How Finnish Businesses Should Enter the Czech Market: Essential Information for a Smooth Expansion

Finland and the Czech Republic share more than EU membership—they share a commitment to transparency, quality, and long-term business relationships. If your Finnish company is considering expansion into Central Europe, the Czech Republic offers strategic geographic positioning, a skilled workforce, competitive costs, and full access to the EU single market. This article, prepared by ARROWS, a leading Czech law firm in Prague, EU, provides essential legal insights on company formation, taxation, employment law, and compliance obligations. Understanding the legal framework before you invest will save time, prevent costly mistakes, and position your business for success.

Need advice on this topic? Contact the ARROWS law firm by email office@arws.cz or phone +420 245 007 740. Your question will be answered by "Mgr. Vojtěch Sucharda", an expert on the subject.

Why Finnish Companies Choose the Czech Republic

The Czech Republic has established itself as one of the most attractive investment destinations in Central Europe. In 2024 alone, CzechInvest facilitated 28 investment projects worth more than EUR 2.4 billion, creating over 3,400 new jobs. For Finnish businesses, the advantages are compelling: the Czech Republic offers access to 450 million EU consumers, well-developed infrastructure, and a highly educated workforce at competitive wage levels.

Major Finnish companies like Kone, Tieto, and YIT have already established successful operations in the Czech Republic. The Nordic Chamber of Commerce in the Czech Republic, founded in 1995, represents Danish, Finnish, Icelandic, Norwegian, and Swedish businesses and serves as a valuable networking platform for newcomers.

However, what appears straightforward from a distance often contains complex legal requirements that differ significantly from Finnish regulations. Even simple administrative steps carry hidden exceptions, procedural details, and links to multiple regulations that foreign businesses frequently overlook. This is precisely why ARROWS handles Czech market entry matters daily—our expertise can significantly reduce your time investment and minimize the risk of errors.

What Legal Structure Should You Choose?

The společnost s ručením omezeným (s.r.o.) is the most common corporate form in the Czech Republic and the direct equivalent of the Finnish osakeyhtiö (Oy). It is a separate legal entity, distinct from its Finnish parent company or shareholders.

The core benefit of the s.r.o. is limited liability—the company's debts and obligations remain its own, protecting your Finnish parent company's assets. This structure provides the highest level of financial security for foreign investors. Czech law permits 100% foreign ownership of an s.r.o., either by a foreign individual or a foreign company.

The minimum share capital requirement for an s.r.o. is remarkably low—just CZK 1 (approximately EUR 0.04). There is no residency requirement for directors or shareholders. This flexibility makes the s.r.o. ideal for Finnish companies seeking a committed, permanent local presence.

The Branch Office: A Lighter Alternative

A branch office (odštěpný závod) is not a separate legal entity but functions as a representative of your Finnish parent company. While it requires no share capital, your Finnish parent company bears full and unlimited liability for all debts and obligations of the branch.

Branch offices are often perceived as foreign outposts, which may signal less long-term commitment to Czech partners and customers. For most Finnish businesses planning substantial operations, the s.r.o. remains the superior choice.

FAQ – Legal Tips About Choosing a Business Structure

1. Which structure better protects my Finnish company's assets?

The s.r.o. is unequivocally the superior choice for limiting financial risk. Its status as a separate legal entity with limited liability protects your parent company in Finland. Need help structuring your investment? Contact us at office@arws.cz.

2. Can a Finnish company own 100% of a Czech s.r.o.?

Absolutely. Czech law permits 100% foreign ownership of an s.r.o. by a foreign company such as your Finnish Oy. Get tailored legal solutions by writing to office@arws.cz. 

What Steps Are Required to Register Your Company?

The company formation process in the Czech Republic involves several interconnected steps that must be completed in proper sequence. While these steps may appear straightforward, each contains procedural requirements that differ from Finnish practice.

Step 1: Execute a Notarial Deed

The company's constitutional document—a Deed of Incorporation (Zakladatelská listina) for a single founder or a Memorandum of Association (Společenská smlouva) for multiple founders—must be executed before a Czech notary. This document establishes the company's name, registered office, business activities, share capital, and management structure.

Step 2: Establish a Registered Office

Every Czech company must have a physical address in the Czech Republic. You must provide written consent from the property owner, and their signature must be officially verified. Using a professional virtual office service is a common, cost-effective, and fully legal solution for foreign companies.

Step 3: Deposit Share Capital

The initial share capital must be deposited into a special, temporary bank account opened for this purpose. The bank will issue a confirmation of deposit, which is required for registration.

Step 4: Obtain a Trade License

A trade license (Živnostenský list) must be secured from the Trade Licensing Office before the company is entered into the Commercial Register. The application costs CZK 1,000 (approximately EUR 40). For most business activities, a general "free trade" license is sufficient and can be obtained quickly.

Step 5: Register with the Commercial Register

Following the granting of a trade license, the company must be registered with the Commercial Register by the regional court or a notary. Registration costs CZK 6,000 for limited liability companies and CZK 12,000 for joint-stock companies. Registration gives legal status and an identification number to the company.

Step 6: Tax and Insurance Registration

Within 15 days of entry in the Commercial Register, companies must register with the tax office for corporate taxation. Companies must also inform the district social security agency and choose a health insurance firm within eight days of registration.

Each of these steps involves specific documentation requirements, translation obligations, and deadlines that can trap unwary foreign businesses. Foreign documents, such as powers of attorney or criminal record certificates, may need to be translated by a court translator and apostilled or notarized.

Risks and Penalties	How ARROWS Helps (office@arws.cz)
Rejected registration due to documentation errors	Complete preparation and review of all founding documents
Delays from improperly apostilled foreign documents	Guidance on Czech apostille and notarization requirements
Incorrect trade license scope limiting business activities	Strategic advice on selecting appropriate trade license categories
Missed tax registration deadlines (penalties apply)	Comprehensive compliance calendar management
Invalid registered office consent causing registration rejection	Assistance with virtual office arrangements and owner consent documentation

What Are the Czech Tax Obligations?

The corporate income tax (CIT) rate in the Czech Republic is 21% for tax periods starting in 2024 and 2025. This rate applies to all business profits, including capital gains from the sale of shares (unless exempt under the participation exemption regime).

Czech resident companies are required to pay CIT on income derived from worldwide sources. For Finnish companies establishing a Czech subsidiary, the Czech s.r.o. will be taxed only on income sourced in the Czech Republic if structured properly.

A special CIT rate of 15% is levied on dividend income of Czech tax resident entities received from non-resident entities (unless subject to participation exemption). Investment funds meeting specific requirements benefit from a reduced 5% rate, while pension funds enjoy a 0% rate.

Double Taxation Treaty

The Czech Republic has signed approximately 80 double taxation treaties to prevent double taxation of income for multinational companies. While the bilateral investment treaty between Finland and the Czech Republic was terminated in June 2022, both countries remain subject to EU law provisions on capital movement and the elimination of double taxation within the single market.

The ordinary tax credit method is applied in most double taxation treaties signed by the Czech Republic, comparing taxable income in both contracting states to ensure fair treatment.

VAT Registration

There is no VAT registration threshold for non-resident businesses in the Czech Republic—any taxable activity triggers VAT registration from the first transaction. This differs significantly from the Finnish VAT threshold and catches many foreign businesses by surprise.

The Czech VAT registration process typically takes one to two months. Current Czech VAT rates are 21% (standard), 12% (reduced), and 0% (exempt). VAT must be reported in Czech koruna (CZK) using the Czech National Bank exchange rate.

For EU businesses, a fiscal representative is not mandatory—you can register and manage VAT compliance directly through the Czech tax authority. However, the complexity of Czech VAT rules, including mandatory monthly Control Statements (Kontrolní hlášení), makes professional assistance highly advisable.

Risks and Penalties	How ARROWS Helps (office@arws.cz)
Automatic VAT payer status from first taxable supply (without registration)	Proactive VAT registration before commencing Czech operations
Fines for late or incorrect VAT Control Statement submissions	Monthly VAT compliance monitoring and filing support
Penalties for improper currency conversion in VAT reporting	Accounting guidance on CNB exchange rate application
Unexpected withholding tax on dividend distributions	Tax structuring advice leveraging EU parent-subsidiary directive
Incorrect application of reverse charge mechanism	Legal opinions on complex cross-border transactions

What Employment Rules Apply to Finnish Employers?

Citizens of EU member states, including Finland, have the right to work in the Czech Republic without a work permit. They have the same legal standing regarding employment as Czech citizens. This makes staffing your Czech operations with Finnish personnel straightforward from an immigration perspective.

However, as of October 1, 2025, stricter regulations apply when starting employment. Foreign workers—even EU citizens—may only begin work once their employer has completed all required paperwork with the Labor Office. Failure to comply, even unintentionally, can result in the employee being considered illegally employed.

Companies must ensure that all reporting and documentation are completed before a foreign worker's first day. Non-compliance can result in fines up to CZK 3 million, bans on hiring foreigners, and restrictions on posting vacancies through the Labor Office.

Notification Obligations for Employers

One of the administrative tasks connected with employing foreigners is the employer's notification obligation towards the Czech Labour Office. Even Czech employers are often not aware of this obligation. The notification of employment commencement must be made no later than on the day of commencement; for other events, the deadline is ten days.

For the failure to comply with the notification obligation or for late notification, employers face a fine of up to CZK 100,000. If a Finnish company posts workers to the Czech Republic, the notification obligation lies with the Finnish employer—the posting company.

Czech Labour Law Essentials

Czech labour law is governed primarily by Act No. 262/2006 Coll. (the Labour Code). Employment contracts must be in writing and specify the type of work, place of work, and commencement date. Foreign employees must enjoy the same working and wage conditions as Czech citizens in comparable positions.

The time of temporary assignment to perform work for the same client shall not exceed 12 consecutive calendar months, with some exceptions. This limitation affects companies using employment agencies or intra-company transfers.

FAQ – Legal Tips About Czech Employment Law

1. Do I need a work permit to send Finnish managers to our Czech subsidiary?

No. Finnish citizens, as EU nationals, have free access to the Czech labor market. However, your Czech company must still notify the Labour Office of their employment. For immediate assistance, write to us at office@arws.cz.

2. What happens if we start an employee before completing paperwork?

As of October 2025, starting work before completing required documentation constitutes "undeclared work" and can result in fines up to CZK 3 million and bans on hiring foreigners. Our lawyers can help you establish compliant hiring procedures—contact office@arws.cz. 

3. Must employment contracts be in Czech?

Employment contracts may be in any language agreed by both parties, but for legal certainty and potential labour inspections, a Czech version is advisable. Need contract drafting assistance? Contact us at office@arws.cz. 

What Compliance Obligations Must You Meet?

The Czech Republic, as an EU member state, applies the General Data Protection Regulation (GDPR) directly. The Czech Personal Data Protection Office (Úřad pro ochranu osobních údajů) serves as the national supervisory authority.

For Finnish companies already GDPR-compliant, the transition is relatively smooth. However, the Czech Personal Data Processing Act No. 110/2019 contains specific national provisions that supplement the GDPR. If rules regulating commercial communications are breached, fines up to CZK 10 million may be imposed.

Companies processing personal data of Czech residents must be prepared to demonstrate compliance, including maintaining comprehensive records of data processing activities. The highest GDPR fines—up to EUR 20 million or 4% of total worldwide turnover—apply to fundamental breaches.

Anti-Money Laundering (AML) Compliance

The Czech Republic imposes stringent Anti-Money Laundering regulations derived from EU legislation. The primary national legislation is Act No. 253/2008 Coll. (the AML Act). The Financial Analytics Office (FAU) serves as the primary AML/CTF supervisory authority.

Administrative penalties for AML violations can reach up to CZK 130 million. Recent enforcement actions demonstrate the Czech National Bank's focus on the adequacy of internal control environments—in 2023, Expobank CZ received a CZK 20 million fine for lacking an effective managing and control system.

There are almost 40 categories of reporting entities under the Czech AML Act, including banks, financial institutions, real estate professionals, notaries, and attorneys. Obligations include conducting customer due diligence (CDD), assessing money laundering risks, disclosing suspicious transactions, developing internal AML principles, and delivering annual AML training.

Risks and Penalties	How ARROWS Helps (office@arws.cz)
GDPR fines up to EUR 20 million or 4% of global turnover	Privacy policy drafting and GDPR compliance audits
AML penalties up to CZK 130 million for systemic failures	Development of internal AML principles and control systems
Fines up to CZK 10 million for unlawful commercial communications	Legal review of marketing practices and consent mechanisms
CNB enforcement for inadequate compliance infrastructure	Comprehensive regulatory compliance consulting
Data breach notification failures (72-hour deadline)	Data breach response planning and incident management

Can Your Finnish Company Acquire Czech Real Estate?

EU citizens and companies face no restrictions on acquiring commercial or residential real estate in the Czech Republic. The transition period restrictions that once applied to foreign purchasers ended in May 2009 for most property types.

However, restrictions do apply to agricultural and forest land based on the principle of reciprocity. As of July 2024, agricultural land cannot be acquired by foreign individuals or legal entities from countries that apply similar restrictions to Czech citizens. Fortunately, Finnish citizens and companies are exempt from these restrictions as EU members.

The practical approach for foreign investors remains establishing a Czech s.r.o. to hold real estate. This practice provides additional liability protection and can offer tax planning opportunities.

What Investment Incentives Are Available?

The Czech Republic offers investment incentives for manufacturing, technology centres, and strategic service centres. In January 2024, an amendment to the Investment Incentives Act streamlined the application process.

Eighty percent of investors in 2024 expressed interest in investment incentives. Available incentives include:

• Corporate income tax relief (up to 10 years)
• Job creation grants
• Training and retraining grants
• Property tax exemptions
• Cash grants for capital investments in selected regions

Investment incentive applications are open to both Czech firms and foreign businesses, which must establish a new company in the Czech Republic to receive benefits. CzechInvest, the national investment promotion agency, provides guidance and facilitates the application process.

Through ARROWS, operating from Prague in the European Union, we can connect you with CzechInvest representatives and assist with the incentive application documentation. Our lawyers are ready to assist you—email us at office@arws.cz. 

You can learn more about this service HERE.

Why Choose ARROWS for Your Czech Market Entry?

ARROWS is an international law firm operating from Prague, European Union, with extensive experience assisting foreign businesses entering the Czech market. Our lawyers combine deep knowledge of both local Czech regulations and the expectations of Nordic business culture.

We support over 150 joint-stock companies, 250 limited liability companies, and 51 municipalities and regions across the Czech Republic. Through the ARROWS International network, we operate in 90 countries globally, ensuring your Czech investment connects seamlessly with your international operations.

ARROWS is insured for damages up to CZK 500 million, providing your Finnish company with exceptional protection should any professional liability issue arise. We are regular partners of corporate lawyers for handling special matters requiring Czech expertise.

We welcome innovative business ideas and investment opportunities. When appropriate, we connect clients with one another when business or investment interests align—creating value beyond traditional legal services.

FAQ – Most Common Legal Questions About Czech Market Entry for Finnish Businesses

1. How long does it take to establish a Czech s.r.o.?

With proper documentation, a Czech s.r.o. can be established within 2-4 weeks. Delays typically occur when foreign documents require apostille or translation. ARROWS can expedite this process through careful advance preparation. Contact us at office@arws.cz.

2. Must I travel to the Czech Republic to establish a company?

No. With a properly executed power of attorney, ARROWS lawyers can handle the entire formation process on your behalf, including notarial deeds and Commercial Register filings. Get started by writing to office@arws.cz. 

3. What is the corporate tax rate in the Czech Republic?

The corporate income tax rate is 21% for 2024 and 2025. This applies to all business profits. Special rates apply to investment funds (5%) and pension funds (0%). For tax planning advice, contact us at office@arws.cz. 

4. Do Finnish employees need work permits for the Czech Republic?

No. Finnish citizens, as EU nationals, have free access to the Czech labor market. However, employers must complete notification procedures before employees start work. Need guidance? Email office@arws.cz.

5. Is VAT registration mandatory for my Finnish company selling to Czech customers?

Yes, if you make taxable supplies in the Czech Republic. There is no threshold for non-resident businesses—registration is required from the first transaction. Our team handles VAT registration daily—contact office@arws.cz. 

6. What happens if I make mistakes during company formation?

Errors can result in rejected registrations, delays, penalties, and unexpected tax liabilities. The Czech legal system operates differently from Finland, and assumptions based on Finnish practice often prove incorrect. This is why engaging ARROWS from the outset protects your investment. Contact us at office@arws.cz. 

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