How Latvian Businesses Can Establish a Presence in the Czech Republic: What You Need to Know

If you are a Latvian entrepreneur considering expansion into the Czech Republic, you need specific answers about company registration and legal structures. This article provides practical guidance on establishing your business presence and highlights key legal steps. You will understand what awaits you in the Czech market and why securing expert legal advice saves time and money.

Why the Czech Republic matters for Latvian businesses

The Czech Republic represents a strategic market entry point for Latvian companies seeking to expand within the European Union. Located in Central Europe with a population of over 10.8 million, the Czech economy combines industrial tradition with strong innovation potential.

As an EU member state, the Czech Republic shares the same regulatory framework as Latvia, yet operates under distinct national laws. The business environment in the Czech Republic is relatively open and investor-friendly. There are no major restrictions preventing foreign companies from establishing operations. However, the procedural complexity of company formation often contains hidden procedural requirements.

ARROWS Law Firm, a leading Czech law firm based in Prague operating within the European Union, works regularly with foreign businesses establishing operations in the country.

Understanding your legal structure options in the Czech Republic

When entering the Czech market, your first critical decision involves choosing the appropriate legal entity form for your operations. The Czech Republic recognizes several distinct legal structures, each with different capital requirements and liability protections.

The Limited Liability Company is attractive because it provides liability protection and requires minimum share capital of only CZK 1. Alternatively, you may consider a Joint-Stock Company (a.s.), though this structure is typically reserved for larger entities. This form requires a minimum registered capital of CZK 2,000,000 and a more complex governance structure involving higher administrative costs.

A branch is not a Czech legal entity itself but functions as a representative of your foreign company, incurring obligations on behalf of the parent company.

For Latvian companies making their first entry into the Czech market, the branch structure offers a pragmatic solution. For longer-term operations, the Limited Liability Company structure provides superior protection and operational flexibility.

microFAQ – Legal tips on selecting your Czech business structure

1. Can I operate in the Czech Republic without registering a company if I am an EU citizen?
No. Any systematic business activity in the Czech Republic requires either a trade license (for sole traders) or company registration. EU citizenship grants you the right to do business but does not exempt you from registration requirements.

2. What happens if I choose the wrong legal structure?
Selecting an inappropriate structure creates tax inefficiencies, unnecessary compliance burdens, and may fail to provide the liability protection you expected. Changing structures later involves additional costs, administrative procedures, and potential complications. ARROWS Law Firm helps foreign investors select the optimal structure before registration at office@arws.cz.

3. Must my company have a Czech office address?
Yes, absolutely. Czech law requires all companies to maintain a physical registered address (sídlo) in the Czech Republic, and you must obtain written consent from the property owner with an officially verified signature.

The company registration process

Registering a Czech company follows a defined multi-stage procedure that typically requires 5 to 10 working days from submission of complete documentation. The process consists of several sequential phases, and failure to properly execute any single step can result in rejection.

You must collect certified copies of passports or national identity documents for each shareholder and executive. The second step requires name verification in the Commercial Register to ensure your chosen company name is unique. The court examines whether the proposed name could be confused with other registered names or is misleading.

The fourth step requires preparation of the founding deed (zakladatelská listina) or memorandum of association, which must be executed in the form of a notarial deed before a Czech notary.

The fifth step involves capital deposit. Generally, share capital must be deposited into a special bank account. However, for share capital not exceeding CZK 20,000, the law allows the contribution to be paid to a designated custodian.

The entire process, if properly managed with expert guidance, typically takes 5 to 10 business days.

microFAQ – Legal tips on company registration procedures

1. Do I need to be physically present in the Czech Republic to register my company?
No, local presence is not required for registration. You may grant a power of attorney to a local representative or law firm to handle the procedure on your behalf. ARROWS Law Firm handles complete registration procedures remotely for foreign investors at office@arws.cz.

2. What happens if the court rejects my application?
The court will issue a written decision explaining the grounds for rejection. You must then correct the deficiencies, resubmit the application, and wait through another registration cycle.

3. Can I start business operations before my company is registered?
You should wait. While a company "in formation" can perform certain acts, the founders are personally and jointly liable for these acts until the company is registered. It is legally safer to wait for the court decision confirming your registration.

Obtaining your trade license

Many Latvian entrepreneurs assume that company registration in the Commercial Register is sufficient to legally operate their business. In practice, registering your company is only the first step. Before you can legally conduct business activities, you must also obtain a trade license.

Depending on your specific business activities, you may need a simple unqualified trade license (živnost volná) or a qualified trade license (živnost vázaná). For an unqualified trade license, the requirements are relatively straightforward. The company must appoint a responsible representative or simply register the activity. For the executive (jednatel), a clean criminal record is required.

The Trade Licensing Office will register you in the Trade Register within roughly 3 to 5 working days if you submit a complete application. Trade licensing requirements vary by business sector. Some activities require proof of professional qualifications, insurance, or special permits before the Trade Licensing Office will issue your license.

ARROWS Law Firm regularly assists foreign businesses in obtaining trade licenses and navigating sector-specific regulatory requirements.

Understanding Czech tax obligations and corporate income tax

As a Latvian business establishing Czech operations, you must understand that Czech tax law applies to your company's Czech-source income. A company resident in the Czech Republic is required to pay Corporate Income Tax (CIT) on income derived from worldwide sources.

This means your Czech subsidiary is taxed on its worldwide income at the standard CIT rate of 21%. The Corporate Income Tax calculation in the Czech Republic follows standard principles. You calculate your taxable income, apply the 21% rate, and pay the resulting amount to the Czech tax authorities.

If your Czech company receives dividends from non-Czech subsidiaries, these dividends may be exempt from Czech CIT if certain conditions are met.

If your Czech company pays dividends to its parent company, the Czech Republic typically applies a 15% withholding tax. However, under the EU Parent-Subsidiary Directive, dividends paid to a qualifying EU parent company are generally exempt from withholding tax. The Czech tax authorities aggressively challenge transfer pricing arrangements.

microFAQ – Legal tips on Czech corporate taxation

1. My Czech subsidiary is profitable but I need to retain earnings for reinvestment. Must I pay tax on profits I do not distribute?
Yes. Unlike Latvia, the Czech Republic taxes the profit generated in the accounting period, regardless of whether it is distributed as dividends or retained.

2. Does the Czech Republic have a double taxation treaty with Latvia?
Yes, the Czech Republic and Latvia have a bilateral income and capital tax treaty that helps prevent double taxation. ARROWS Law Firm advises foreign investors on treaty and directive analysis at office@arws.cz.

3. What happens if I do not register for tax purposes?
By law, your Czech company must register with the Czech Tax Authority within 15 days of entry in the Commercial Register. Failure to register triggers administrative fines and creates legal complications.

Value added tax registration requirements

Beyond corporate income tax, you must also navigate Czech Value Added Tax (VAT). For Latvian businesses, the system is harmonized with EU rules but has specific local thresholds.

If you are a resident business in the Czech Republic, you must register for VAT once your calendar-year turnover exceeds CZK 2,000,000. However, for non-resident businesses, different rules apply. If you are a non-established entity making taxable supplies in the Czech Republic where the recipient is not liable for tax, you may be required to register for VAT immediately.

If you acquire goods from other EU member states, you may become an "Identified Person" for VAT purposes even if you are not a full VAT payer. For e-commerce businesses supplying goods cross-border to Czech consumers, the EU-wide One-Stop Shop (OSS) scheme often applies. This simplifies registration if distance sales exceed EUR 10,000 across the EU.

Non-compliance with VAT deadlines triggers automatic fines: missing the Control Statement deadline results in penalties ranging from CZK 1,000 to CZK 50,000. ARROWS Law Firm assists foreign companies with VAT registration, advises on compliance obligations specific to your business model, and represents you before Czech tax authorities.

Employment law and hiring foreign workers

If your Czech operations will involve hiring employees, you must understand Czech employment law. The first critical requirement involves notification to the Labour Office. You must inform the Labour Office about the employment of an EU citizen strictly on the day of commencement of work at the latest.

Failure to strictly adhere to notification duties can be classified as facilitating illegal work. Under the "illegal work" provisions, employers face fines up to CZK 10 million if they allow work without proper employment relationships.

Before a non-EU worker can begin employment, they typically need an Employee Card (Zaměstnanecká karta) or a Blue Card.

Recent legislative reforms have introduced changes to "Agreements on Work Performance" (DPP). Stricter reporting and insurance obligations for these agreements apply, aimed at preventing misuse of this flexible contract type. ARROWS Law Firm advises Latvian businesses on Czech employment obligations, assists with Labour Office notifications, and reviews employment contracts.

microFAQ – Legal tips on hiring in the Czech Republic

1. If I hire an EU citizen for my Czech company, do I still need work permits?
No work permits are required for EU/EEA citizens—they have freedom of movement. However, your obligation to notify the Labour Office still applies.

2. How long does employment authorization take for a non-EU worker?
The process typically requires 2 to 4 months. The employer must report the vacancy, and the worker must apply for an Employee Card.

3. What if I hire someone without obtaining proper employment authorization?
This constitutes "illegal work." The employer faces substantial fines (up to CZK 10 million), potential exclusion from public subsidies, and the worker faces deportation.

Health insurance and social security

When you employ workers in the Czech Republic, you must register them with the Czech social security (CSSA) and health insurance systems. This is a mandatory administrative procedure.

Employers must deduct health insurance and social security contributions and remit them to the authorities monthly. Recent legislative changes effective from 2024 have impacted the taxation and insurance of employee benefits. specifically, the limit for exemption of non-monetary benefits has been capped.

For companies operating across multiple countries, understanding which country's social security system applies to employees on assignment is essential.

Ultimate beneficial owner registration

Latvian business owners often overlook one critical compliance obligation: the requirement to register Ultimate Beneficial Owners (UBO) in the Czech Register of Beneficial Owners.

Under Czech Act No. 37/2021 Coll., you must identify the natural persons who ultimately own or control the legal entity. Failure to comply carries severe sanctions, including unenforceability of rights and prohibition of profit distribution. The company cannot pay dividends to shareholders if the UBO is not registered.

ARROWS Law Firm regularly handles UBO registration for foreign companies, tracing ownership chains and gathering necessary international documentation.

Data protection and GDPR compliance

Your Czech operations are subject to the EU General Data Protection Regulation (GDPR) and the Czech Act No. 110/2019 Coll. If your company processes personal data of Czech residents, you must comply with GDPR requirements.

Violations can result in administrative fines up to EUR 20 million or 4% of worldwide turnover.

Environmental and regulatory compliance

Depending on your industry, you may face environmental obligations. Industrial facilities, waste management operations, and chemical operations are subject to various permits. For construction projects, Environmental Impact Assessments (EIA) may be required.

Risks and sanctions overview

To help you understand the stakes involved in establishing Czech operations, we present common risks you may face if compliance requirements are not properly managed:

Risks and sanctions	How ARROWS helps (office@arws.cz)
Incomplete company registration: Rejection of your application at the Commercial Register due to errors, delaying your market entry by weeks.	Complete registration management: ARROWS Law Firm prepares all required documents, coordinates with notaries and courts, and handles the entire process remotely for foreign investors.
Failure to obtain required trade license: Operating without a valid trade license exposes you to fines up to CZK 500,000 (depending on severity) and potential nullification of business contracts.	Licensing acquisition: ARROWS Law Firm identifies which licenses your business requires and represents you before the Trade Licensing Office.
VAT non-compliance: VAT penalties of up to CZK 50,000 for late filing of Control Statements, plus interest on unpaid tax.	VAT registration and compliance: ARROWS Law Firm advises on registration obligations and manages compliance deadlines.
Illegal work / Failure to notify: Fines up to CZK 10 million for illegal work; fines up to CZK 100,000 for failing to notify the Labour Office about EU employees on time.	Labour authority notifications: ARROWS Law Firm handles Labour Office notifications and manages employment permit applications for non-EU workers.
Failure to register UBO: Inability to distribute profits, voting rights restrictions, and fines up to CZK 500,000.	UBO registration: ARROWS Law Firm traces your ownership structure and manages the UBO registration process.

Executive summary for management

1. Market Entry Timeline: Establishing a Czech company typically requires 2–4 weeks if managed professionally. Attempting to accelerate the process without professional guidance creates rejection risks that extend timelines.

2. Tax and Regulatory Interdependencies: Czech tax law, VAT requirements, employment law, and UBO rules operate as interconnected systems. Errors in one area can block critical operations like dividend payments.

3. Critical Compliance Deadlines: Notification of employees to the Labour Office must happen strictly on or before the day of commencement. VAT Control Statements allow no grace period.

4. Cost of Professional Oversight vs. Risk: Professional assistance prevents fines and operational disruptions. ARROWS Law Firm's expertise significantly reduces error risk.

5. International Structure: For Latvian parent companies, transfer pricing documentation, withholding tax exemptions, and cross-border employee rules require coordination.

Conclusion of the article

Establishing a Czech presence as a Latvian business requires navigating company registration procedures, trade licensing, tax compliance, and employment law. While the Czech Republic is an open market, the procedural requirements are detailed.

ARROWS Law Firm is a leading Czech law firm based in Prague, European Union, with extensive experience assisting foreign businesses. Rather than managing registration yourself, allow the experts at ARROWS Law Firm to handle the foundational work. Reach out to ARROWS Law Firm today at office@arws.cz.

Frequently asked legal questions

1. What is the minimum capital required to establish a Czech Limited Liability Company?
The minimum share capital is CZK 1 (approx. EUR 0.04). However, many foreign investors establish companies with higher capital (e.g., CZK 200,000) for business credibility. If the contribution exceeds CZK 20,000, it is typically deposited in a bank account.

2. Can my Latvian company operate in the Czech Republic without establishing a Czech subsidiary?
Yes, you can establish a branch office. However, a branch offers no legal separation from your parent company—all liabilities incurred by the branch affect your Latvian parent directly. Most investors prefer a subsidiary for liability protection.

3. How much does professional legal assistance for Czech company registration cost?
Professional assistance for complete registration services typically ranges from EUR 1,500 to EUR 3,000, depending on complexity. This investment protects you from rejection risks and ensures compliance. Contact office@arws.cz for a specific quote.

4. What happens if I hire a Czech employee without proper Labour Office notification?
You face fines for administrative offenses (up to CZK 100,000 for notification failures) or illegal work (up to CZK 10 million) depending on the nature of the violation. Notification must be submitted no later than the day of commencement.

5. Do I need a Data Protection Officer (DPO) for my Czech company?
You need a DPO if you are a public authority, if your core activities involve regular and systematic monitoring of data subjects on a large scale, or if you process sensitive data on a large scale.

6. How long does it take to obtain an employment permit for a non-EU worker?
The process typically takes 60–90 days. It involves a labor market test and Ministry of Interior approval. ARROWS Law Firm manages this process to minimize delays.

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.