How Maltese Businesses Can Establish a Presence in the Czech Republic: Essential Requirements for Company and Branch Formation

The Czech Republic represents a strategic gateway for Maltese businesses seeking to expand into Central Europe. However, establishing a commercial presence involves navigating complex regulatory requirements and administrative procedures that differ significantly from Malta's environment. This report examines the essential requirements for establishing a subsidiary or branch, highlighting critical differences in liability, taxation, and operational flexibility.

Understanding the regulatory framework and legal context

The Czech Republic, as a member state of the European Union, maintains a comprehensive legal framework governing the establishment of foreign entities. The primary legislative instruments include the Civil Code, the Business Corporations Act, and the Trade Licensing Act.

These laws establish the foundational rules that all companies and branches, whether domestic or foreign-controlled, must observe. The regulatory environment reflects both the Czech Republic's commitment to EU legal harmonization and its adoption of civil law traditions.

For Maltese businesses specifically, it is important to recognize that the Czech legal system operates fundamentally differently from Malta's hybrid common and civil law system. The Czech system is grounded in civil law principles, which means that legal interpretation relies heavily on statutory text rather than judicial precedent.

Corporate governance is structured around different assumptions about director duties, shareholder protections, and company liability compared to Malta.

The Czech Republic maintains robust investor protection mechanisms and has demonstrated political stability. However, the business formation process itself contains numerous procedural requirements, deadlines, and documentation standards that frequently catch foreign investors unprepared.

The complexity manifests in the interdependencies between different regulatory authorities and the strict requirements for document authentication and translation.

The critical distinction between subsidiary and branch office structures

The first and most consequential decision that any Maltese business must make when entering the Czech market is the choice between establishing an independent Czech subsidiary company or registering a branch office.

This decision determines not only the company's legal status but fundamentally shapes questions of liability, taxation, and accounting obligations.

A Czech subsidiary company, typically established as a limited liability company ( s.r.o.), is a legally independent entity that is separate and distinct from its Maltese parent company. This means that the subsidiary is a separate legal person with its own assets, liabilities, and legal obligations.

The subsidiary operates under Czech law as though it were a domestically-incorporated Czech company, independent from the parent.

In contrast, a branch office ( odštěpný závod ) is not a separate legal entity but functions as a direct extension of the Maltese parent company. The branch has no independent legal personality, and all contracts are legal obligations of the parent company itself.

Most critically, the Maltese parent company remains fully and absolutely liable for all debts, obligations, and legal violations of the Czech branch office.

The practical implications of this distinction are profound. If a branch office incurs significant debts, creditors can pursue claims directly against the Maltese parent company's assets. Conversely, if a subsidiary company becomes insolvent, the parent company's personal assets are generally protected.

Given the negligible capital requirement of CZK 1, the financial advantage of choosing a branch has virtually disappeared, favoring the subsidiary structure.

Comparative analysis of tax implications

For Maltese businesses considering expansion into the Czech Republic, taxation represents a critical decision factor. The Czech Republic applies a corporate income tax rate of 21% for tax periods beginning in 2024 and thereafter .

The tax analysis is considerably more nuanced than a simple comparison of headline rates, as the Czech Republic and Malta have concluded a double taxation treaty.

The Double Taxation Agreement signed between Malta and the Czech Republic establishes a framework for allocating taxing rights. Under the treaty, dividend income paid by a Czech resident company to a Maltese resident company is subject to a maximum Czech withholding tax of 5%.

Interest income paid by a Czech resident to a Maltese resident is subject to 0% withholding tax, and royalty income is subject to a maximum withholding tax of 5%.

However, this beneficial treaty treatment generally depends on the Czech entity being established as a proper Czech resident company rather than a branch. A branch office is not a separate tax resident entity and is treated for tax purposes as an extension of its foreign parent.

Additionally, Czech tax law contains strict provisions addressing permanent establishment. ARROWS Law Firm regularly advises Maltese businesses on structuring their Czech operations to avoid inadvertent permanent establishment creation.

The interplay between Czech taxation and Malta's worldwide income system

Maltese companies are generally subject to tax in Malta on their worldwide income. However, Malta's participation exemption regime provides 100% exemption from Maltese tax on dividends received from a foreign subsidiary if specific conditions are met.

Moreover, Malta provides foreign tax credits on taxes actually paid in the Czech Republic. For Maltese businesses with sophisticated tax planning, the combination of the Czech-Malta double taxation treaty and Malta's participation exemption can create an efficient overall tax environment.

Detailed procedural requirements for establishing a subsidiary

The process of establishing a Czech limited liability company involves multiple distinct phases. While the process typically requires between 7 and 14 business days, the complexity lies in the preparatory documentation.

Stage one: preparation of founding documents

The first step in establishing a Czech subsidiary involves preparing the founding documents. This is either a Founder's Deed if there is a single founder or a Memorandum of Association if there are multiple founders.

Critically, the founding document must be executed in the form of a notarial deed prepared by a Czech notary public.

For a Maltese founder, proper apostille of the power of attorney is essential. A certified extract from the Maltese company register must be provided with an apostille, and all documents must be translated into Czech.

Stage two: opening a bank account

Before the company can be formally registered, the founder must deposit the registered capital into a designated bank account. While the minimum capital can be CZK 1, banks require a minimum deposit to open the account.

Opening a bank account for a Czech company with a foreign founder presents practical challenges due to strict anti-money laundering (AML) procedures.

For Maltese founders, the requirement for personal presence is frequently imposed by banks. ARROWS Law Firm regularly assists foreign businesses with the bank account opening process to facilitate communication and reduce delays.

Stage three: obtaining a trade license

Before a Czech company can legally operate, it must obtain a trade license from the Trade Licensing Office. The trade license specifies the types of business activities the company is authorized to conduct.

The required documentation includes a certified copy of the founding document, proof of identity of the company's director, and a clean criminal record.

If the company's director is a Maltese citizen, a document from the Maltese authorities proving the absence of criminal convictions is required. This document must be certified, apostilled, and officially translated into Czech.

Stage four: registration in the commercial register

Once a trade license has been obtained, the company must be registered in the Commercial Register. This is the step that officially creates the company as a legal entity.

The application must be accompanied by the notarial founding deed, the trade license, and proof of the company's registered office.

The registry court must decide on the registration application within five working days. Once registered, the company acquires the full right to conduct business activities.

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Stage five: registration for tax purposes and beneficial owners

After registration in the Commercial Register, the company must register with the Financial Administration within 15 days. Additionally, the company must register its ultimate beneficial owners (UBO) in the Register of Beneficial Owners.

Under Czech law, every company must register the natural persons who directly or indirectly own or control more than 25% of the company.

Recent legislative changes have restricted public access to the UBO register to protect privacy. However, the obligation to register accurate beneficial owner information remains strict, and failure to comply carries penalties.

Understanding the complexity of beneficial owner identification

The beneficial owner requirement compels you to identify the natural persons behind the ownership structure. If the beneficial owner is a Maltese company, you must trace the ownership back to the natural persons.

microFAQ – Legal tips on beneficial owner requirements and registration

1. If a Maltese company owns 100% of my Czech subsidiary, do I still need to register beneficial owners?

Yes. You must identify and register the natural persons who control the Maltese company. If the Maltese company has multiple shareholders, those holding more than 25% of voting rights are typically the beneficial owners.

2. Our Czech subsidiary has a Maltese parent company, which is owned by a trust. How do we register the beneficial owner?

For a trust structure, you must typically identify and register the settlor, the trustee, any protector, and the beneficiaries. Czech law requires piercing through formal structures to identify the actual natural persons exercising control or receiving benefits.

3. What happens if we fail to register or register inaccurate beneficial owner information?

Failure to register beneficial owners or submission of inaccurate information can result in administrative fines of up to CZK 500,000. Furthermore, the company may be prohibited from distributing profits (dividends) and the voting rights of the unregistered beneficial owner cannot be exercised at the general meeting.

Procedural requirements for establishing a branch office

Although the branch office structure creates unlimited parent company liability, some businesses use it for specific operational reasons.

Registration of branch with authorities

A Czech branch office must complete registration processes similar to a subsidiary. First, it must obtain a trade license, and second, the branch must be registered in the Commercial Register.

The registration application must include notarized copies of the parent company's incorporation documents and corporate resolutions. For a Maltese parent company, documents must be certified, apostilled, and translated into Czech.

Head of branch requirements

A Czech branch must have a designated Head of Branch authorized to represent the branch. This person acts on behalf of the parent company in matters concerning the branch and must provide a clean criminal record.

Accounting obligations for branches

A branch must maintain accounting records in Czech and prepare financial statements according to Czech Accounting Standards. Its economic results are technically part of the parent company's global results but are taxed in the Czech Republic regarding Czech-source income.

Employment law and administrative obligations

Operating a business in the Czech Republic requires strict compliance with the Labour Code.

Employment relationship structure

If a Maltese business hires employees in the Czech Republic, they must be engaged in an employment relationship. Disguising an employment relationship as an independent contractor arrangement is illegal and can result in significant fines.

Employers must pay social security contributions (24.8% of gross wages) and health insurance contributions (9% of gross wages). The employee contributes an additional percentage which is deducted from their gross wage.

Minimum wage compliance

Employers must pay at least the statutory minimum wage. For 2025, the Czech minimum wage is set at CZK 20,800 per month .

Employers act as tax agents, withholding income tax and insurance contributions from employee wages. The standard personal income tax rate is 15%, with a higher rate applying to income exceeding specific thresholds.

microFAQ – Legal tips on employment obligations and costs

1. Can we hire a Maltese manager for our Czech branch without establishing an employment relationship under Czech law?

If the manager works in the Czech Republic for an extended period, they usually become tax residents and subject to Czech social security and health insurance regulations under EU coordination rules (Regulation 883/2004). Specific advice is needed to determine the correct social security jurisdiction (A1 form application).

2. What is the minimum cost to employ one employee in the Czech Republic?

For 2025, with a minimum wage of CZK 20,800, the employer must pay an additional 33.8% in levies (approx. CZK 7,030), making the total employer cost roughly CZK 27,830 per month.

3. Can we use a staffing agency to employ workers?

Only agencies holding a specific license from the Labour Office are legally permitted to lease employees. Using unlicensed agencies constitutes illegal employment.

VAT obligations and tax compliance

The Czech Republic applies a standard VAT rate of 21%. Reduced rates of 12% apply to specified goods and services following the 2024 consolidation package.

VAT registration thresholds

A business established in the Czech Republic must register for VAT if its turnover exceeds CZK 2,000,000 in any 12 consecutive calendar months. Voluntary registration is possible before reaching this threshold.

VAT compliance

VAT returns are generally filed monthly. The Control Statement must also be filed by VAT payers, providing detailed data on invoices to combat tax fraud.

Corporate governance and compliance obligations

Annual financial statement preparation

All Czech companies must prepare annual financial statements according to Czech Accounting Standards. These must be approved by the general meeting within six months after the end of the fiscal year.

Financial statements must be filed with the Collection of Deeds of the Commercial Register within 12 months of the balance sheet date. This filing is mandatory even for dormant companies.

Mandatory audit requirements

Whether a Czech company is subject to a statutory audit depends on its size. Under the Accounting Act, a "small" entity is required to undergo a mandatory audit if it exceeds at least two of the following three criteria in two consecutive accounting periods:

• Total assets (net) of CZK 40,000,000.
• Annual net turnover of CZK 80,000,000.
• Average number of employees: 50.

Ultimate beneficial owner registration ongoing obligations

Companies must keep their UBO registration updated. If ownership changes, the UBO register must be updated without undue delay. Despite public access restrictions, the legal obligation to maintain accurate data is fully enforceable.

microFAQ – Legal tips on ongoing compliance obligations

1. Our Czech subsidiary has no revenue. Must we still file financial statements?

Yes. Dormant companies must file annual financial statements and corporate income tax returns. Failure to do so can lead to liquidation by the court.

2. How do we ensure we are meeting all deadlines?

Maintain a compliance calendar: Financial statements approval (6 months after year-end), filing with Commercial Register (12 months), CIT return (3 months, or 6 months with a tax advisor).

3. What are the penalties for late filing?

Fines can range from thousands to hundreds of thousands of CZK. Repeated failure to file financial statements into the Collection of Deeds can result in the dissolution of the company.

Risks, sanctions, and common compliance failures

Risks and Sanctions	How ARROWS Law Firm Helps (office@arws.cz)
Permanent establishment risk : Inadvertently creating a taxable presence through employee activities or dependent agents.	Analysis and prevention : We review your operational structure...
UBO Non-compliance : Failure to register beneficial owners can block dividend payments and voting rights.	UBO Registration : We trace ownership through complex...
Bank account rejection : Strict AML checks often stall account opening for foreign-owned entities.	Bank facilitation : We prepare compliance documentation...
VAT errors : Late registration or incorrect reporting triggers penalties and interest.	VAT advisory : We advise on registration obligations...
Illegal employment : Fines up to CZK 10 million for disguised employment.	Employment structuring : We draft compliant employment...

Executive summary for management

For Maltese businesses considering a Czech presence:

• Structure Selection : The subsidiary is generally preferable to a branch due to the limitation of liability. With minimum capital at CZK 1, the cost barrier is negligible.
• UBO Compliance : You must identify natural persons behind the Maltese entity. This includes looking through trusts and holding companies.
• Banking Delays : Opening a bank account is often the longest step due to AML checks. Plan accordingly and consider professional assistance.
• Employment Costs : Factor in the 33.8% employer social security/health insurance load on top of gross wages.
• Professional Support : Navigating the Czech bureaucracy requires local legal expertise to avoid rejection and delays.

Conclusion

Establishing a business presence in the Czech Republic offers Maltese companies significant opportunities but requires adherence to strict procedural rules. The choice between subsidiary and branch affects liability and tax.

The lawyers at ARROWS Law Firm have extensive experience representing Maltese and other foreign businesses in the Czech Republic. We provide comprehensive services including company formation, bank account support, UBO registration, and tax compliance.

To learn more, please contact us at office@arws.cz.

FAQ – Frequently asked legal questions

1. How long does it take to establish a Czech subsidiary?

Once documents are ready, registration takes about 5-10 days. However, including document preparation (apostilles, translations) and bank account opening, the realistic timeline is 3-6 weeks. Contact ARROWS Law Firm for a specific timeline.

2. Can I establish the company remotely?

Yes, via power of attorney. However, opening the bank account often requires a personal visit by the director due to bank AML policies.

3. What is the minimum capital?

CZK 1. However, bank fees and formation costs apply.

4. How do I register UBOs for a trust structure?

You must register the settlor, trustee, protector, and beneficiaries. We can assist in identifying the correct individuals under Czech law.

5. Can we hire without a local entity?

Yes, as a foreign employer, but you must register for payroll taxes and social security in the Czech Republic. This may create a "Permanent Establishment" risk.

6. Common mistakes?

Underestimating bank account delays, failing to apostille documents correctly, and missing UBO registration deadlines.

Disclaimer: The information contained in this article is for general informational purposes only and serves as a basic guide to the issue. Although we strive for maximum accuracy in the content, legal regulations and their interpretation evolve over time. To verify the current wording of the regulations and their application to your specific situation, it is therefore necessary to contact ARROWS Law Firm directly (office@arws.cz). We accept no responsibility for any damage or complications arising from the independent use of the information in this article without our prior individual legal consultation and expert assessment. Each case requires a tailor-made solution, so please do not hesitate to contact us.