Doing Business for Spanish Companies in the Czech Republic:

Expanding your Spanish business into the Czech Republic opens the door to strategic growth in the heart of Europe. This guide answers key legal questions on company formation, taxation, and employment. With deep experience assisting foreign clients, ARROWS’ English-speaking lawyers in Prague ensure your market entry is smooth, compliant, and secure.

Do you 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.

The Czech Republic: Your Strategic Gateway to Central Europe

For Spanish enterprises looking to expand, the Czech Republic is more than just a new market; it is a strategic hub with unparalleled access to both established Western European economies, like Germany, and the dynamic markets of Central and Eastern Europe. This geographical advantage is supported by a stable and highly developed economy, firmly integrated within the legal and commercial framework of the European Union.

The country’s economic strength is built on a long tradition of manufacturing and engineering, making it an ideal environment for Spanish companies in these sectors to find skilled partners and integrate into robust supply chains. Furthermore, with a well-educated, multilingual workforce and a business-friendly environment, the Czech Republic is an excellent choice for companies seeking to expand in Europe.

Spanish companies have found success here, supported by organizations like the Hispano-Czech Chamber of Commerce, which fosters networking and provides crucial local insights. This established community and the country's legal security create a reliable foundation for your investment.

Choosing Your Corporate Structure: A Guide for Spanish Decision-Makers

The first critical decision for any Spanish company entering the Czech market is choosing the right legal structure. Understanding the differences from a Spanish perspective is essential for protecting your assets and ensuring a successful launch.

The Czech s.r.o. – The Smart Choice for Liability Protection

The společnost s ručením omezeným (s.r.o.) is the most common and highly recommended legal form for foreign investors in the Czech Republic. It is the direct equivalent of the Spanish Sociedad Limitada (S.L.), creating a separate legal entity with its own rights and obligations. This structure provides a crucial liability shield, meaning the debts and legal responsibilities of the Czech s.r.o. are separate from its Spanish parent company, protecting your assets back home.

In-Depth Comparison: Czech s.r.o. vs. Spanish S.L.

While the s.r.o. and S.L. share the core principle of limited liability, several key differences have significant strategic implications for Spanish businesses. The most dramatic distinction is the minimum share capital requirement. A Czech s.r.o. can be legally established with a capital of just CZK 1 (approximately €0.04), whereas a Spanish S.L. requires a €3,000 deposit. This dramatically lowers the financial barrier to entry.

Another key advantage is the speed of establishment. With a Czech notary performing a direct registration into the Commercial Register, a company can be formally established in just a few business days, provided all documents are in order. This is often much faster than the weeks it can take to establish an S.L. in Spain. Both entities are managed by statutory representatives—the jednatel in the Czech Republic and the administrador in Spain—who hold similar operational roles.

Risks and Common Mistakes in Corporate Setup

The legal ease of setting up a Czech s.r.o. can create a "simplicity trap." The low capital requirement and fast registration process can mislead Spanish companies into under-planning the practical and operational aspects of their new entity. For instance, while legally permissible, founding an s.r.o. with only CZK 1 can make it difficult to open a bank account or secure a lease, as local partners may view the company as lacking credibility.

Other common mistakes include improper appointment of directors by failing to provide the required clean criminal record, or setting up overly complicated signing mechanisms that require multiple directors from different countries to sign off on routine matters, paralyzing day-to-day operations.

Corporate Setup Pitfalls for Foreign Companies

Risks and Penalties	How ARROWS Helps
Registration Delays due to Incorrect Documents: Submitting Spanish documents without the required apostille and certified Czech translation leads to rejection by the Commercial Register, delaying market entry.	Document Review & Preparation: We ensure all foreign documents are correctly apostilled and translated, and that all Czech forms are flawless, guaranteeing a smooth registration. For immediate assistance, write to us at office@arws.cz.
Operational Paralysis from Undercapitalization: Founding an s.r.o. with the minimum CZK 1 capital can lead to banks refusing to open accounts and partners viewing the company as not credible.	Strategic Legal Consultation: We advise on an appropriate level of initial capitalization that aligns with your business plan and builds credibility in the local market. Get tailored legal solutions by writing to office@arws.cz.
Invalid Director Appointment: Failing to provide a clean criminal record or meeting other statutory requirements for a jednatel will block the company's registration.	Drafting Legally Required Documentation: We guide you through the requirements for directors and prepare all necessary affidavits and declarations to ensure compliance. Need legal help? Contact us at office@arws.cz.
Unclear UBO Structure: Hiding the Ultimate Beneficial Owner behind complex offshore entities will halt bank account opening and registration processes due to strict anti-money laundering (AML) rules	Legal Opinions: We provide legal opinions on your corporate structure to ensure full transparency and compliance with Czech AML and Know Your Customer (KYC) regulations. Our lawyers are ready to assist you – email us at office@arws.cz.

FAQ – Legal tips about corporate structures

• Can a Spanish citizen be a director of a Czech s.r.o. without living in the Czech Republic?
  Yes. Foreign nationals, including Spanish citizens, can be directors without a Czech residency permit, provided they do not reside in the Czech Republic. For a consultation on your specific management structure, email us at office@arws.cz.
• Is it cheaper to open a branch office instead of an s.r.o.?
  While initial administrative fees might be slightly lower, a branch office (organizační složka) does not create a separate legal entity. This means your Spanish parent company remains fully liable for all debts and obligations of the Czech operation, making it a far riskier and potentially more expensive option in the long run. Need legal help? Contact us at office@arws.cz.
• How quickly can we establish our company?
  If all documents, especially those from Spain with an apostille, are correctly prepared, the process can be very fast. Using a notary for direct registration, the company can be officially established in just a few business days. To ensure an efficient process, get in touch with our legal team at office@arws.cz.

The Step-by-Step Guide to Establishing Your Czech s.r.o.

To ensure a smooth and rapid market entry, follow this structured process. The critical path to success is not the Czech legal process itself, but the meticulous preparation of documents in Spain. The main bottleneck for Spanish companies is often obtaining the correct documents, getting them apostilled, and arranging for certified translations. We recommend starting this process immediately.

1. Pre-Registration Decisions

Before any documents are drafted, you must decide on the company name, registered office, and business scope.

• Company Name: The name must be unique. We strongly recommend verifying its availability on the public Commercial Register (www.justice.cz) to prevent rejection. The name must include the suffix "s.r.o.".
• Registered Office (Sídlo): Every Czech company needs a physical address. You must provide written, notarized consent from the property owner. Using a professional virtual office service is a common, cost-effective, and fully legal solution.
• Scope of Business: Most commercial activities fall under a "free trade" license, which is straightforward to obtain. Regulated professions, however, require specific permits.

2. Document Preparation (The Apostille Requirement)

This is the most critical phase for Spanish founders. All public documents issued in Spain must be certified with an apostille under the Hague Convention. After receiving the apostille, the documents must be translated into Czech by an official translator registered with a Czech court.

• For Individual Founders/Directors: A valid passport and an extract from the Spanish National Criminal Register.
• For a Spanish Corporate Founder: An up-to-date extract from the Spanish Commercial Register (Registro Mercantil) that clearly shows who is authorized to represent the company.

3. Execution and Registration

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 in the form of a notarial deed before a Czech notary. A key advantage of the Czech system is that the notary can perform a direct registration of the company into the Commercial Register (Obchodní rejstřík), significantly accelerating the process.

4. Post-Registration Steps

Once the company is in the Commercial Register, two final steps are required:

• Obtain a Trade License (Živnostenský list): This license must be secured from the Trade Licensing Office. For most activities, a general "free trade" license is sufficient and obtained quickly.
• Register with the Tax Office: The new company must register for corporate income tax within 30 days of its establishment.

Navigating the Czech Tax Landscape: Key Differences from Spain

For a Spanish CFO, the Czech tax system appears straightforward at first glance, but compliance details are critical. While the headline corporate tax rate is attractive, the administrative burden and financial risk associated with Value Added Tax (VAT) are much higher and require immediate, expert attention.

The standard Corporate Income Tax (CIT) rate in the Czech Republic is a flat 21% (for 2024/2025), which is lower than Spain's general rate of 25%. This applies to all business profits, including capital gains, unless they are exempt under specific participation exemption rules.

The Czech VAT system, known as DPH (Daň z přidané hodnoty), has a standard rate of 21% and a reduced rate of 12% as of 2025. VAT registration is mandatory for any business with an annual turnover exceeding CZK 2 million (approx. €80,000). Non-resident companies may have to register from their first transaction. Failure to register on time can lead to significant penalties.

Crucially for Spanish investors, a double taxation treaty exists between the Czech Republic and Spain. This bilateral agreement is designed to prevent the same income from being taxed in both countries and provides a framework for efficient tax planning, particularly for repatriating profits.

Tax & VAT Compliance Failures and Penalties

Risks and Penalties	How ARROWS Helps
Late VAT Registration: Failing to register for VAT (DPH) once turnover exceeds CZK 2 million, or for certain cross-border sales, results in penalties up to CZK 500,000 and back-taxes.	Legal Consultations to Prevent Penalties: We assess your business model to determine your exact VAT registration obligations and deadlines, preventing costly fines. Get tailored legal solutions by writing to office@arws.cz.
Incorrect VAT Filings: Errors in monthly or quarterly VAT returns can trigger penalties of 20% of the additional tax liability and interest charges on the late payment.	Drafting Documentation to Prevent Fines: We work with your accountants to ensure your invoicing and reporting systems are compliant with Czech VAT law from day one. Do not hesitate to contact our firm – office@arws.cz.
Failure to Leverage Double Taxation Treaty: Without proper structuring, profits repatriated to Spain could be taxed inefficiently, reducing overall profitability.	Legal Opinions: Our tax experts provide legal opinions on the optimal corporate and transactional structure to take full advantage of the Czech-Spanish double taxation treaty. Our lawyers are ready to assist you – email us at office@arws.cz.

Czech Employment Law: A Critical Primer for Spanish Employers

For a Spanish company, the biggest operational and financial risk in the Czech Republic often lies in human resources. The initial ease of corporate setup can create a false sense of security, masking the significant underlying risks in Czech employment law, which is considerably more rigid and employee-protective than in many other EU jurisdictions.

All employment relationships must be based on a written contract specifying the type of work, place of work, and start date. Using a translated Spanish contract is a common but dangerous mistake, as it will not contain the mandatory provisions required by the Czech Labour Code and can be deemed invalid, exposing the employer to fines of up to CZK 10,000,000.

Termination of employment is highly regulated. An employer can only dismiss an employee for a limited set of reasons explicitly stated in the Labour Code. Performance-based dismissals require a high burden of proof, including documented warnings and evidence collection. An improperly executed termination can be challenged in court, leading to reinstatement and payment of back wages.

A major pitfall for foreign companies is the illegal misclassification of employees as self-employed contractors to avoid payroll taxes. This practice, known as the "Švarc System," is strictly prohibited and carries severe penalties, with fines reaching up to CZK 10,000,000 (approx. €400,000).

Finally, recent amendments to the Employment Act have tightened regulations for all foreign workers, including EU citizens. Employers must now complete all required paperwork and officially register the employee with the Labour Office before the employee can legally begin their first day of work. Failure to comply is considered "undeclared work" and can result in fines of up to CZK 3 million.

Critical Employment Law Violations and Fines

Risks and Penalties	How ARROWS Helps
Illegal Employee Misclassification ("Švarc System"): Classifying an employee as a self-employed contractor to avoid payroll contributions. Fines can reach CZK 10,000,000 (€400,000).	Contract Drafting: We draft compliant employment and service contracts that clearly distinguish between legitimate B2B relationships and dependent work, protecting you from misclassification risk. Need legal help? Contact us at office@arws.cz.
Wrongful Termination Lawsuit: Dismissing an employee for a reason not explicitly listed in the Czech Labour Code. This can lead to the termination being declared invalid, forcing reinstatement and payment of back wages.	Representation in Court: Our litigators defend employers against wrongful termination claims and provide strategic advice on legally sound termination procedures. For immediate assistance, write to us at office@arws.cz.
Invalid Employment Contract: Failing to have a written contract or omitting mandatory elements. Fines can reach up to CZK 10,000,000.	Preparation of Internal Company Policies: We create a full suite of HR documentation, including template employment contracts that are fully compliant with Czech law. Get tailored legal solutions by writing to office@arws.cz.
"Undeclared Work" Violation: Allowing a foreign employee (including EU citizens) to start work even one day before their registration is finalized with the Labour Office. Fines up to CZK 3,000,000.	Professional Training for Management: We offer training for your HR and management teams on the latest Czech employment regulations to ensure your hiring process is 100% compliant. Our lawyers are ready to assist you – email us at office@arws.cz.

FAQ – Legal tips about Czech HR and Payroll

• What are the total mandatory employer costs on top of an employee's gross salary?
  In addition to the gross salary, employers must contribute 24.8% for social security and 9.0% for health insurance, for a total mandatory contribution of 33.8%. To properly budget your payroll, contact our experts at office@arws.cz.
• Can we use our standard Spanish employment contract and just translate it?
  No, this is highly risky. Czech law imposes strict requirements on the content and structure of employment contracts. A translated Spanish contract will likely be non-compliant, rendering it unenforceable and exposing your company to significant penalties. To get a compliant contract drafted, email us at office@arws.cz.
• How difficult is it to dismiss an underperforming employee?
  It is significantly more difficult than in many other jurisdictions. Dismissal for poor performance requires a high burden of proof, including documented written warnings that give the employee a reasonable time to improve. Failing to follow the strict procedure will likely result in a wrongful termination lawsuit. For guidance on this process, contact us at office@arws.cz.

Director Responsibilities: Understanding "Managerial Care" (Péče řádného hospodáře)

For a Spanish executive appointed as a director (jednatel) of a Czech s.r.o., the personal liability framework represents a fundamental and often underestimated shift in risk. Decisions that might be considered standard business practice in Spain could lead to personal financial liability in the Czech Republic.

Czech law holds directors to a high standard of péče řádného hospodáře, or "proper managerial care." This legal term requires directors to act with the necessary loyalty, knowledge, and care in all their decisions. This is not a subjective standard based on the director's individual abilities; it is an objective one, measured against the actions a "reasonably thorough person" would have taken in the same position.

Critically, Czech law operates with a reverse burden of proof. If the company suffers harm as a result of a director's decision, it is the director who must prove they acted with proper managerial care. This is a significant departure from legal systems where the plaintiff must prove negligence.

Furthermore, under Act No. 418/2011 Coll., the company itself can be held criminally liable for a wide range of offenses committed by its management or employees in its interest or within its operations. Sanctions can be severe, ranging from heavy monetary penalties to, in extreme cases, the forced liquidation of the company. This means a director's failure could expose not only their personal assets but the entire company to criminal prosecution.

Protecting Your Investment: Dispute Resolution and Cross-Border Support

Should commercial disputes arise, the Czech legal system offers clear mechanisms for resolution. These include litigation in the Czech courts as well as alternative dispute resolution (ADR) methods like mediation or arbitration. The Prague Arbitration Court is a well-established institution for resolving domestic and international commercial disputes efficiently.

However, for a Spanish company, legal issues are rarely confined to the Czech Republic alone. A dispute in Prague often has direct implications for the parent company in Madrid, requiring a coordinated legal strategy across both jurisdictions. Managing two separate, uncoordinated law firms is inefficient, costly, and risky.

This is where ARROWS provides a distinct advantage. As an international law firm operating from Prague, European Union, we offer integrated cross-border support. Our ARROWS International network, built over 10 years and active in 90 countries, allows us to provide seamless legal solutions. For our Spanish clients, this means having a single, expert point of contact in Prague who understands both legal systems and can effectively manage all aspects of your cross-border operations.

Your Next Step to a Successful Czech Market Entry

Entering the Czech market offers immense strategic potential, but it also presents unique legal challenges in corporate governance, tax compliance, and especially employment law. Navigating these risks requires more than just generic advice; it demands a legal partner with deep local expertise and a genuine understanding of the needs of international businesses.

ARROWS, a leading Czech law firm in Prague, EU, is that partner. We support over 150 joint-stock companies and 250 limited liability companies, many of them foreign-owned, and have a proven track record of ensuring their operations are secure and compliant. Our services are designed to manage your risks at every stage, including:

• Preparation of all documentation for company formation.
• Drafting compliant internal policies and employment contracts.
• Contract review to protect your commercial interests.
• Representation in court and before public authorities.
• Professional training for your management and HR teams.

Ensure your expansion into the Czech Republic is built on a secure legal foundation. The team at ARROWS is ready to assist. For a confidential consultation on your business setup, write to us today at office@arws.cz.

FAQ – Most common legal questions about doing business in the Czech Republic

• What is the single biggest legal mistake Spanish companies make when entering the Czech market?
  The most common and costly mistake is assuming their home-country employment practices are compliant. This often leads to the misclassification of employees as freelancers (the "Švarc System") and using invalid termination reasons, which can result in fines of up to €400,000 and successful wrongful termination lawsuits. To avoid these risks, get expert legal advice by writing to office@arws.cz.

• Our Spanish parent company will be the sole founder. What specific documents do we need to provide?
  You will need an up-to-date extract from the Spanish Commercial Register (Registro Mercantil) showing who is authorized to represent the company. This document must be certified with an apostille in Spain and then officially translated into Czech by a court-appointed translator. For help with this process, contact us at office@arws.cz.

• How are dividends paid from our Czech s.r.o. to our Spanish parent company taxed?
  Dividends are generally subject to a special withholding tax rate in the Czech Republic. However, the Czech-Spanish double taxation treaty and the EU Parent-Subsidiary Directive can significantly reduce or eliminate this tax, provided the corporate structure meets certain conditions. To ensure your structure is optimized for tax efficiency, email our experts at office@arws.cz.

• We plan to appoint our Spanish CEO as the director (jednatel) of the Czech s.r.o. What are his personal risks?
  The personal risks are significant and greater than under Spanish law. Czech law imposes a high standard of "managerial care" and, critically, reverses the burden of proof. If the company suffers a loss, the director must prove they acted properly. For a full briefing on director liability, contact our firm at office@arws.cz.

• Do we need a physical office in Prague to register our company?
  A physical registered address (sídlo) is mandatory. However, you are not required to lease a full office. Using a professional virtual office service is a common, fully legal, and cost-effective solution for foreign companies to meet this requirement. For assistance in securing a registered office, get in touch at office@arws.cz.
• Besides legal fees, what are the main ongoing administrative burdens we should budget for?
  Key ongoing burdens include monthly or quarterly VAT filings, monthly payroll processing and reporting to social security and health insurance authorities, filing an annual corporate income tax return, and the mandatory publication of annual financial statements in the Commercial Register. For help managing these compliance tasks, do not hesitate to contact our firm – office@arws.cz.