Reorganising Your EU Group Structure Why the Czech Republic Might Be the Right Jurisdiction

Foreign investors considering group reorganisation or relocation of a corporate seat within the European Union require clear answers on tax neutrality, procedural certainty, and liability protection. This report outlines the Czech Republic’s legal framework under the EU Mobility Directive, highlights the benefits of the Czech participation exemption, and identifies key administrative risks. It shows how ARROWS, an international law firm based in Prague, ensures a controlled and compliant transition into this stable European jurisdiction.

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.

Is the Czech Republic a truly stable environment for foreign corporate groups?

The Czech Republic has evolved into a central hub for multinational enterprises, offering a sophisticated legal landscape that mirrors the highest standards of the European Union while maintaining local competitive advantages. 

Since its accession to the EU in 2004, the country has meticulously implemented directives that facilitate the free movement of capital and the freedom of establishment, creating a predictable framework for corporate mobility. This stability is a primary concern for CEOs and CFOs who must weigh the risks of jurisdictional shifts against the benefits of centralization and resource allocation.

Choosing the right domicile is not merely a matter of headline tax rates; it is about the underlying legal culture and the transparency of the regulatory environment. The Czech Republic provides a unique balance of jurisdiction stability and a business-friendly tax system that rivals traditional holding jurisdictions like the Netherlands or Luxembourg.  The Czech legal system offers a high degree of transparency and adherence to EU-wide judicial cooperation, ensuring that commercial disputes are handled according to stable and predictable rules.

As a leading Czech law firm in Prague, EU, ARROWS handles these complex jurisdictional migrations daily, supporting over 250 limited liability companies and 150 joint-stock companies in their cross-border endeavors. Our lawyers combine deep local knowledge with an international perspective, ensuring that your group’s reorganisation is not just legally valid, but strategically sound. To discuss how the Czech Republic can serve as the cornerstone of your European operations, write to us at office@arws.cz.

What do you need to comply with when relocating a corporate seat?

The relocation of a company’s registered office, often referred to as re-domiciliation, is governed by Act No. 125/2008 Coll., on Transformations of Commercial Companies and Cooperatives, which has been recently updated to reflect the EU Mobility Directive. 

This process allows a foreign company to become a Czech entity governed by Czech law without the need for liquidation, preserving its legal personality and existing contractual relationships. However, the procedural requirements are strictly formalistic and require meticulous execution to prevent the transformation from being declared invalid by a court.

The cornerstone of a successful seat transfer is the Transformation Project, a detailed document that must specify the exchange ratio of shares, the economic consequences for employees, and the impact on creditors. 

This project must be filed in the Collection of Deeds of the Commercial Register at least one month before the general meeting can approve the transformation. A failure to meet these strict disclosure timelines or the use of unauthorized decision-makers can lead to a court declaring the entire reorganisation void, reversing months of strategic planning and causing significant financial disruption.

Navigating these steps requires the professional insight of an experienced lawyer, as individual steps that appear simple often contain hidden exceptions and procedural details. ARROWS handles this agenda daily and can significantly reduce your risk while saving valuable time. For a professional assessment of your re-domiciliation strategy, email us at office@arws.cz.

FAQ – Legal tips about seat relocation

• Does a company lose its history when moving to the Czech Republic?
  No, the process of re-domiciliation ensures the seamless continuation of the legal entity, meaning all contracts, assets, and historical records remain intact under the new Czech legal framework. ARROWS manages this transition to ensure no operational gaps—contact office@arws.cz.
• Is shareholder approval mandatory for a seat transfer?
  Yes, for an s.r.o., it typically requires 75% of the votes, while an a.s. requires a quorum owning more than 30% of the capital, with specific majorities defined in the articles. We can assist with shareholder documentation—write to office@arws.cz.

How can you avoid legal risk during a cross-border merger?

Cross-border mergers into or from the Czech Republic are powerful tools for group consolidation, yet they are fraught with risks that laypeople often overlook until a penalty arrives. A merger involves the transfer of all assets and liabilities from a dissolving foreign company to a Czech successor entity, or vice versa. This "universal succession" means the successor inherits everything, including undisclosed legal disputes, tax liabilities, and employment obligations.

A major risk in these transactions is the "abuse control" mechanism introduced by the latest EU reforms, which empowers notaries to investigate the purpose of the merger. If the notary determines that the reorganisation is designed to circumvent national laws or evade taxes, they must refuse the pre-transformation certificate, effectively halting the deal. 

Effective risk management requires a thorough due diligence process that extends beyond financial statements to include a deep dive into the regulatory compliance and historical liabilities of all participating entities.

ARROWS provides the expertise required to navigate these gatekeeping roles, drafting documentation that clearly explains the economic rationale to regulators and notaries. As an international law firm operating from Prague, European Union, we coordinate these cross-border requirements across multiple jurisdictions daily. For assistance with your merger project, contact office@arws.cz.

Why is the Czech participation exemption a game-changer for group tax efficiency?

One of the most compelling reasons to choose the Czech Republic for a holding company is the participation exemption regime, which can lead to significant tax savings on both dividends and capital gains. Under the Czech Income Tax Act, dividends received by a Czech parent company from its subsidiary are tax-exempt if the parent holds at least 10% of the subsidiary for a continuous period of at least 12 months. This same exemption applies to gains realized from the sale of shares in a subsidiary, provided the 10% holding and 12-month duration requirements are met.

For the exemption to apply, the subsidiary must be tax-resident in the EU, or in a country that has a double taxation treaty with the Czech Republic and imposes a corporate tax rate of at least 12%. This framework allows groups to move money tax-free from subsidiaries to a central "company bank" in the Czech Republic, facilitating efficient reinvestment across the group. The Czech Republic’s lack of capital duties and stamp duties further enhances its attractiveness as a low-maintenance, high-efficiency jurisdiction for managing international assets.

However, these rules are subject to strict anti-avoidance provisions and thin capitalization limits. For related-party loans, the debt-to-equity ratio is generally capped at 4:1, meaning interest on debt exceeding this ratio is non-deductible. 

Managing these ratios and ensuring compliance with the "arm's-length principle" for transfer pricing is essential to avoid heavy penalties and additionally assessed tax. ARROWS handles this agenda on a daily basis, helping clients structure their group financing to maximize deductibility while remaining fully compliant with Ministry of Finance guidelines. To optimize your group’s tax position, write to office@arws.cz.

FAQ – Legal tips about tax exemptions

• Can the 12-month holding period be met after receiving a dividend?
  Yes, the exemption can be applied if the 12-month holding requirement is subsequently fulfilled, though this requires careful documentation to avoid withholding tax disputes. Contact office@arws.cz for structuring advice.
• Does the exemption apply to non-EU subsidiaries?
  Yes, provided the subsidiary is in a country with a double taxation treaty and is subject to a tax rate of at least 12%, though additional conditions may apply. We can review your global subsidiary list—write to office@arws.cz.

What are the hidden traps in Czech corporate governance?

For foreign investors, the Czech Business Corporations Act contains several procedural traps that can paralyze a company if not managed correctly. A common issue arises when a legal entity is appointed as a member of a company's statutory body, such as an executive (jednatel).

Czech law requires that this legal entity authorize a single natural person to represent it in the performance of its duties. Failure to appoint this representative without undue delay can lead to the invalidation of corporate decisions and even the suspension of the company's ability to act in legal transactions.

Another critical difference lies in the principle of good faith (dobrá víra), which is a foundational pillar of Czech law but is often misunderstood by those from common law backgrounds. In the Czech Republic, parties are legally obligated to act honestly and fairly; a court can interpret this duty to impose obligations on a shareholder or director that were never explicitly written in a contract. This is especially dangerous when dealing with minority shareholders, who are heavily protected against the abuse of the majority.

ARROWS ensures that your articles of association and internal governance structures are robust and compliant with these local nuances. As a leading Czech law firm in Prague, EU, we are regular partners of corporate lawyers for handling special matters and complex governance reorganisations. For immediate assistance with your corporate structure, write to us at office@arws.cz.

How can you defend your group against administrative fines?

Foreign companies operating in the Czech Republic often face aggressive enforcement from authorities such as the Financial Administration, the State Labour Inspectorate, and the Office for Personal Data Protection. For example, the State Labour Inspectorate can impose fines of up to CZK 10,000,000 for "illegal employment," a term that covers even minor procedural errors in the registration of foreign staff. Furthermore, once an administrative decision is delivered, the law provides a strictly limited window of only 15 days to file an appeal.

This 15-day deadline is not a suggestion; it is a "legal shield" that, if missed, results in the forfeiture of your company’s primary defense. An un-appealed decision becomes final and enforceable, allowing the state to initiate the exekuce process, which can lead to the freezing of company bank accounts and the seizure of property. Winning an administrative dispute requires more than just a simple letter; it requires a robust legal and factual argument supported by evidence such as contracts, internal policies, and financial statements from the very beginning.

ARROWS specializes in these administrative maneuvers, providing the speed and high quality needed to preserve your company’s cash flow and reputation. We handle these agendas daily and can significantly reduce the client's risk of errors in these high-stakes proceedings. If you have received a notice from a Czech authority, do not hesitate to contact our firm immediately at office@arws.cz.

FAQ – Legal tips about administrative proceedings

• Can we settle a fine with a Czech authority out of court?
  While formal "settlements" are rare in administrative law, a well-argued appeal can often lead to a significant reduction in the fine or a total cancellation of the decision. ARROWS handles these negotiations—contact office@arws.cz.
• Is a 15-day appeal window standard for all fines?
  Yes, under the Administrative Code (Act No. 500/2004 Coll.), this is the standard deadline for filing an appeal (odvolání) against most administrative decisions. For urgent appeal drafting, email office@arws.cz.

What are the risks of corporate criminal liability in group reorganisation?

The Act on Criminal Liability of Corporations introduces a severe set of risks for group structures, as a Czech subsidiary or even a foreign parent with business operations in the Czech Republic can be held criminally liable for the actions of its representatives. The list of offenses is broad, including tax evasion, money laundering, and even gross negligence in environmental or data protection. A corporation found guilty can face monetary penalties, the forfeiture of assets, or even the "capital punishment" of the business: dissolution.

A particularly dangerous aspect of this law is the "attribution" of crimes committed abroad. If a director of a Czech corporation commits a crime outside the territory of the Czech Republic, the Czech entity can still be prosecuted. Furthermore, if a reorganisation is initiated while a criminal proceeding is pending without the prior approval of a prosecutor, the entire transformation—including mergers or demergers—can be declared null and void.

Why is the Czech Republic the ideal "Safe Harbour" for 2025 and beyond?

As we move into 2025, the Czech Republic is positioning itself as a progressive hub for digital innovation and sustainable business. New legislation aligning cryptocurrency taxation with company shares will take effect on January 1, 2025, offering a tax exemption for digital assets held for over three years. This, combined with the implementation of the TIBER-EU framework for cybersecurity and the expansion of ESG reporting obligations, makes the Czech Republic a highly structured and resilient market.

Groups that re-domicile here gain access to a unified European legal and tax framework while benefiting from a lower cost of operation and a highly skilled workforce. However, these transitions must be managed with an understanding that the legal landscape is distinct from other jurisdictions; steps that appear logical in London or New York may be procedurally void or illegal in Prague.

ARROWS acts as the bridge between your home jurisdiction and the Czech Republic, combining deep knowledge of local markets with an international capabilities network operating in 90 countries. We are known for our speed and high quality in navigating these transitions. Because our firm is insured for damages up to CZK 500,000,000, it is safer for the client to have even simple-looking matters handled professionally. To secure your group's future in the EU, contact us at office@arws.cz.

FAQ – Legal tips about the 2025 regulatory landscape

• When do the new ESG reporting rules apply to SMEs?
  While large companies are already reporting, the obligation will extend to small and medium-sized enterprises starting in 2026, requiring them to include sustainability impacts in their management reports. ARROWS can help you prepare—email office@arws.cz.
• How does the crypto tax reform benefit investors?
  From 2025, annual transactions under CZK 100,000 are exempt from reporting, and assets held over three years are exempt from capital gains tax, mirroring the treatment of traditional securities. For investment structuring, write to office@arws.cz.

What’s the next step for your group reorganisation?

Reorganising an EU group structure is a complex and time-consuming process that requires more than just standard forms; it requires a precise definition of corporate governance and a strategic understanding of tax and liability exposure. The legal issue in question is always more complex in practice than it appears at first glance, with hidden traps in the Commercial Register, the tax code, and even the local notarial practices.

ARROWS supports over 150 joint-stock companies and 250 limited liability companies daily, ensuring that their transformations are not only legal but optimized for the long term. We can significantly reduce your risk of errors and minimize the time your management team spends on bureaucratic hurdles. Whether you are a CFO seeking tax efficiency or a Legal Counsel managing a cross-border merger, our team is ready to provide tailored legal solutions.

If you do not want to risk errors, damages, or fines, you can safely leave the whole matter to ARROWS. We are also able to connect our clients with one another when business or investment interests align, welcoming innovative ideas and new investment opportunities. For immediate assistance with your project, email our office at office@arws.cz.

FAQ – Most common legal questions about reorganising EU group structures in the Czech Republic

1. What is the minimum registered capital for a Czech subsidiary?
The statutory minimum for an s.r.o. is just CZK 1, though we recommend a higher amount for credibility with banks and business partners. For a consultation on capital requirements, contact us at office@arws.cz.

2. Can we move our corporate seat to the Czech Republic without visiting Prague?
Yes, ARROWS frequently handles the entire re-domiciliation process remotely via Power of Attorney, saving you significant travel time and expense. For remote setup assistance, email office@arws.cz.

3. How does the "Good Faith" principle affect our contracts?
Unlike English law, Czech law requires all parties to act in good faith, meaning courts can impose additional obligations to ensure fairness. ARROWS can review your existing contracts for compatibility—write to office@arws.cz.

4. What happens if our Czech subsidiary is sued for a crime?
Under the Act on Criminal Liability of Corporations, the company can be fined or dissolved; however, a robust compliance program can sometimes act as a defense. For urgent criminal defense, contact office@arws.cz.

5. Is it true that goodwill can be depreciated for 15 years?
Yes, in a purchase of an enterprise, any part of the price not attributed to individual assets is treated as goodwill and can be depreciated for tax purposes over 15 years. To maximize your tax cushion, write to office@arws.cz.

6. How quickly can ARROWS complete a cross-border merger?
Depending on document readiness and tax clearances, a merger typically takes 3 to 6 months to be fully operational and registered. For a specific timeline estimate, contact us at office@arws.cz.

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.