structuring and PE risk assessment – We analyze your operational footprint, employment arrangements, and contractual relationships to prevent unintended PE exposure.

Understanding Beneficial Ownership Registration in the Czech Republic

The Register of Beneficial Owners (Evidence skutečných majitelů) represents one of the most consequential compliance obligations for foreign investors operating holding structures in the Czech Republic. Governed by Act No. 37/2021 Coll., the UBO register requires all Czech legal entities to identify and register the natural persons who ultimately own or control them.​

Who Qualifies as a Beneficial Owner Under Czech Law?

Czech law defines a beneficial owner through a simplified, uniform approach implemented in October 2022. The beneficial owner is any natural person who, directly or indirectly, owns or controls the legal entity. The defining threshold is 25% – ownership of at least 25% of voting rights, share capital, or profit share establishes beneficial ownership status.​

This definition eliminates the previous distinction between "ultimate beneficiary" and "person with ultimate control," resulting in a more straightforward but potentially broader identification requirement. In complex holding structures, multiple natural persons may qualify as beneficial owners simultaneously.​

Identifying the beneficial owner in multi-tier holding structures involves analyzing each ownership layer. If a Czech holding company is owned by a Luxembourg parent, which is in turn owned by a Cyprus holding, which is ultimately owned by a British Virgin Islands entity, Czech law requires tracing through each layer until reaching the natural person(s) meeting the 25% threshold. 

This chain analysis can be time-consuming and requires access to corporate documentation from multiple jurisdictions – a process that, in ARROWS' experience handling cross-border structures daily, often reveals unexpected complexities or documentation gaps that delay registration.

When no natural person meets the material criteria (for example, in widely dispersed ownership structures), Czech law requires registering a "replacement beneficial owner". This is typically a member of top management at the highest entity in the ownership chain. Documenting the steps taken to identify the material beneficial owner becomes critical, as the company must demonstrate it conducted a thorough search before relying on the replacement mechanism.

FAQ – Legal Tips About Beneficial Owner Identification

1. How do I identify the beneficial owner if my holding company is owned by another foreign company?

A: You must trace ownership through all intermediate entities until reaching a natural person who owns or controls 25% or more. If no natural person meets this threshold, register a member of top management as the replacement beneficial owner and document all identification steps taken. This process can be complex for multi-jurisdictional structures. 

2. Do nominee shareholders affect beneficial owner identification in the Czech Republic?

A: Yes. Czech law looks beyond formal legal ownership to identify the actual beneficial owner. If nominee shareholders hold shares on behalf of another person, that underlying principal must be identified and registered as the beneficial owner if they meet the 25% threshold. Failing to disclose nominee arrangements can result in registration being deemed incomplete or inaccurate. ​

3. What happens if the beneficial owner changes during the year?

A: The Czech entity must update the UBO register "without undue delay" following any change in beneficial ownership. In practice, this typically means within days or weeks of the change occurring. Failure to maintain current information can trigger penalties and operational restrictions. ARROWS provides ongoing UBO register maintenance services to ensure your registration remains accurate – contact us at office@arws.cz.​

Recent Supreme Court Rulings: The Current State of UBO Enforcement

In August 2025, the Czech Supreme Administrative Court and Supreme Court issued landmark rulings fundamentally altering UBO compliance. The courts held that publicly accessible beneficial ownership data violates EU privacy protections, and therefore the state cannot enforce sanctions for non-registration while the register remains fully public.​

Effective December 17, 2025, the Ministry of Justice restricted public access to the UBO register. Access now remains available only to public authorities, entities with anti-money laundering obligations (such as banks and notaries), and persons demonstrating legitimate interest.​

However, these court decisions do not eliminate the obligation to register beneficial owners. The failure to register continues to be considered unlawful conduct. The practical implication is that while fines, voting rights suspensions, and dividend distribution bans are currently not enforceable, the obligation itself persists. Czech authorities are preparing legislative amendments expected to reactivate enforcement mechanisms once privacy concerns are adequately addressed.​

For foreign investors, this creates a compliance dilemma. While immediate sanction risk has diminished, maintaining accurate UBO registration remains essential for several reasons. First, banks and notaries continue to verify UBO data as part of their anti-money laundering obligations and may refuse transactions if registration is missing or inconsistent. Second, legislative changes could retroactively expose companies that neglected registration during the enforcement pause. Third, maintaining good standing in public registers supports corporate reputation and facilitates business relationships.​

ARROWS' recommendation, based on handling this agenda daily for over 150 joint-stock companies and 250 limited liability companies, is to maintain full UBO compliance regardless of the temporary enforcement suspension. The cost of updating registration is minimal compared to the operational disruption caused by blocked bank accounts or delayed transactions.

Establishing a Czech Holding Company: Legal Forms and Requirements

Foreign investors establishing holding structures in the Czech Republic typically choose between two primary legal forms: the limited liability company (společnost s ručením omezeným, s.r.o.) and the joint-stock company (akciová společnost, a.s.).​

Limited Liability Company (s.r.o.) – The Flexible Choice

The s.r.o. represents the most popular holding vehicle for small to medium-sized investment structures. The minimum share capital requirement is only CZK 1 per shareholder, making it accessible for various investment sizes. Shareholders can be foreign legal entities or natural persons without restriction.​

The s.r.o. requires two statutory bodies: the General Meeting (representing all shareholders) and one or more Executive Directors (jednatelé). Directors need not be Czech residents or EU nationals, providing flexibility for international management teams. The company may optionally establish a Supervisory Board if enhanced governance oversight is desired.​

In practice, s.r.o. holding structures offer significant advantages for foreign investors prioritizing operational flexibility over transferability of ownership interests. Transfer of ownership in an s.r.o. requires amending the Articles of Association and notarization, which provides control but reduces liquidity compared to share transfers in a joint-stock company.​

Joint-Stock Company (a.s.) – For Larger Holdings

The a.s. structure suits larger holding companies, particularly those planning future public offerings or frequent ownership changes. The minimum share capital is CZK 2 million (approximately EUR 80,000).​

The a.s. requires three statutory bodies: General Meeting, Board of Directors, and Supervisory Board. The Board of Directors must have at least one member, while the Supervisory Board must also have at least one member. Both boards may include foreign nationals without residency requirements.​

Shares in an a.s. are generally freely transferable, enhancing liquidity but potentially reducing control. For holding companies, restrictions on share transfers are typically implemented through the Articles of Association to maintain shareholder control.

Formation Process: What Foreign Investors Frequently Underestimate

Establishing a Czech holding company requires several sequential steps, each containing potential delays if documentation is incomplete or non-compliant:​

Preparation of founding documents: The Articles of Association or Memorandum of Association must be drafted in Czech, notarized, and contain all mandatory elements prescribed by the Business Corporations Act. Foreign investors frequently use templates from their home jurisdiction, which often lack required Czech-specific provisions. ARROWS drafts founding documents daily for international clients and ensures they comply with both Czech requirements and the investor's commercial objectives.​

Secured registered office: Czech law requires a physical registered address with documented consent from the property owner. A lease agreement or property ownership extract from the Land Registry must be provided. Many foreign investors underestimate the formality required – a simple email from a landlord is insufficient; notarized consent is standard practice.​

Trade license acquisition: Most business activities require a trade license (živnostenský list) from the Trade Licensing Office. Regulated activities require proof of professional qualifications. This step must be completed before Commercial Register registration.​

Commercial Register entry: Registration with the Commercial Register (obchodní rejstřík) creates the legal personality of the company. The application requires notarized founding documents, criminal record certificates for all directors (not older than 90 days), proof of registered office, trade license, and bank confirmation of share capital deposit if exceeding CZK 20,000.​

Tax registration: Within 15 days of Commercial Register entry, the company must register with the tax authority for corporate income tax. VAT registration is required if taxable turnover will exceed CZK 2 million annually, or immediately for intra-EU transactions requiring an "identifikovaná osoba" status.​

UBO registration: The beneficial owner must be registered in the Register of Beneficial Owners, typically within 15 days of identifying the UBO.

The formation process typically requires 2-4 weeks if all documentation is prepared correctly. In ARROWS' experience, delays most frequently occur due to incomplete criminal record certificates for foreign directors, ambiguous founding documents requiring notary revision, or missing property owner consents. These seemingly simple steps contain hidden exceptions, procedural details, and links to other regulations that laypeople often do not see in the real world.

For foreign investors seeking to minimize time investment and error risk, ARROWS handles holding company establishment end-to-end, leveraging our daily experience with Czech regulatory authorities and our insurance coverage of up to CZK 500 million. Contact us at office@arws.cz to discuss your holding structure needs.

Risks and Penalties	How ARROWS Helps (office@arws.cz)
Commercial Register application rejected due to defective founding documents – delays of several weeks.​	Founding document drafting and notarization coordination – We prepare Articles of Association compliant with Czech law and your business objectives, coordinate with notaries, and manage the registration process.
Trade license not obtained before commencing operations – administrative fines, inability to conduct business legally.​	Trade license procurement – We identify required licenses for your activities, prepare applications, and obtain all necessary permits before operations begin.
Bank account opening delayed due to unclear beneficial ownership or insufficient documentation.	Bank account opening support – We prepare KYC documentation packages, clarify beneficial ownership structures, and liaise with Czech banks to expedite account opening for foreign investors.
Directors appointed without proper criminal record certificates – registration rejected.​	Director appointment compliance – We ensure all directors meet statutory requirements, obtain properly apostilled criminal record certificates, and prepare compliant appointment documentation.

Tax Optimization Through Czech Holding Structures

The Czech Republic offers several tax advantages that make it attractive for holding company structures, particularly within EU-integrated business groups.​

Corporate Income Tax and Participation Exemption

Czech holding companies are subject to a 21% corporate income tax rate on profits (increased from 19% in 2024). While this rate is competitive but not the lowest in the EU, the real advantage lies in the participation exemption regime.​

Dividends received by a Czech holding company from qualifying subsidiaries are fully exempt from corporate income tax under the participation exemption. 

This exemption applies when:​

• The Czech parent holds at least 10% of the subsidiary's share capital for an uninterrupted period of at least 12 months​
• The subsidiary is a tax resident of an EU/EEA member state or Switzerland​
• Both companies have qualifying legal forms listed in the Parent-Subsidiary Directive​
• Neither company is exempt from corporate taxation​

The 12-month holding period may be satisfied either retrospectively (after receiving the dividend) or prospectively (before distribution), providing flexibility for newly formed structures.

For subsidiaries located outside the EU/EEA/Switzerland, the participation exemption can still apply if:

• A double taxation treaty exists between the Czech Republic and the subsidiary's jurisdiction​
• The subsidiary is subject to corporate income tax at a nominal rate of at least 12% in the year of distribution and the preceding year​
• The 10% shareholding and 12-month holding period requirements are met

Withholding Tax Elimination on Outbound Dividends

When a Czech holding company distributes profits to its foreign parent, withholding tax is eliminated under the Parent-Subsidiary Directive if the parent company is resident in an EU/EEA member state or Switzerland and holds at least 10% of the Czech company's shares for 12 consecutive months.​

For parent companies in non-EU jurisdictions, withholding tax rates are determined by applicable double taxation treaties. The Czech Republic's extensive treaty network – covering over 90 countries – provides favourable withholding tax rates, typically between 0% and 15% depending on the treaty.​

The combination of inbound and outbound dividend exemptions creates a tax-neutral corridor for profit repatriation through Czech holding structures. Profits generated by operating subsidiaries in EU member states can flow up to a Czech holding company tax-free, then flow onward to an ultimate parent (whether EU or non-EU) with minimal or zero withholding tax, provided structural requirements are met.

Capital Gains Exemption on Share Disposals

The participation exemption extends beyond dividend income to capital gains from the sale of shares in qualifying subsidiaries. Income from transferring shares in a subsidiary may be exempt from Czech taxation if:​

• The Czech holding company held at least 10% of the subsidiary's share capital for at least 12 consecutive months​
• The subsidiary meets the qualifying legal form and tax residency requirements​
• The Czech parent is the beneficial owner of the income (not merely an intermediary)​

This exemption provides significant value for holding companies managing a portfolio of investments with anticipated future disposals. Foreign investors establishing acquisition platforms or private equity structures in the Czech Republic benefit from tax-free exit opportunities on successful investments.

Transfer Pricing Compliance: The Hidden Complexity

While tax exemptions provide substantial advantages, they come with rigorous substance and documentation requirements. Transfer pricing compliance represents one of the most underestimated aspects of Czech holding company operations.

Czech law implements the arm's length principle through Section 23(7) of the Income Tax Act, requiring that transactions between related parties be priced as if they occurred between independent parties under comparable conditions. While Czech law does not mandate preparation of formal transfer pricing documentation, the burden of proof lies entirely on the taxpayer during a tax audit.​

In practice, this means that holding companies engaged in intra-group transactions – management fees, financing arrangements, licensing of intellectual property, or provision of services – must maintain documentation demonstrating arm's length pricing. 

Documentation should include:

• Functional analysis identifying functions performed, assets used, and risks assumed by each party
• Selection and application of appropriate transfer pricing method (Comparable Uncontrolled Price, Cost Plus, Resale Price, Transactional Net Margin Method, or Profit Split)​
• Comparability analysis, preferably using Czech or regional comparables​
• Economic justification for the pricing applied​

This documentation must be provided in Czech language when requested during a tax audit, typically within 15-30 days of the request. Foreign investors frequently maintain transfer pricing documentation in English at group level but fail to prepare Czech-language versions until an audit begins – at which point translation and localization under time pressure increases costs and stress.​

ARROWS prepares transfer pricing documentation as part of our holding company compliance services. We handle this agenda daily and can significantly reduce your time investment while minimizing the risk of tax authority adjustments that can reach CZK 1.5 million in penalties. For transfer pricing support, contact us at office@arws.cz.​

Anti-Money Laundering Compliance for Czech Holding Companies

Czech anti-money laundering legislation, governed by Act No. 253/2008 Coll., imposes increasingly stringent obligations on Czech companies, including holding structures that might appear to have minimal operational activity.

Enhanced AML Requirements Effective 2025

From January 1, 2025, all AML-obliged entities in the Czech Republic must appoint and register a designated AML contact person (kontaktní osoba) with the Financial Analytical Office (FAÚ). This requirement extends beyond traditionally regulated sectors (banks, payment institutions, etc.) to include many corporate service providers, accounting firms, and companies engaged in activities that trigger AML obligations.​

The AML contact person must possess adequate qualifications in AML compliance, understand Act No. 253/2008 Coll., and have sufficient authority to implement and enforce AML procedures. This person serves as the primary point of contact with the FAÚ, coordinates suspicious transaction reporting, and oversees internal AML controls.​

For foreign investors, the contact person requirement creates a practical challenge – identifying a Czech-resident individual with appropriate qualifications who can fulfill this role effectively. Many holding companies lack in-house compliance expertise and must either appoint an external professional or engage a law firm to provide this function.

Customer Due Diligence and Beneficial Owner Verification

Czech AML law requires companies to conduct customer due diligence (KYC) when entering into business relationships or conducting transactions exceeding EUR 15,000. This includes verifying the identity of beneficial owners and understanding the ownership and control structure of legal entity customers.​

For holding companies receiving investments from foreign investors or entering into transactions with other group entities, proper KYC documentation must be maintained, including:

• Identity verification of all beneficial owners (passport or national ID copies)​
• Proof of residential address for beneficial owners​
• Corporate documentation establishing ownership chains (articles of association, shareholder registers, Commercial Register extracts)​
• Understanding of the purpose and intended nature of the business relationship​

Enhanced due diligence is required for customers from high-risk jurisdictions or those presenting elevated risk factors. This requires obtaining additional information about beneficial owners, verifying information from multiple independent sources, and obtaining approval from senior management before establishing the business relationship.​

Transaction Monitoring and Suspicious Activity Reporting

AML-obliged entities must monitor transactions for patterns indicating potential money laundering or terrorist financing. If a transaction or customer behavior raises suspicions, the company must file a suspicious transaction report (STR) with the Financial Analytical Office.​

Recent FAÚ enforcement actions indicate that approximately 80% of AML violations detected during inspections involve inadequate KYC/CDD processes, weak transaction monitoring, or failures in record-keeping. 

The most common deficiencies ARROWS observes in holding company structures include:

• Applying uniform KYC procedures to all customers regardless of risk profile, rather than implementing risk-based due diligence​
• Failing to conduct enhanced due diligence on high-risk customers or those from high-risk jurisdictions​
• Not filing any suspicious transaction reports despite conducting active cross-border transactions – which regulators interpret as evidence of non-functional monitoring​
• Maintaining AML documentation in languages other than Czech, or with insufficient detail to reconstruct decision-making processes during audits

Consequences of AML Non-Compliance

Penalties for AML violations have increased substantially. Fines can reach CZK 10 million for serious breaches. Beyond monetary penalties, non-compliance can result in:​

• Freezing of bank accounts by Czech banks until AML deficiencies are remedied​
• Refusal by banks to open new accounts or process transactions​
• Revocation of business licenses for repeated violations​
• Criminal liability for individuals involved in facilitating money laundering​

For holding companies, the most immediate consequence is typically disruption to banking relationships. Czech banks have become increasingly cautious following regulatory enforcement actions and frequently freeze accounts or request extensive additional documentation if they identify AML compliance gaps. This can paralyze holding company operations for weeks or months while documentation is assembled and compliance procedures are remediated.

ARROWS provides comprehensive AML compliance services, including appointment of qualified AML contact persons, development of risk-based AML policies, KYC/CDD procedure implementation, and representation before the Financial Analytical Office. We are insured for damages up to CZK 500 million, so it is safer for clients to have AML compliance handled professionally. For AML support, write to office@arws.cz.

Ongoing Corporate Governance and Reporting Obligations

Establishing a Czech holding company is only the first step. Maintaining compliance requires fulfilling annual corporate governance obligations that, while seemingly routine, contain numerous technical requirements where mistakes frequently occur.​

Annual Financial Statements and Audit Requirements

All Czech companies must prepare annual financial statements (účetní závěrka) within the Czech accounting framework. These statements must be prepared in Czech language and include a balance sheet, income statement, and notes.

Financial statements must be approved by the General Meeting (or sole shareholder) within six months of the end of the accounting period. Failure to convene the General Meeting and approve financial statements can result in fines up to CZK 100,000 or, in extreme cases, court-ordered liquidation of the company.​

Audit requirements depend on the company's size. As of the 2026 financial year, a mandatory statutory audit applies to entities exceeding at least two of the following thresholds in two consecutive financial years:​

• Total assets: CZK 120 million
• Net annual turnover: CZK 240 million
• Average number of employees: 50

Smaller entities are generally exempt from mandatory audit unless required by their Articles of Association or for other reasons (such as group consolidation).

Publication in the Collection of Documents

All Czech companies must publish their approved financial statements in the Collection of Documents (Sbírka listin) maintained as part of the Commercial Register. This publication must occur within specific deadlines:

• If the statements are audited: within 30 days of auditor approval and General Meeting approval​
• In any case: no later than 12 months after the balance sheet date

Failure to publish financial statements is one of the most common compliance violations among foreign-owned Czech companies. Czech courts can order liquidation of companies that repeatedly fail to meet publication obligations despite being called upon to do so.

Report on Relations Between Related Parties

If the holding company is a "controlled entity" – meaning it is controlled by another company or is part of a corporate group – it must prepare an annual Report on Relations (Zpráva o vztazích) within three months of the end of the financial year.

The Report on Relations describes all transactions and arrangements between the controlled entity and its controlling entities, and between the controlled entity and other entities controlled by the same controlling party. 

The report must identify:

• The controlling entity and its ownership structure​
• All related parties within the group​
• All contracts, arrangements, and other transactions between related parties during the financial year​
• An assessment of whether the controlled entity received adequate consideration in these transactions​

If the company is subject to mandatory audit, the auditor must also verify the Report on Relations. The report must be filed in the Collection of Documents within 30 days of General Meeting approval, but no later than 12 months after the balance sheet date.​

Foreign investors frequently underestimate the complexity of preparing compliant Reports on Relations, particularly in groups with extensive intra-group transactions. The report must describe not only direct contractual relationships, but also indirect benefits, coordinated behavior, and the overall assessment of whether the company suffered disadvantage through related-party transactions. This is not a simple disclosure exercise, but rather requires legal and financial analysis of the group structure and transaction patterns.

Corporate Income Tax Return Filing

Czech holding companies must file an annual corporate income tax return (daňové přiznání k dani z příjmů právnických osob). The filing deadline is three months after the end of the accounting period, or six months if the return is filed by a registered tax advisor.​

The tax return includes a mandatory annex relating to transfer pricing, which must describe all transactions with related parties, identify the related parties (name, registered office), and state relevant financial amounts.​

Even dormant holding companies with no activity must file a corporate income tax return. Failure to file on time results in penalties.

Country-by-Country Reporting for Large Groups

Czech member entities of multinational groups with consolidated revenues exceeding EUR 750 million must comply with Country-by-Country Reporting (CbCR) obligations. The CbC report must be filed within 12 months after the end of the fiscal year.​

Additionally, from 2025, certain large Czech companies and groups must prepare and publicly disclose Country-by-Country reports under the EU's public CbCR directive. This requirement applies to groups exceeding financial thresholds in two consecutive periods and requires publishing sensitive financial information in the Czech public register.

Regular Updates to the UBO Register

The beneficial owner registration must be kept current. Whenever a change occurs that affects beneficial ownership – such as changes in shareholding, voting rights, or profit participation exceeding the 25% threshold – the registration must be updated without undue delay.​

"Without undue delay" is not precisely defined but is generally interpreted to mean within days or weeks of the triggering event. Failing to update the UBO register promptly can result in penalties (when enforcement resumes) and, more immediately, complications with banks and notaries who verify current UBO data as part of their AML obligations.

ARROWS provides annual compliance services for Czech holding companies, managing all recurring obligations including General Meeting convocation and minuting, financial statement approval, Report on Relations preparation, tax return filing, and UBO register updates. This ensures that nothing is overlooked and that all deadlines are met. For ongoing compliance support, contact office@arws.cz.

Risks and Penalties	How ARROWS Helps (office@arws.cz)
Financial statements not approved within 6 months – fines up to CZK 100,000, risk of court-ordered liquidation.​	General Meeting organization and documentation – We prepare meeting agendas, draft resolutions, coordinate with shareholders, and ensure timely approval of all required matters.
Financial statements not published in Collection of Documents – fines, court liquidation proceedings.​	Commercial Register filing services – We prepare and file all required documents in the Collection of Documents within statutory deadlines.
Report on Relations not prepared or contains inadequate analysis – liability of statutory body members, shareholder claims.​	Report on Relations preparation – We analyze your group structure, identify all related-party transactions, assess arm's length compliance, and draft legally compliant reports.
Corporate tax return filed late or with errors – penalties, interest on late payment, increased audit risk.​	Corporate tax return preparation and filing – We calculate taxable income, apply all available exemptions and deductions, and file returns through registered tax advisors to maximize deadline extensions.
UBO register becomes outdated after ownership changes – banks refuse transactions, notaries refuse certifications.​	Ongoing UBO register maintenance – We monitor your ownership structure for changes, update registrations promptly, and ensure continuous compliance.

Substance Requirements and Permanent Establishment Risks

While Czech law does not impose explicit statutory substance requirements for holding companies, foreign investors must be aware of several interconnected risks related to substance, permanent establishment creation, and qualification for treaty benefits.

ATAD 3 Anti-Shell Entity Proposals (Currently On Hold)

The EU proposed the Anti-Tax Avoidance Directive 3 (ATAD 3), commonly known as the "Unshell Directive," which would have imposed minimum substance requirements on EU-resident companies with predominantly passive income and limited operational substance. Although ATAD 3 implementation is currently on hold due to lack of consensus among EU member states, the proposed framework indicates the direction of EU substance policy and may influence future Czech legislation or tax authority interpretation.

Under the proposed ATAD 3 framework, companies would need to report whether they meet minimum substance indicators, including:

• Having premises in the Czech Republic for exclusive use​
• Maintaining at least one active bank account in the EU​
• Having at least one local resident director who actively and independently makes decisions, or having locally resident employees qualified to carry out income-generating activities

Pure equity holding companies were recognized as requiring reduced substance thresholds. A holding company whose only activity is owning and managing shares in subsidiaries, without providing active management services, licensing intellectual property, or conducting financing activities, would not require the same level of substance as an operating company.

Even without ATAD 3 implementation, maintaining reasonable substance supports the holding company's claim to Czech tax residency and qualification for treaty benefits. Tax authorities in other jurisdictions may challenge treaty benefit claims if the Czech holding company appears to lack meaningful substance and exists primarily to access treaty advantages.

Permanent Establishment Risk Management

Foreign companies with Czech holding structures must carefully manage the risk of creating an unintended permanent establishment (PE) in the Czech Republic.

Under Czech domestic law and double taxation treaties, a PE can be created through:

• A fixed place of business in the Czech Republic available for conducting business activities for more than six months​
• Long-term provision of services in the Czech Republic for more than six months in any 12 consecutive months​
• Presence of a dependent agent with authority to conclude contracts on behalf of the foreign entity

A common but underappreciated PE risk arises from home office arrangements. If an employee of a foreign parent company resides in the Czech Republic and regularly performs work from home on behalf of the parent (not the Czech subsidiary), this can create a permanent establishment for the parent company in the Czech Republic. Key factors include:​

• Permanence: the fixed place must be used continuously and available long-term (generally more than 6 months)​
• Agreement: there must be an agreement (employment contract or similar document) establishing that activities will be performed from this location​
• Substantive activities: the activity performed must not be merely preparatory or auxiliary in nature​

If a PE is created, the foreign entity must register with Czech tax authorities and file corporate income tax returns. Failure to do so can result in penalties and tax assessments.

For foreign investors, careful structuring of employment relationships, decision-making authority, and contractual arrangements between parent and Czech holding subsidiary can prevent unintended PE creation. ARROWS conducts PE risk assessments for international clients, analyzing operational footprints and recommending structural adjustments to minimize exposure. Contact us at office@arws.cz for cross-border tax structuring advice.

Related-Party Transaction Substance

Beyond formal substance requirements, the authenticity and substance of transactions between the Czech holding company and related parties significantly impacts tax authority scrutiny. Transfer pricing examinations focus not only on pricing methodology but also on whether transactions reflect genuine commercial arrangements.

Tax authorities analyze:

• Whether the holding company has sufficient personnel and decision-making capability to perform the services it charges for​
• Whether management fees, financing arrangements, or royalty payments correspond to actual functions performed, assets used, and risks assumed​
• Whether contractual terms between related parties would be acceptable to independent parties​

A Czech holding company that lacks personnel, decision-making authority, or operational capability to justify the fees it charges to subsidiaries may face transfer pricing adjustments and penalties. This is particularly relevant for structures where the holding company charges substantial management or advisory fees but lacks employees or documented activities supporting these charges.

Common Pitfalls and How to Avoid Them

Based on ARROWS' daily experience establishing and maintaining holding structures for over 150 joint-stock companies and 250 limited liability companies, several common mistakes repeatedly emerge:

Inadequate Beneficial Ownership Documentation at Formation

Foreign investors frequently fail to provide clear, documented beneficial ownership information during company formation. When ownership structures involve intermediate holding companies in multiple jurisdictions, nominee shareholders, or trust arrangements, Czech notaries, Commercial Register courts, and banks require comprehensive documentation tracing beneficial ownership to natural persons.

Incomplete beneficial ownership documentation delays company formation, bank account opening, and can trigger enhanced due diligence by Czech banks that further delays operations. ARROWS resolves these issues by preparing comprehensive beneficial ownership packages upfront, including organizational charts, certified corporate documents from each jurisdiction in the ownership chain, and explanatory memoranda clarifying complex structures. For formation support, write to office@arws.cz.

Incorrect Legal Form Selection

Many foreign investors default to establishing an s.r.o. without analyzing whether a joint-stock company, branch, or alternative structure better serves their commercial objectives. 

While the s.r.o. is flexible and lower-cost, it may not be optimal for:

• Structures requiring frequent ownership transfers or equity-based employee compensation​
• Groups planning future public offerings or institutional investments requiring share transferability​
• Investors from jurisdictions where joint-stock companies provide more familiar governance structures​

Conversely, establishing a joint-stock company creates unnecessary complexity and cost for small holding structures with stable ownership. Changing legal form after establishment is possible but expensive and disruptive. 

Transfer Pricing Documentation Gaps

The most costly mistake ARROWS observes is foreign groups failing to prepare transfer pricing documentation until a tax audit begins. While Czech law does not mandate advance preparation, the taxpayer bears the full burden of proof during audits. Tax authorities typically allow only 15-30 days to produce documentation demonstrating arm's length pricing.​

Attempting to prepare comprehensive transfer pricing documentation – including functional analyses, comparability studies, and economic justifications – within the audit timeline is extremely difficult and expensive. Moreover, analyses prepared retroactively may appear defensive or after-the-fact rationalization rather than genuine contemporaneous documentation of the pricing methodology applied.

ARROWS recommends preparing transfer pricing documentation concurrently with implementing intra-group transactions. This is not theoretical tax planning but practical risk management based on daily experience with Czech tax audits. For transfer pricing documentation services, contact office@arws.cz.

Neglecting Annual Compliance Obligations

Foreign-owned Czech holding companies with minimal operational activity frequently neglect annual compliance requirements, assuming that dormant or passive companies have reduced obligations. This assumption is incorrect and leads to serious consequences:​

• General Meetings not convened and financial statements not approved – risk of fines and court-ordered liquidation​
• Financial statements not published – risk of deregistration proceedings
• Corporate tax returns not filed – penalties and enforcement action​
• UBO register not updated – operational disruptions with banks and notaries​

Czech regulatory authorities do not distinguish between active operating companies and passive holding companies for compliance purposes. The obligations apply equally regardless of activity level. ARROWS provides annual compliance packages that ensure all obligations are met on schedule, regardless of the company's activity level. Write to office@arws.cz for ongoing compliance services.

AML Procedures Treated as Formality

Many holding companies implement minimal AML procedures, treating compliance as a formality rather than an ongoing risk management process. 

The most common deficiencies include:

• Applying identical KYC procedures to all customers without risk-based differentiation​
• Not conducting enhanced due diligence for high-risk jurisdictions or PEP relationships​
• Maintaining AML documentation in English rather than Czech, making it unsuitable for regulatory review​
• Not appointing a qualified AML contact person with genuine authority and expertise​

When Czech banks or the Financial Analytical Office identify these deficiencies, the immediate consequence is typically account freezing or transaction refusal. Remediating AML compliance under regulatory pressure is more expensive and disruptive than implementing proper procedures initially.​

Why Foreign Clients Choose ARROWS for Czech Holding Compliance

As a leading Czech law firm based in Prague, European Union, ARROWS combines deep knowledge of both local Czech regulations and foreign market expectations. Our lawyers understand the legal differences between the Czech Republic and other jurisdictions because we represent foreign clients daily and operate through ARROWS International in 90 countries globally.

ARROWS handles holding structure compliance as core daily practice. We have established and maintained legal compliance for over 150 joint-stock companies and 250 limited liability companies, giving us comprehensive experience with the practical challenges foreign investors encounter. Our international capabilities through the ARROWS International network ensure seamless coordination when your holding structure involves subsidiaries or parent companies in multiple jurisdictions.

Key advantages of working with ARROWS include:

• Comprehensive service scope: We provide end-to-end services from initial structure design through ongoing annual compliance, including UBO registration, AML policy implementation, transfer pricing documentation, corporate governance support, and representation before tax authorities and regulators.
• Speed and quality: We are known for combining rapid response times with high-quality legal work. When formation must be completed quickly to meet investment timelines, or when urgent compliance issues arise, ARROWS delivers.
• Insurance protection: ARROWS is insured for damages up to CZK 500 million, providing clients with financial protection and peace of mind when entrusting complex legal matters to our firm.
• Business network: Beyond legal services, ARROWS can connect clients with one another when business or investment interests align, creating commercial opportunities beyond traditional legal advisory.
• Innovative approach: We welcome innovative business ideas and investment opportunities. Rather than simply processing standard legal work, ARROWS engages with clients' broader business strategies.

For immediate assistance with Czech holding structures and beneficial ownership compliance, contact ARROWS at office@arws.cz. Our team is ready to provide tailored legal solutions that protect your investment and ensure full regulatory compliance.

FAQ – Most Common Legal Questions About Holding Structures and Beneficial Ownership in the Czech Republic

1. What is the minimum investment required to establish a holding company in the Czech Republic?

The minimum share capital for a limited liability company (s.r.o.) is CZK 1 per shareholder, making it accessible for holding structures of any size. For a joint-stock company (a.s.), the minimum is CZK 2 million (approximately EUR 80,000). However, the economic viability of establishing a holding structure depends on your specific tax optimization objectives, group structure, and anticipated transaction volumes. ​

2. Can my Czech holding company have foreign directors who don't live in the Czech Republic?

Yes, Czech law permits foreign nationals to serve as directors without requiring Czech residency or work permits. Directors can be located anywhere in the world. However, consider several practical factors: (a) if all directors reside outside the Czech Republic, this may create substance questions relevant to tax residency and treaty benefit claims; (b) directors must be available to sign documents that sometimes require Czech notarization; (c) permanent work by directors from foreign locations may create permanent establishment risks in their country of residence. ARROWS advises on optimal director structures that balance operational flexibility with substance requirements and PE risk management. Write to office@arws.cz for director appointment guidance.​

3. How long does it take to register beneficial owners in the Czech UBO register?

The registration process itself is relatively quick – once the application is submitted with complete supporting documentation, the registering court typically processes it within 5-15 business days. The challenge is identifying the beneficial owner and assembling supporting documentation, particularly in multi-tier international ownership structures. If the ownership chain involves entities in jurisdictions with limited public disclosure or language barriers, obtaining certified corporate documents can take several weeks. ARROWS handles beneficial owner identification and registration as a standard service, leveraging our international network to obtain documentation efficiently from multiple jurisdictions. For UBO registration assistance, contact office@arws.cz.

4. What happens if my holding company receives dividends from a subsidiary but hasn't maintained the 10% shareholding for the full 12-month period?

The participation exemption allows the 12-month holding period to be satisfied prospectively. This means if your holding company receives a dividend after holding shares for (for example) only 6 months, the dividend may still qualify for exemption if the shareholding is maintained for a total of 12 consecutive months, counting both before and after the distribution date. However, if the shares are sold before completing the 12-month period, the exemption will not apply and the dividend becomes taxable at 21%. Careful planning of acquisition and disposal timing is essential to preserve tax exemptions. ​

5. What are the main red flags that will cause Czech banks to freeze my holding company's account?

Based on ARROWS' experience assisting clients with bank relationship issues, the most common triggers for account freezing or enhanced scrutiny include:​

• Discrepancies between the UBO register data and the beneficial ownership information the bank has on file
• Transactions inconsistent with the stated business purpose (e.g., a holding company conducting trading transactions or payment processing)
• Transfers to or from high-risk jurisdictions without clear business justification or supporting documentation
• Inability to provide source-of-funds documentation when requested
• Changes in beneficial ownership structure without notification to the bank
• Missing or outdated KYC documentation (AML regulations require periodic updates every 3-5 years depending on risk category)

If your holding company account has been frozen or is facing enhanced due diligence review, ARROWS can coordinate with the bank, prepare required documentation packages, and resolve compliance issues. Get tailored legal solutions by writing to office@arws.cz.